Oblicon Cases 3rd Set

G.R. No.L-16449 August 31, 1962 PAUL SCHENKER, plaintiff-appellant, vs. WILLIAM F. GEMPERLE, defendant-appellee. Campos, Mendoza & Hernandez, Jose C. Zulueta and A. R. Narvasa for plaintiff-appellant. Angel S. Gamboa for defendant-appellee. PAREDES, J.: The amended complaint, in a nutshell, avers that sometime in the summer of 1953, at Zurich, Switzerland, plaintiff Paul Schenker and defendant William F. Gemperle agreed to organize a Philippine Corporation, later named as "The Philippine Swiss Trading Co., Inc.", and to divide the capital stock equally between themselves and/or their associates. This verbal agreement was acknowledged and confirmed in writing by defendant in his letter of September 14, 1953 (Annex A, amended complaint). Defendant caused articles of incorporation to be drafted and sent to plaintiff at Zurich. In a moment of indiscretion and mistaken trust, according to him, the plaintiff signed and remitted to the defendant at Manila, the said articles which placed in the name of plaintiff only 24% of the total subscription and the balance of 76% being in the name of defendant and his relatives. Explaining the discrepancy between the articles and their verbal covenant, the defendant stated in said letter Annex A, that "Temporarily, I had to place in my name 75% of the shares because there is a local law which provides that when one intends to make contracts with the government, 75% of the subscribed capital has to be Filipino as otherwise the Flag Law will be applied." In the same letter, how ever defendant assured the plaintiff that he would give the latter "exactly the same share holding as I have". The plaintiff paid to the defendant the sum of P7,000. for his subscription. In view of the consistent refusal of the defendant to live up to their agreement, notwithstanding repeated demands, the plaintiff filed the present complaint, praying that defendant be condemned: (a) upon the first cause of action, to transfer or cause to be transferred or assigned to the plaintiff 26% of the entire capital stock issued and subscribed, as of the date he obeys said judgment, of Philippine Swiss Trading Co., Inc., or enough thereof to make the plaintiff's interest and participation in said corporation total 50% of said entire capital stock issued an subscribed, which ever may be more; (b) upon the second cause of action, to return to the plaintiff or properly account to him for the unexpended balance, in the sum of P2,000.00, Philippine Currency, of the remittance alleged in paragraph 18(a) of the complaint; (c) Upon the third cause of action, to pay the plaintiff the sum of P25,000.00, Philippine Currency, by way of recompense for business lost, profits unrealized and goodwill impaired or destroyed; and (d) upon all three causes of actions, to pay the plaintiff the additional sum of P100,000.00, Philippine Currency, .... The plaintiff also prays for costs, and for such other an further relief as to the Court may appear just and equitable. An Answer was filed, with the customary admissions an denials and with affirmative defenses and counterclaims. On November 21, 1958, the defendant filed a pleading styled "manifestation and motion to dismiss" (Section 10 Rule 9) — alleging that — "With reference to the first cause of action, the amended complaint states no cause of action". In support of the motion to dismiss, defendant claimed that There is no allegation in the amended complaint that the alleged obligation of the defendant to have the plaintiff's share holding in the capital stock subscribed in Articles of Incorporation in the proportion of 50% thereof is already due.1äwphï1.ñët Such being the situation, the demands allegedly made upon the defendant for his compliance with the obligation sued upon have been futile, because legally the alleged obligation is not yet due. It not having fixed a period for its compliance, there has been no default thereof. xxx xxx xxx In his opposition to the motion to dismiss, filed on November 3, 1958, plaintiff contended that the oral agreement was the actual as well as the expressed basis of plaintiff's cause of action; the letter Annex A, was not the agreement but only an evidence of it and if the references of Annex A were deleted from the amended complaint, the latter would not, for that reason alone, cease to state a cause of action; the obligation being pure, it is demandable immediately (Art. 1179, Civil Code); the filing of the complaint itself constituted a judicial demand for performance, thereby making the defendant's obligation to become due; even if Annex A is considered as the basis of the action, it is still a pure obligation, because it says "will give you, however, exactly the same share holding as I have" — which imparts an unconditional promise; and supposing that from the allegations of the complaint, it may reasonably be inferred that it was intended to give the defendant time to fulfill his obligation, the present action can be considered one for the fixing of such time (Art. 1197, Civil Code). On September 30, 1959; the trial court granted the motion to dismiss in so far as the first cause of action is concerned, predicating its ruling upon the following considerations: that the agreement did not fix the time within which the defendant sought to perform its alleged promise and, therefore, the obligation was not due and the action for its compliance was premature (Barreto v. City of Manila, 7 Phil. 416-420); that the obligation is not pure, because its compliance is dependent upon a future or uncertain event; that the alleged oral agreement had been novated, after the execution of the articles of incorporation, and that the action being for specific performance and there being a need to fix the period for compliance of the agreement and the present complaint does not allege facts or lacks the characteristics for an action to fix the period, a separate action to that effect should have been filed, because the action to that effect be brought in order to have a term fixed is different from the action to enforce the obligation; thus conveying the notion that the fixing of the period is incompatible with an action for specific performance. Plaintiff appealed questions of law. Article 1197 of the Civil Code, provides — If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period may under the circumstances have been probably contemplate by the parties. Once fixed by the courts, the period cannot be changed by them. The ultimate facts to be alleged in a complaint to properly and adequately plead the right of action granted the above quoted provision of law are (1) Facts showing that a contract was entered into, imposing on one the parties an obligation or obligations in favor of the other; (2) Facts showing that the performance of the obligation was left to the will of the obligor or clean showing or from which an inference may reasonably drawn, that a period was intended by the parties. The first cause of action, under consideration, sets out fact describing an obligation with an indefinite period, there by bringing the case within the pale of the article above quoted, albeit it fails to specifically and categorically demand that the court fix the duration of the period. Under the circumstances, the court could render judgment granting the remedy indicated in said article 1197, notwithstanding standing the fact that the complaint does not positive and by explicit expression ask for such relief. What determines the nature and character of an action is not the prayer but the essential basic allegations of fact set forth in the pertinent pleading. A judgment may grant the relief to which a party in whose favor it is entered is entitled, even if the party has not demanded such relief in his pleadings (Sec. 9, Rule 35; Baguioro v. Barrios, 77 Phil. 120). The amended complaint in question moreover, "prays for . . . such other and further relief as the Court may appear just and equitable" which is broad and comprehensive enough, to justify the extension of a remedy different from or together with, the right to be declared owner or to recover the ownership or the possession of Twenty-six (26%) percent of the capital stock of the Philippine Swiss Trading Co., Inc. presently in the name of the defendant. The case of Barrette v. City of Manila, supra, cited by the trial court, is of little help to the defendantappellee. It strengthens rather the plaintiff-appellant's position. In the Barreto case as in the present, the essential allegations of the pleadings made out an obligation subject to an indefinite period. In the Barretto case, like the one at bar, the complaint did not risk for the fixing of the period, but for immediate and more positive relief, yet this Court remanded the said case to the court of origin "for determination of the time within which the contiguous property must be acquired by the city in order to comply with the condition of the donation" — all of which go to show that the fixing of the period in the case at bar, may and/or could be properly undertaken by the trial court. Even discarding the above considerations, still there is no gainsaying the fact that the obligation in question, is pure, because "its performance does not depend upon a future or uncertain event or upon a past event unknown to the parties" and as such, "is demandable at once" (Art. 1179, New York Code). It was so understood and treated by the defendant-appellee himself. The immediate payment by the plaintiff-appellant of his subscriptions, after the organization of the corporation, can only mean that the obligation should be immediately fulfilled. giving the defendant only such time as might reasonably be necessary for its actual fulfillment. The contract was to organize the corporation and to divide equally, after its organization, its capital stock. IN VIEW HEREOF, the order appealed from is reversed and the case remanded to the court of origin, for further and appropriate proceedings. No costs. Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala and Makalintal, JJ.,concur. MILA A. REYES , G.R. No. 188064 Petitioner, Present: CARPIO, J., Chairperson, NACHURA, - versus - PERALTA, ABAD, and MENDOZA, JJ. Promulgated: VICTORIA T. TUPARAN, June 1, 2011 Respondent. X ----------------------------------------------------------------------------------------------------X DECISION MENDOZA, J.: Subject of this petition for review is the February 13, 2009 Decision[1] of the Court of Appeals (CA) which affirmed with modification the February 22, 2006 Decision[2] of the Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-92, an action for Rescission of Contract with Damages. On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages against Victoria T. Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274 square meter residential and commercial lot located in Karuhatan, Valenzuela City, and covered by TCT No. V4130; that on that property, she put up a three-storey commercial building known as RBJ Building and a residential apartment building; that since 1990, she had been operating a drugstore and cosmetics store on the ground floor of RBJ Building where she also had been residing while the other areas of the buildings including the sidewalks were being leased and occupied by tenants and street vendors. In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop business for a monthly rental of ₱4,000.00. A close friendship developed between the two which led to the respondent investing thousands of pesos in petitioners financing/lending business fromFebruary 7, 1990 to May 27, 1990, with interest at the rate of 6% a month. On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of ₱2,000,000.00 payable in installments. On November 15, 1990, petitioners outstanding account on the mortgage reached ₱2,278,078.13. Petitioner then decided to sell her real properties for at least ₱6,500,000.00 so she could liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to conditionally buy petitioners real properties for ₱4,200,000.00 payable on installment basis without interest and to assume the bank loan. To induce the petitioner to accept her offer, respondent offered the following conditions/concessions: 1. That the conditional sale will be cancelled if the plaintiff (petitioner) can find a buyer of said properties for the amount of ₱6,500,000.00 within the next three (3) months provided all amounts received by the plaintiff from the defendant (respondent) including payments actually made by defendant to Farmers Savings and Loan Bank would be refunded to the defendant with additional interest of six (6%) monthly; 2. That the plaintiff would continue using the space occupied by her and drugstore and cosmetics store without any rentals for the duration of the installment payments; 3. That there will be a lease for fifteen (15) years in favor of the plaintiff over the space for drugstore and cosmetics store at a monthly rental of only ₱8,000.00 after full payment of the stipulated installment payments are made by the defendant; 4. That the defendant will undertake the renewal and payment of the fire insurance policies on the two (2) subject buildings following the expiration of the then existing fire insurance policy of the plaintiff up to the time that plaintiff is fully paid of the total purchase price of ₱4,200,000.00.[3] After petitioners verbal acceptance of all the conditions/concessions, both parties worked together to obtain FSL Banks approval for respondent to assume her (petitioners) outstanding bank account. The assumption would be part of respondents purchase price for petitioners mortgaged real properties. FSL Bank approved their proposal on the condition that petitioner would sign or remain as co-maker for the mortgage obligation assumed by respondent. On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Due to their close personal friendship and business relationship, both parties chose not to reduce into writing the other terms of their agreement mentioned in paragraph 11 of the complaint. Besides, FSL Bank did not want to incorporate in the Deed of Conditional Sale of Real Properties with Assumption of Mortgage any other side agreement between petitioner and respondent. Under the Deed of Conditional Sale of Real Properties with Assumption of Mortgage, respondent was bound to pay the petitioner a lump sum of ₱1.2 million pesos without interest as part of the purchase price in three (3) fixed installments as follows: a) ₱200,000.00 due January 31, 1991 b) ₱200,000.00 due June 30, 1991 c) ₱800,000.00 due December 31, 1991 Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of paying the amounts due in lump sum on their respective maturity dates, respondent paid petitioner in small amounts from time to time. To compensate for her delayed payments, respondent agreed to pay petitioner an interest of 6% a month. As of August 31, 1992, respondent had only paid ₱395,000.00, leaving a balance of ₱805,000.00 as principal on the unpaid installments and ₱466,893.25 as unpaid accumulated interest. Petitioner further averred that despite her success in finding a prospective buyer for the subject real properties within the 3-month period agreed upon, respondent reneged on her promise to allow the 000. Nonetheless. Bulacan. respondent became interested in owning the subject real properties and even wanted to convert the entire property into a modern commercial complex.278. that the tripartite agreement erroneously designated by the petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period.078. Maria. rescission could not be resorted to. Since December 1990. she consented because respondent repeatedly professed friendship and assured her that all their verbal side agreement would be honored as shown by the fact that since December 1990. the agreed purchase price of the subject real properties. 1992. On September 2.000.000. Instead. she (respondent) had not collected any rentals from the petitioner for the space occupied by her drugstore and cosmetics store. Respondent neglected to renew the fire insurance policy on the subject buildings. among others. On March 19.00 only payable on September 7.000. the capital gains and documentary stamps and other miscellaneous expenses and real estate taxes up to 1990 were supposed to be paid by petitioner but she failed to do so. As the parties could no longer be restored to their original positions.00 a month since April 1992. respondent had taken possession of the subject real properties and had been continuously collecting and receiving monthly rental income from the tenants of the buildings and vendors of the sidewalk fronting the RBJ building without sharing it with petitioner. 1992. Petitioners claim for the balance of the purchase price of the subject real properties was baseless and unwarranted because the full amount of the purchase price had already been paid. she was able to obtain a deed of cancellation of mortgage and secure a release of mortgage on the subject real properties including petitioners ancestral residential property in Sta.200.13 plus interest and other finance charges. 1992. as full payment of the purchase price of the subject real properties and demanded the simultaneous execution of the corresponding deed of absolute sale.cancellation of their deed of conditional sale. Because of her payment. It could not be considered a conditional sale because the acquisition of contractual rights and the performance of the obligation therein did not depend upon a future and uncertain event. Respondents Answer Respondent countered. as she did pay more than ₱4.00. . the residential building was gutted by fire which caused the petitioner to lose rental income in the amount of ₱8. respondent offered the amount of ₱751.800.00. Moreover. and she had even introduced improvements thereon worth more than ₱4. Respondent further averred that she successfully rescued the properties from a definite foreclosure by paying the assumed mortgage in the amount of ₱2. Petitioner also failed and refused to pay the monthly rental of ₱20.000. .000.00 with interest and took several pieces of jewelry worth ₱120.00 showed her sincerity and willingness to settle her obligation. judgment rendered as follows: is hereby 1. representing the unpaid purchase price of the subject property.000.000. It was of the opinion that although the petitioner was entitled to a rescission of the contract. It stated that the checks and receipts presented by respondent refer to her payments of the mortgage obligation with FSL Bank and not the payment of the balance of ₱1. Failure of the defendant to pay said amount within the said period shall cause the automatic rescission of the contract (Deed of Conditional Sale of Real Property with Assumption of Mortgage) and the plaintiff and the defendant shall be restored to their former positions relative to the subject property with each returning to the other whatever benefits each derived from the transaction. petitioner was able to obtain from her a loan in the amount of ₱400. with interest thereon at 2% a month from January 1. Hence. The RTC also considered the Deed of Conditional Sale of Real Property with Assumption of Mortgage executed by and among the two parties and FSL Bank a contract to sell.00. Thus.000. the dispositive portion of the RTC Decision reads: WHEREFORE.000. thus.00 as of October 1992. the RTC stated that there was no factual or legal basis to award damages and attorneys fees because there was no proof that either party acted fraudulently or in bad faith. and not a contract of sale. accumulating arrearages in the amount of ₱470. Ruling of the RTC On February 22. it could not be permitted because her nonpayment in full of the purchase price may not be considered as substantial and fundamental breach of the contract as to defeat the object of the parties in entering into the contract. 1992 to settle what she thought was her unpaid balance of ₱751.00.200.00.Respondent added that as a result of their business relationship. it would be more equitable to give respondent a chance to pay the balance plus interest within a given period of time. Finally.000.[4] The RTC believed that the respondents offer stated in her counsels letter datedSeptember 2. the RTC handed down its decision finding that respondent failed to pay in full the ₱4. 1992 until fully paid. Allowing the defendant to pay the plaintiff within thirty (30) days from the finality hereof the amount of ₱805. 1990 up to the present for the use and occupancy of the ground floor of the building on the subject real property.00.2 million total purchase price of the subject real properties leaving a balance of ₱805.000. 2006.00 since November 16. but merely an event that prevented the seller (petitioner) from conveying title to the purchaser (respondent). to execute the necessary deed of sale. the amount of ₱805. It reasoned that out of the total purchase price of the subject property in the amount of ₱4.000. SO ORDERED. within 30 days from finality of this Decision. No pronouncement as to damages. 3.00.00.[5] Ruling of the CA On February 13. Since respondent had already paid a substantial amount of the purchase price.2. respondents remaining unpaid balance was only ₱805. upon her full payment of the purchase price together with interest.000. and 4. Thus. plus interest thereon at the rate of 6% per annum from 11 September 1992 up to finality of this . attorneys fees and costs. the decretal portion of the CA Decision reads: WHEREFORE. Reyes. Tuparan is hereby ORDERED to pay plaintiffappellee/appellant Mila A. documentary stamps and other miscellaneous expenses necessary for securing the BIR Clearance.000. the CA rendered its decision affirming with modification the RTC Decision.000.00 representing the unpaid balance of the purchase price of the subject property. premises considered.200.000. Directing the plaintiff. all necessary to transfer ownership of the subject property to the defendant. and to pay the real estate taxes due on the subject property up to 1990.00.00 was not a breach of contract. as well as to pay the Capital Gains Tax. The CA agreed with the RTC that the contract entered into by the parties is a contract to sell but ruled that the remedy of rescission could not apply because the respondents failure to pay the petitioner the balance of the purchase price in the total amount of ₱805. it was but right and just to allow her to pay the unpaid balance of the purchase price plus interest. Branch 172 in Civil Case No. Directing the defendant to allow the plaintiff to continue using the space occupied by her for drugstore and cosmetic store without any rental pending payment of the aforesaid balance of the purchase price. the Decision dated 22 February 2006 and Order dated 22 December 2006 of the Regional Trial Court of Valenzuela City. upon full payment to her by the defendant of the purchase price together with interest. 3945-V-92 are AFFIRMED with MODIFICATION in that defendant-appellant Victoria T. 2009. Ordering the defendant. to execute a contract of lease for fifteen (15) years in favor of the plaintiff over the space for the drugstore and cosmetic store at a fixed monthly rental of ₱8. The ruling of the trial court on the automatic rescission of the Deed of Conditional Sale with Assumption of Mortgage is hereby DELETED.00 WHICH IS EQUAL TO 20% OF THE TOTAL PURCHASE PRICE OF ₱4. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DISREGARDING AS GROUND FOR THE RESCISSION OF THE SUBJECT CONTRACT THE OTHER FRAUDULENT AND MALICIOUS ACTS COMMITTED BY THE RESPONDENT AGAINST THE PETITIONER WHICH BY THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE .00 OR 66% OF THE STIPULATED LAST INSTALLMENT OF ₱1. petitioner filed the subject petition for review praying for the reversal and setting aside of the CA Decision anchored on the following ASSIGNMENT OF ERRORS A.200. thereafter. the dispositive portion of the trial courts decision is AFFIRMED in all other respects.200.00 IS NOT A BREACH OF CONTRACT DESPITE ITS OWN FINDINGS THAT PETITIONER STILL RETAINS OWNERSHIP AND TITLE OVER THE SUBJECT REAL PROPERTIES DUE TO RESPONDENTS REFUSAL TO PAY THE BALANCE OF THE TOTAL PURCHASE PRICE OF ₱805.000. at the rate of 12% per annum until full payment. Subject to the foregoing.00 IS ONLY A SLIGHT OR CASUAL BREACH OF CONTRACT. IN EFFECT.000.Decision and.000. SO ORDERED. THE COURT OF APPEALS AFFIRMED AND ADOPTED THE TRIAL COURTS CONCLUSION THAT THE RESPONDENTS NON-PAYMENT OF THE ₱805.000.[6] After the denial of petitioners motion for reconsideration and respondents motion for partial reconsideration.00 PLUS THE INTEREST THEREON. B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DISALLOWING THE OUTRIGHT RESCISSION OF THE SUBJECT DEED OF CONDITIONAL SALE OF REAL PROPERTIES WITH ASSUMPTION OF MORTGAGE ON THE GROUND THAT RESPONDENT TUPARANS FAILURE TO PAY PETITIONER REYES THE BALANCE OF THE PURCHASE PRICE OF ₱805.000. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO THE RESCISSION OF THE SUBJECT CONTRACT.00 BACK RENTALS THAT WERE COLLECTED BY RESPONDENT TUPARAN FROM THE OLD TENANTS OF THE PETITIONER. ACCOUNTING AND DEPOSIT OF RENTAL INCOME DATED MARCH 17. THE COURT OF APPEALS STILL SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN REDUCING THE INTEREST ON THE ₱805.000. EVEN WITH THE UNPAID BALANCE OF ₱805. 1991.00 TO ONLY 6% PER ANNUM STARTING FROM THE DATE OF FILING OF THE COMPLAINT ON SEPTEMBER 11. 2008 AND THE SUPPLEMENT THERETO DATED AUGUST 4. E.PERIOD OF THIRTY (30) DAYS TO THE RESPONDENT WITHIN WHICH TO PAY TO THE PETITIONER THE ₱805. F.000. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING THE PETITIONERS EARLIER URGENT MOTION FOR ISSUANCE OF A PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION DATED JULY 7. 2008 THEREBY CONDONING THE UNJUSTIFIABLE FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO RESOLVE WITHIN ELEVEN (11) YEARS THE PETITIONERS THREE (3) SEPARATE MOTIONS FOR PRELIMINARY INJUNCTION/ TEMPORARY RESTRAINING ORDER. D.00 PLUS INTEREST THEREON.00 AT THE RATE OF 6% MONTHLY STARTING THE DATE OF DELINQUENCY ON DECEMBER 31.000.00 AND DESPITE THE FACT THAT RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF THE PETITIONER AS CONTAINED IN HER AMENDED COMPLAINT DATED APRIL 22. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE APPRECIATION AND/OR MISAPPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR ACTUAL DAMAGES WHICH CORRESPOND TO THE MILLIONS OF PESOS OF RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WHICH RESPONDENT TUPARAN COLLECTED CONTINUOUSLY SINCE DECEMBER 1990. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE APPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR THE ₱29.609. .000. 2006. C. 1992 DESPITE THE PERSONAL COMMITMENT OF THE RESPONDENT AND AGREEMENT BETWEEN THE PARTIES THAT RESPONDENT WILL PAY INTEREST ON THE ₱805. 00 balance of the total purchase price of the petitioners properties within the stipulated period ending December 31. AUGUST 19. The subject deed of conditional sale is a reciprocal obligation whose outstanding characteristic is reciprocity arising from identity of cause by virtue of which one obligation is correlative of the other.200. 1991.000.1995. 2007 THEREBY EXPOSING THE SUBJECT REAL PROPERTIES TO IMMINENT AUCTION SALE BY THE CITY TREASURER OFVALENZUELA CITY. the crucial issue that needs to be resolved is whether or not the CA was correct in ruling that there was no legal basis for the rescission of the Deed of Conditional Sale with Assumption of Mortgage. 1996 AND JANUARY 7.00 balance and unjustly enriched herself at the expense of the petitioner by collecting all rental payments for her personal benefit and enjoyment. There was no slight or casual breach on the part of the respondent because she (respondent) deliberately failed to comply with her contractual obligations with the petitioner by violating the terms or manner of payment of the ₱1. 3. 2. 2006 THEREBY PERMITTING THE RESPONDENT TO UNJUSTLY ENRICH HERSELF BY CONTINUOUSLY COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF THE COLLECTED RENTALS/FRUITS AND THE PETITIONERS URGENT MOTION TO DIRECT DEFENDANT VICTORIA TUPARAN TO PAY THE ACCUMULATED UNPAID REAL ESTATE TAXES AND SEF TAXES ON THE SUBJECT REAL PROPERTIES DATEDJANUARY 13. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING THE PETITIONERS CLAIM FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES AGAINST THE RESPONDENT. In sum.000. Position of the Petitioner The petitioner basically argues that the CA should have granted the rescission of the subject Deed of Conditional Sale of Real Properties with Assumption of Mortgage for the following reasons: 1. The petitioner was rescinding not enforcing the subject Deed of Conditional Sale pursuant to Article 1191 of the Civil Code because of the respondents failure/refusal to pay the ₱805. G. . respondent states that the subject deed of conditional sale explicitly provides that the installment payments shall not bear any interest.00. Respondent echoes the RTC position that her inability to pay the full balance on the purchase price may not be considered as a substantial and fundamental breach of the subject contract and it would be more equitable if she would be allowed to pay the balance including interest within a certain period of time. Moreover. 8. Her claim for moral and exemplary damages and attorneys fees has been likewise substantiated.00 has been fully substantiated and. the petitioner claims that the respondent is liable to pay interest at the rate of 6% per month on her unpaid installment of ₱805. December 31.Furthermore. Finally. rejected by the petitioner. petitioner failed to prove that she was entitled to back rentals. She claims that as early as 1992. she has shown her sincerity by offering to pay a certain amount which was. 1991. because she obligated herself to do so. therefore.00 from the date of the delinquency. . the Second Party shall not sell. should have been granted by the CA. The petition lacks merit. Pending payment of the balance of the purchase price and liquidation of the mortgage obligation that was assumed by the Second Party.609.000.000. Finally. transfer and convey and otherwise encumber the subject real properties without the written consent of the First and Third Party. 1990 is a contract to sell and not a contract of sale. That the title and ownership of the subject real properties shall remain with the First Party until the full payment of the Second Party of the balance of the purchase price and liquidation of the mortgage obligation of ₱2. The subject contract was correctly classified as a contract to sell based on the following pertinent stipulations: The respondent counters that the subject Deed of Conditional Sale with Assumption of Mortgage entered into between the parties is a contract to sell and not a contract of sale because the title of the subject properties still remains with the petitioner as she failed to pay the installment payments in accordance with their agreement. however. the petitioner asserts that her claim for damages or lost income as well as for the back rentals in the amount of ₱29. The Courts Ruling Position of the Respondent The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank on November 26.000. Accordingly. By the contract of sale. and the other to pay therefor a price certain in money or its equivalent. the title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. not a contract of sale.[7] Based on the above provisions. one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing.9. That upon full payment by the Second Party of the full balance of the purchase price and the assumed mortgage obligation herein mentioned the Third Party shall issue the corresponding Deed of Cancellation of Mortgage and the First Party shall execute the corresponding Deed of Absolute Sale in favor of the Second Party. by its very nature. The 2009 case of Nabus v. thus: Art. Respondents failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent. is a consensual contract because it is perfected by mere consent. FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent. and c) Price certain in money or its equivalent. Joaquin & Julia Pacson[8] is enlightening: The Court holds that the contract entered into by the Spouses Nabus and respondents was a contract to sell. A contract of sale is defined in Article 1458 of the Civil Code. The essential elements of a contract of sale are the following: a) Consent or meeting of the minds. there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. . Without respondents full payment. the petitioners obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition. that is. xxx Sale. which is the respondents full payment of the purchase price. b) Determinate subject matter. Thereafter. consent to transfer ownership in exchange for the price. 1458. ownership is retained by the prospective seller without further remedies by the prospective buyer. In other words. However.Under this definition. upon the fulfillment of the suspensive condition which is the full payment of the purchase price. that is. a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition. although it is conditioned upon the happening of a contingent event which may or may not occur. A contract to sell as defined hereinabove. while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer. because in a conditional contract of sale. If the suspensive condition is not fulfilled. the perfection of the contract of sale is completely abated. In a contract to sell. full payment of the purchase price. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. meaning. xxx xxx xxx Stated positively. the full payment of the purchase price partakes of a suspensive condition. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. the prospective seller explicitly reserves the transfer of title to the prospective buyer. which for present purposes we shall take as the full payment of the purchase price. thus. 1479. the first element of consent is present. binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon. the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event. A contract to sell may thus be defined as a bilateral contract whereby the prospective seller. if the suspensive condition is . the prospective sellers obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states: Art. the nonfulfillment of which prevents the obligation to sell from arising and. payment of the price is a positive suspensive condition. In the latter contract. ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. the title to the property passes to the vendee upon the delivery of the thing sold. Court of Appeals. the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded. Further. but its express terms or stipulations that determine the kind of contract entered into by the parties. ownership is. the contract entitled Deed of Conditional Sale is actually a contract to sell. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. Where the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price. ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. in a contract to sell. the contract of sale is thereby perfected. xxx . title is retained by the vendor until full payment of the price. reserved in the vendor and is not to pass to the vendee until full payment of the purchase price.fulfilled. in a contract to sell. Chua v. In a contract to sell. upon the fulfillment of the suspensive condition which is the full payment of the purchase price. The aforecited stipulation shows that the vendors reserved title to the subject property until full payment of the purchase price. In this case. failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. in a contract of sale. cited this distinction between a contract of sale and a contract to sell: In a contract of sale. Otherwise stated. the corresponding transfer documents shall be executed by the vendor to the vendee for the portion sold. whereas. It is not the title of the contract. The contract stipulated that as soon as the full consideration of the sale has been paid by the vendee. by agreement. such that if there had already been previous delivery of the property subject of the sale to the buyer. the contract is only a contract to sell. there seems no question that the parties understood this to be the case. the buyers full payment of the price is a positive suspensive condition to the coming into effect of the agreement. Indeed. the seller has lost and cannot recover the ownership of the property unless he takes action to set aside the contract of sale. In the second case. was a positive suspensive condition failure of which was not regarded a breach in the . In the contract of sale. has paid the agreed price.750. there is need to initially determine if what the parties had was a contract of sale or a contract to sell. it is quite evident that the contract involved was one of a contract to sell since the Atienzas. the title to the property passes to the buyer upon the delivery of the thing sold. in the contract to sell. The full payment of the purchase price is the positive suspensive condition. the buyer.00 that fell due in December 2002. the obligor having failed to perform the suspensive condition which enforces a juridical relation. since the Deed of Conditional Sale executed in their favor was merely a contract to sell. but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. said both the RTC and the CA. the buyers non-payment of the price is a negative resolutory condition. as sellers. Espidol. In a contract of sale. the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition. Emphasis should be made that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant. on the other hand. by agreement. the Court handed down a similar ruling in the 2010 case of Heirs of Atienza v. In a contract to sell. the failure of which is not a breach of contract. [Emphases and underscoring supplied] Consistently. the suspensive condition not having occurred as yet. not a failure of a condition to render binding that obligation. In the first case. the ownership is. Admittedly. Thus. the title simply remains in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract. Espidol was unable to pay the second installment of P1.000. were to retain title of ownership to the land until respondent Espidol.Unfortunately for the Spouses Pacson. there can be no rescission or fulfillment of an obligation that is still non-existent. Here. [9] where it was written: Regarding the right to cancel the contract for non-payment of an installment. With this circumstance. there is no contract to speak of. That payment. for its nonfulfilment. retained by the seller and is not to pass to the vendee until full payment of the purchase price. 000. that the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase price of the subject property in the amount of ₱4.000.000.13 received in cash by the First Party but directly paid to the Third Party as partial payment of the mortgage obligation of the First Party in order to reduce the amount to ₱2. That the purchase price ₱4. the remaining unpaid balance of Tuparan (respondent) is only ₱805. [11] In the case at bench. x x x.00 payable on or before June 30. the Court fully agrees with the CA when it resolved: Considering. the subject contract stipulated the following important provisions: 2. b) ₱721.00 to be paid in installments as follows: 1. ₱200. a substantial amount of the purchase price has already been paid.078.sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition had not taken place .921.00 payable on or before December 31. 1991. 1991.00 only as of November 15.200. there was only a slight or casual breach in the fulfillment of the obligation. 1991. [Emphases and underscoring supplied] Thus.000.000.200. c) ₱1.87 received in cash by the First Party as additional payment of the Second Party.00.00 payable on or before January 31. the Court still cannot allow it for the reason that.200.[10] Granting that a rescission can be permitted under Article 1191.000. Unless the parties stipulated it.000.00 shall be paid as follows: of a) ₱278. 2. It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes. . rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation.00. ₱200.000. Note: All the installments shall not bear any interest. however.000. Whether the breach is slight or substantial is largely determined by the attendant circumstances. 3. considering the circumstances. 1990. ₱800. 00 from the date of delinquency. December 31.00 excluding the interest charges.200.000. more or less.000.000.000. it is not disputed that respondent paid directly to petitioner the amount of ₱721.000. Out of the ₱1. there was a stipulation stating that: All the installments shall not bear interest.00. respondent paid on several dates the first and second installments of ₱200.200.000.000. 1990 to be assumed by the Second Party effective November 15.200.000. Likewise.921.00 due on December 31.000.00 payable in three (3) installments.400.00. Nevertheless. Considering that out of the total purchase price of ₱4. which formed part of the purchase price of the subject property.13 as partial payment of the loan obligation of First Party in order to reduce the account to only ₱2. She. leaving a balance of ₱1. offered to pay the amount of ₱751. As can be gleaned from the contract. which was rejected by petitioner for the reason that the actual balance was ₱805. the Court upholds the ruling of the courts below regarding the non-imposition of damages and attorneys fees. respondent.00. 1992. it cannot be denied that respondent paid to FSL Bank petitioners mortgage obligation in the amount of ₱2. The Court agrees with the courts below that the respondent showed her sincerity and willingness to comply with her obligation when she offered to pay the petitioner the amount of ₱751. That the Third Party hereby acknowledges receipts from the Second Party P278.078.00 remaining balance. through counsel.13. xxx 3.00. failed to pay the third and last installment of ₱800. On the issue of interest.000.000.000. respondent has already paid the substantial amount of ₱3.200. on August 31.00 outstanding balance of the mortgage obligation as of November 15.87 representing the additional payment for the purchase of the subject property.00.00. In the case of Heirs of Atienza v.00.[13] it was stated: . Aside from petitioners self-serving statements. 1992. petitioner failed to substantiate her claim that respondent made a personal commitment to pay a 6% monthly interest on the ₱805. within a reasonable period of time.00 as of November 15. however. respondent was able to pay the total amount of ₱3.000.[12] From the records. out of the total price of ₱4.d) ₱2.000. Finally. 1991.000.000. The CA was. however. 1991.078. 1990.278. leaving an unpaid balance of only ₱805. it is right and just to allow her to settle.00 each. correct in imposing interest at the rate of 6% per annum starting from the filing of the complaint on September 11. the balance of the unpaid purchase price.000. there is not enough evidence on record to prove that respondent acted fraudulently and maliciously against the petitioner. Espidol.000. 1990 which is hereby assumed by the Second Party. Clearly. G. Since there is no breach of contract in this case.Respondents are not entitled to moral damages because contracts are not referred to in Article 2219 of the Civil Code. 2007 Decision3 and the October 3. WHEREFORE. DIEGO. In Reyes v. No. In the absence of moral. the contract is only a contract to sell. DIEGO. exemplary damages cannot be granted for they are allowed only in addition to any of the four kinds of damages mentioned. it is not disputed as in tact both parties agreed that the deed of sale shall only be executed upon payment of the remaining balance of the purchase price. 2007 Resolution4 of the Court of Appeals (CA) in CA-G. 2005 Decision5 of the Regional . which affirmed the April 19. not a contract of sale. the nonfulfillment of which is not a breach of contract. 1 this Court declared in categorical terms that "[w]here the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price. Thus. DECISION DEL CASTILLO. CV No. that an agreement which stipulates that the seller shall execute a deed of sale only upon or after tl1ll payment of the purchase price is a contract to sell. this case involves a contract to sell.R. 86512. to the point of being elementary. pursuant to the above stated jurisprudence. However. vs. RODOLFO P. Petitioner. J. Before us is a Petition for Review on Certiorari2 questioning the June 29.: It is settled jurisprudence. temperate. liquidated or compensatory damages. DIEGO and EDUARDO P. the petition is DENIED. respondents are not entitled to moral damages. Article 2220 of the Civil Code allows the recovery of moral damages in breaches of contract where the defendant acted fraudulently or in bad faith. we similarly declare that the transaction entered into by the parties is a contract to sell. wherein full payment of the purchase price is a positive suspensive condition.R. which enumerates the cases when moral damages may be recovered." In this case. 179965 February 20. Respondents. The aforecited stipulation shows that the vendors reserved title to the subject property until full payment of the purchase price. 2013 NICOLAS P. Tuparan. but merely an event that prevents the seller from conveying title to the purchaser. 9902971-D. of Dagupan City in Civil Case No. Branch 40. Factual Antecedents In 1993. and Eduardo continued to hand them over to Rodolfo. It made the following interesting pronouncement: It is undisputed that plaintiff (Nicolas) is one of the coowners of the Diego Building.00. the remaining balance of P250. 99-02971-D for lack of merit and ordering Nicolas to execute a deed of absolute sale in favor of Rodolfo upon payment by the latter of the P250. and that Eduardo and Rodolfo be held solidarily liable for attorney’s fees and litigation expenses. petitioner Nicolas P.00. verbal. x x x.000. 99-02971-D.00 balance of the agreed purchase price. Thus. he is entitled to [his] share in the rentals of the said building. However. another brother of Nicolas and designated administrator of the Diego Building.000. Instead. Rodolfo and Eduardo filed their Answer with Counterclaim7 for damages and attorney’s fees.000.Trial Court (RTC).00 to Nicolas. the building was leased out to third parties. or on April 19. Nicolas prayed that Eduardo be ordered to render an accounting of all the transactions over the Diego Building.00.00 will be paid upon the execution of . Rodolfo and Eduardo failed to render an accounting and remit his share in the rents and fruits of the building. Rodolfo admitted having remitted only P250.000. He asserted that he would pay the balance of the purchase price to Nicolas only after the latter shall have executed a deed of absolute sale. As a co-owner. Diego (Nicolas) and his brother Rodolfo. entered into an oral contract to sell covering Nicolas’s share. 2005. Nicolas filed a Complaint6 against Rodolfo and Eduardo before the RTC of Dagupan City and docketed as Civil Case No. 1999. It was agreed that the deed of sale shall be executed upon payment of the remaining balance of P250.00. plaintiff [had] already sold his share to defendant Rodolfo Diego in the amount of P500. Rodolfo made a downpayment of P250.000. [had] already received a partial payment in the purchase price in the amount of P250. respondent herein. but Nicolas’s share in the rents were not remitted to him by herein respondent Eduardo.000. However. of the plaintiff and defendant Rodolfo Diego. Rodolfo failed to pay the remaining balance. that Eduardo and Rodolfo be ordered to deliver to Nicolas his share in the rents. on May 17. Despite demands and protestations by Nicolas. Ruling of the Regional Trial Court After trial on the merits. the trial court rendered its Decision8 dismissing Civil Case No.000. fixed at P500.00 and in fact. Eduardo gave Nicolas’s monthly share in the rents to Rodolfo. Meanwhile. as co-owner of the family’s Diego Building situated in Dagupan City. Defendant Eduardo Diego testified that as per agreement.000. They argued that Nicolas had no more claim in the rents in the Diego Building since he had already sold his share to Rodolfo. Nicolas was no longer entitled to the fruits of his aliquot share in the Diego Building because he had "ceased to be a co-owner" thereof. The trial court held that when Nicolas received the P250.00 downpayment.000. without right of rescission. defendant Rodolfo Diego was not yet in default as the plaintiff claims which cause [sic] him to refuse to sign [sic] document. From then on. The contract of sale was already perfected as early as the year 1993 when plaintiff received the partial payment.00 balance from Rodolfo will only be due and demandable when Nicolas executes an absolute deed of sale. the CA made another interesting pronouncement. Nicolas appealed to the CA which sustained the trial court’s Decision in toto. But because he failed to do so. he cannot unilaterally revoke or rescind the same. the latter may compel the former to execute the proper sale document. he had already transferred his ownership over the subject property and as a consequence. Consequently. 2) Nicolas ha[d] already partially performed his part regarding the contract. Besides.the Deed of Absolute Sale.00. defendant Rodolfo Diego has to perform his obligation as per their verbal agreement by paying the remaining balance of P250. Clearly. 2007. Finally. Rodolfo is legally entitled to collect the fruits thereof in the form of rentals. Rodolfo cannot be considered to be in delay or default. the trial court held that theP250. provided that he first executes a deed of absolute sale in favor of Rodolfo. It was in the year 1997 when plaintiff was being required by defendant Eduardo Diego to sign the Deed of Absolute Sale.000. and 3) Rodolfo opposes the rescission. the trial court ruled that as early as 1993. Nicolas’ remaining right is to demand payment of the balance of the purchase price. Nicolas’s insistence that he has since rescinded their agreement in 1997 proved the existence of a perfected sale. To summarize. it was incumbent upon Nicolas to have filed a civil case to fix the same.000. The CA held that since there was a perfected contract of sale between Nicolas and Rodolfo. Finally. plaintiff has."10 Equity and fairness dictate that defendant [sic] has to execute the necessary document regarding the sale of his share to defendant Rodolfo Diego. hence. Correspondingly. a "contract of sale" was perfected.9 The CA then proceeded to rule that since no period was stipulated within which Rodolfo shall deliver the balance of the purchase price. Ruling of the Court of Appeals Nicolas moved for reconsideration but the same was denied by the CA in its Resolution dated October 3. therefore. Nicolas is obligated to convey such share to Rodolfo. that by virtue of the agreement Nicolas entered into with Rodolfo. It added that Nicolas could not validly rescind the contract because: "1) Rodolfo ha[d] already made a partial payment. ceased to be a co-owner of the building and is no longer entitled to the fruits of the Diego Building. . this Petition. III THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER NICOLAS DIEGO ACTED LEGALLY AND CORRECTLY WHEN HE UNILATERALLY RESCINDED AND REVOKED HIS AGREEMENT OF SALE WITH RESPONDENT RODOLFO DIEGO CONSIDERING THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO MORE RIGHTS OVER HIS SHARE IN THE BUILDING. II THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE CONTRACT OF SALE BETWEEN PETITIONER AND RESPONDENT RODOLFO DIEGO REMAINS LEGALLY BINDING AND IS NOT RESCINDED GIVING MISPLACED RELIANCE ON PETITIONER NICOLAS’ STATEMENT THAT THE SALE HAS NOT YET BEEN REVOKED. RODOLFO’S MATERIAL. VI THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ACTUAL DAMAGES. Issues IV The Petition raises the following errors that must be rectified: I THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PETITIONER NICOLAS DIEGO AND RESPONDENT RODOLFO DIEGO OVER NICOLAS’S SHARE OF THE BUILDING BECAUSE THE SUSPENSIVE CONDITION HAS NOT YET BEEN FULFILLED. SUBSTANTIAL BREACH OF THE CONTRACT. HE HAS ALREADY BEEN APPROPRIATING FOR HIMSELF AND FOR HIS PERSONAL BENEFIT THE SHARE OF THE INCOME OF THE BUILDING AND THE PORTION OF THE BUILDING ITSELF WHICH WAS DUE TO AND OWNED BY PETITIONER NICOLAS.Hence. THAT RODOLFO HAS NOT YET ACQUIRED OWNERSHIP OVER THE SHARE OF PETITIONER NICOLAS. DESPITE THE FACT THAT THERE WAS AS YET NO PERFECTED CONTRACT OF SALE BETWEEN PETITIONER NICOLAS DIEGO AND RODOLFO DIEGO AND THERE WAS YET NO TRANSFER OF OWNERSHIP OF PETITIONER’S SHARE TO RODOLFO DUE TO THE NON-FULFILLMENT BY RODOLFO OF THE SUSPENSIVE CONDITION UNDER THE CONTRACT. V THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT RODOLFO HAS UNJUSTLY ENRICHED HIMSELF AT THE EXPENSE OF PETITIONER BECAUSE DESPITE NOT HAVING PAID THE BALANCE OF THE PURCHASE PRICE OF THE SALE. ATTORNEY’S FEES AND LITIGATION EXPENSES TO THE PETITIONER DESPITE THE . 00.000. giving no right to the latter to collect his share in the rentals. Our Ruling The Court finds merit in the Petition. Nicolas had the right to rescind the agreement as an unpaid seller. that failing to pay the required price in full. which are deemed to have been sufficiently passed upon and debunked by the appellate court. The contract entered into by Nicolas and Rodolfo was a contract to sell. Respondents’ Arguments Apart from echoing the RTC and CA pronouncements.13 Nicolas argues that. a) The stipulation to execute a deed of sale upon full payment of the purchase price is a unique and distinguishing characteristic of a contract to sell."14 only to come back claiming that the said amount was a mere loan.11 Petitioner’s Arguments In his Petition. and that his repeated written demands upon Rodolfo to pay the balance granted him such rights.FACT THAT PETITIONER’S RIGHTS HAD BEEN WANTONLY VIOLATED BY THE RESPONDENTS. respondents accuse the petitioner of "cheating" them. contrary to what the CA found. there was no perfected contract of sale even though Rodolfo had partially paid the price. there was to be no transfer of title over his share in the building until Rodolfo has effected full payment of the purchase price. he being an American citizen. Rodolfo agreed to buy Nicolas’s share in the Diego Building for the price ofP500. Finally. Nicolas bewails the CA’s failure to award damages. It also shows that the vendor reserved title to the property until full payment.00 downpayment.000. Nicolas likewise takes exception to the CA finding that Rodolfo was not in default or delay in the payment of the agreed balance for his (Nicolas’s) failure to file a case to fix the period within which payment of the balance should be made. claiming that after the latter received the P250. They add that the Petition is a mere rehash and reiteration of the petitioner’s arguments below. He believes that Rodolfo’s failure to pay within a reasonable time was a substantial and material breach of the agreement which gave him the right to unilaterally and extrajudicially rescind the agreement and be discharged of his obligations as seller. that in the absence of the third element in a sale contract – the price – there could be no perfected sale. the Supplement12 thereon. thus. Nicolas further claims that based on his agreement with Rodolfo. There is also no dispute that of the total . and Reply. There is no dispute that in 1993. attorney’s fees and litigation expenses for what he believes is a case of unjust enrichment at his expense. he "vanished like thin air and hibernated in the USA. not a contract of sale. is a unique and distinguishing characteristic of a contract to sell. this particular provision is tantamount to a reservation of ownership on the part of the vendor. According to this Court.00) from Babasanta as partial payment of 3.000.00 as partial payment. it is also not disputed that the parties agreed that the remaining amount of P250. to execute a deed of absolute sale upon full payment of the purchase price.22 .18 The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50. Significantly. the contract is only a contract to sell.15 this Court ruled that a stipulation in the contract. The Court held thus: d) That in case. While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a In San Lorenzo Development Corporation v."21 To prove his allegation that there was a perfected contract of sale between him and Lu. it was ruled that the transaction entered into by Pablo and Lu was only a contract to sell. The Court further held that "[j]urisprudence has established that where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment of the price. Pablo presented a receipt signed by Lu acknowledging receipt of P50. In Tan v. ruled that the parties entered into a contract to sell as revealed by the following stipulation: However.000.6 hectares of farm lot situated in Sta. In Reyes v.P250. Benolirao. Rosa.00.purchase price. and Nicolas received. Explicitly stated. i. the Court ruled that the agreement to execute a deed of sale upon full payment of the purchase price"shows that the vendors reserved title to the subject property until full payment of the purchase price. BUYER has complied with the terms and conditions of this contract. then the SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale..00 would be paid after Nicolas shall have executed a deed of sale. Tuparan. Court of Appeals.e. Laguna. when the case reached this Court. The absence of a formal deed of conveyance is indicative of a contract to sell. "[w]here the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price. not of sale. Pablo wrote Lu demanding "the execution of a final deed of sale in his favor so that he could effect full payment of the purchase price.20 the facts show that spouses Miguel and Pacita Lu (Lu) sold a certain parcel of land to Pablo Babasanta (Pablo)."19 This stipulation."16 b) The acknowledgement receipt signed by Nicolas as well as the contemporaneous acts of the parties show that they agreed on a contract to sell.17 this Court.000. After several payments.000. Rodolfo paid. speaking through Justice Brion." indicates that the parties entered into a contract to sell. As we have ruled in San Lorenzo Development Corporation v. In Chua v. This is thus an indication that Nicolas did not intend to immediately transfer title over his share but only upon full payment of the purchase price. 1993 Received the amount of [P250. In addition. Their agreement was embodied in a receipt containing the following terms: "(1) the balance of P10. Court of Appeals. the buyer wanted to secure a new TCT in his name before paying the full amount. He stated therein that despite his repeated requests for the execution of the final deed of sale in his favor so that he could effect full payment of the price.distinguishing feature of a contract to sell.000. Court of Appeals. not of sale. In effect. Pacita Lu allegedly refused to do so. the transaction agreed upon by the parties was a contract to sell. Having thus reserved title over the property. the totality of the parties’ acts convinces us that Nicolas never intended to transfer the ownership over his share in the Diego Building until the full payment of the purchase price. the receipt signed by Pacita Lu should legally be considered as a perfected contract to sell. the contract entered into by Nicolas is a contract to sell. had the sellers intended to transfer title. Babasanta himself recognized that ownership of the property would not be transferred to him until such time as he shall have effected full payment of the price. (2) the capital gains tax is for the account of x x x. Babasanta’s letter dated 22 May 1989 was quite telling.000. but they did not. Eduardo admitted that he and Rodolfo repeatedly asked Nicolas to sign the deed of sale27 but the latter refused because he was not yet paid the full amount.28the fact that Eduardo and Rodolfo asked Nicolas to execute a deed of sale is a clear recognition on their part that the ownership over the property still remains with Nicolas. In fine. Moreover. (signed) Nicolas Diego25 As we ruled in San Lorenzo Development Corporation v.00 from Rodolfo.00] for 1 share of Diego Building as partial payment for Nicolas Diego. Doubtlessly.000. the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of the purchase price. Without doubt. Court of Appeals.215. and (3) if [the buyer] fails to pay the balance x x x the [seller] has the right to forfeit the earnest money x x . Contrarily.26 the parties could have executed a document of sale upon receipt of the partial payment but they did not. records show that Nicolas signed a mere receipt24 acknowledging partial payment ofP250.00 is payable on or before 15 July 1989. they could have easily executed the document of sale in its required form simultaneously with their acceptance of the partial payment.29 the parties reached an impasse when the seller wanted to be first paid the consideration before a new transfer certificate of title (TCT) is issued in the name of the buyer. It states: July 8.23 In the instant case. pursuant to our ruling in Chua v. and by Rodolfo and Eduardo’s repeated demands for Nicolas to execute a deed of sale which. the parties to this case only entered into a contract to sell. by Nicolas’s repeated demands for the return of all rents unlawfully and unjustly remitted to Rodolfo by Eduardo. Moreover. Nicolas did not want to sign the deed of sale unless he is fully paid."32 The Court thus concluded that "[t]he absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership."33 Thus. In resolving the impasse. there could not even be a surrender or delivery of title or possession to the prospective buyer Rodolfo. We thus say. Rodolfo did not want to pay unless a deed of sale is duly executed in his favor. This is patently ridiculous. the Court. c) Nicolas did not surrender or deliver title or possession to Rodolfo. This was made clear by the nature of the agreement. "the need to execute a deed of absolute sale upon completion of payment of the price generally indicates that it is a contract to sell. held that "[a] perusal of the Receipt shows that the true agreement between the parties was a contract to sell. the parties were similarly embroiled in an impasse. and goes against every rule in the book."34 In the instant case. the "true agreement between the parties was a contract to sell. On the other hand. as such title cannot legally pass to Rodolfo until he makes full payment of the agreed purchase price. as we said before. Also. In fine. Surely."37 Thus."31 The Court noted that "the agreement x x x was embodied in a receipt rather than in a deed of sale. This Court cannot subscribe to the appellate court’s view that Nicolas should first execute a deed of absolute sale in favor of Rodolfo. before the latter can be compelled to pay the balance of the price. as it implies the reservation of title in the vendor until the vendee has completed the payment of the price. "[a] stipulation reserving ownership in the vendor until full payment of the price is x x x typical in a contract to sell. and sustaining this point of view would place all contracts to sell in jeopardy of being rendered ineffective by the act of the prospective buyers. The parties’ agreement was likewise embodied only in a receipt. no prospective seller would accommodate. contrary to the pronouncements of the trial and appellate courts. who naturally would demand that the deeds of absolute sale be first executed before they pay the balance of the price. is a recognition on their part that ownership over the subject property still remains with Nicolas. speaking through Justice Carpio. Court of Appeals35 that the agreement between Nicolas and Rodolfo is a contract to sell. but only a transfer after full payment of the purchase price."30 The case eventually reached this Court. ownership not having passed between them. This pronouncement virtually places the prospective seller in a contract to sell at the mercy of the prospective buyer.x."36 In addition. . transfer ownership to the buyer.44 As explained in Spouses Santos v. It must be stressed that it is anathema in a contract to sell that the prospective seller should deliver title to the property to the prospective buyer pending the latter’s payment of the price in full. Court of Appeals:45 In view of our finding in the present case that the agreement between the parties is a contract to sell.Significantly. aside from stating that out of the total consideration ofP500. It certainly is absurd to assume that in the absence of stipulation."43 The contract to sell is terminated or cancelled. the full payment of the purchase price partakes of a suspensive condition. the property was leased to third parties and the rentals received were used to pay off the loan. this bolsters our findings that Nicolas did not intend to immediately transfer title over the property. Having established that the transaction was a contract to sell. it follows that the appellate court erred when it decreed that a judicial rescission of said agreement was necessary. he filed the instant Complaint.000. what happens now to the parties’ agreement? The remedy of rescission is not available in contracts to sell. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him. when Eduardo testified. However. This ponente has had occasion to rule that "[a] contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event. the amount of P250. a buyer under a contract to sell is granted ownership of the property even when he has not paid the seller in full.000.38 It is also quite understandable why Nicolas belatedly demanded the payment of the rentals. This is because there was no rescission to .00 had already been paid while the remaining P250. If this were the case. Failing which. he never testified that there was a stipulation as regards delivery of title or possession. Records show that the structural integrity of the Diego Building was severely compromised when an earthquake struck Dagupan City in 1990.40 Starting May 1994.39 In order to rehabilitate the building.’ It does not. Nicolas was in the USA but immediately upon his return. then prospective sellers in a contract to sell would in all likelihood not be paid the balance of the price. by itself. the co-owners obtained a loan from a bank.00 would be paid after the execution of the Deed of Sale. or after payment of the loan that the co-owners started receiving their share in the rentals. the nonfulfillment of which prevents the obligation to sell from arising and thus. ownership is retained by the prospective seller without further remedies by the prospective buyer.42 During this time.41 It was only in 1996. To us.00. he claimed to be knowledgeable about the terms and conditions of the transaction between Nicolas and Rodolfo. such as full payment of the purchase price. he demanded for the payment of his share in the rentals which Eduardo remitted to Rodolfo. ‘In other words.000. speak of in the first place. However." Similarly. the contract to sell was deemed terminated or cancelled.50 "[s]ince the agreement x x x is a mere contract to sell. As petitioners correctly point out. Rodolfo has no right to compel Nicolas to transfer . If the vendor should eject the vendee for failure to meet the condition precedent. unless the contract of sale is rescinded and set aside.46 Similarly. even after the expiration of the period. As we earlier pointed out. Article 1592 speaks of non-payment of the purchase price as a resolutory condition. the Court of Appeals erred when it ruled that petitioners should have judicially rescinded the contract pursuant to Articles 1592 and 1191 of the Civil Code. casual or serious. Without respondent’s full payment.Respondent’s failure to pay in full the purchase price in full is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to respondent. he is enforcing the contract and not rescinding it. It does not apply to a contract to sell. it is subordinated to the provisions of Article 1592 when applied to sales of immovable property. however. When the petitioners in the instant case repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full. Thus. title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. The nonfulfillment of the condition prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by the buyer. The effects in law are not identical. Article 1592 does not apply to a contract to sell where the seller reserves the ownership until full payment of the price."48 as in this case.1âwphi1 Applying the above jurisprudence. in a contract to sell. as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. we held in Chua v. we held in Reyes v." Otherwise stated. the payment of the purchase price is a positive suspensive condition. there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Tuparan51 that "petitioner’s obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition. in a contract to sell. Court of Appeals. which is the respondent’s full payment of the purchase price. In a contract to sell. where nonpayment of the price is a negative resolutory condition. In a contract of sale. Neither provision is applicable in the present case. but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale. we hold that when Rodolfo failed to fully pay the purchase price. As to Article 1191. Court of Appeals47 that "Article 1592 of the Civil Code permits the buyer to pay. the full payment of the purchase price partakes of a suspensive condition. the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase price. they were merely enforcing the contract and not rescinding it. Failure to pay the price agreed upon is not a mere breach. the vendor has lost ownership of the thing sold and cannot recover it.49 As we have held in Chua v. Nicolas has no obligation to transfer his ownership over his share in the Diego Building to Rodolfo. only to come back later and claim that the amount he received was a mere loan – cannot be believed.54 The accountant opined that the P250. it was stated therein that "[a]ll the bases and assumptions made particularly in the fixing of the applicable rate of interest have been discussed with [Eduardo]. collected and appropriated for himself the rents which belonged to Nicolas.00 was considered a loan of Nicolas from Rodolfo. Correlatively."57 On the other hand. Notably. the downpayment of P250. for they certainly had free rein over Nicolas’s interest in the Diego Building.000. after Nicolas revoked his agreement with Rodolfo due to non-payment. It was not Nicolas’s obligation to compel Rodolfo to pay the balance. Eduardo must be held solidarily liable with Rodolfo for all that Nicolas should be entitled to from 1993 up to the present. not by what a party believed it to be.00 should earn interest at 18%. In fact. It would appear that after Nicolas refused to sign the deed as there was yet no full payment. or in respect of actual damages suffered in relation to his interest in the Diego Building. yet. If there was anybody who benefited from Nicolas’s perceived "hibernation". Rodolfo put off payment of the balance of the price. Eduardo is solidarily liable with Rodolfo as regards the share of Nicolas in the rents. with the aid of Eduardo.000. Eduardo was the primary cause of . he is understandably not adept in legal terms and their implications. bad faith and abuse of authority as the Diego Building administrator.55 Nicolas however objected as regards the imposition of interest as it was not previously agreed upon.00 downpayment. it was erroneous for the CA to rule that Nicolas should have filed a case to fix the period for Rodolfo’s payment of the balance of the purchase price. the respondents’ additional submission – that Nicolas cheated them by "vanishing and hibernating" in the USA after receiving Rodolfo’s P250.ownership to him because he failed to pay in full the purchase price. For his complicity.52 Thus. the contents of the accountant’s report were not disputed or rebutted by the respondents."53 According to the accountant’s report. Being a layman. The proper characterization of an action should be based on what the law says it to be. "A contract is what the law defines it to be x x x and not what the contracting parties call it. it was the respondents. this Court should not be held captive or bound by the conclusion reached by the parties. Rodolfo and Eduardo hired the services of the Daroya Accounting Office "for the purpose of estimating the amount to which [Nicolas] still owes [Rodolfo] as a consequence of the unconsummated verbal agreement regarding the former’s share in the co-ownership of [Diego Building] in favor of the latter. How the respondents could have been cheated or disadvantaged by Nicolas’s leaving is beyond comprehension."56 We find it irrelevant and immaterial that Nicolas described the termination or cancellation of his agreement with Rodolfo as one of rescission.000. it was Rodolfo’s duty to remit it. Besides. The oral contract to sell between petitioner Nicolas P. Thus. The June 29. the true recipient. 2007 Resolution of the Court of Appeals in CA-G. Respondents are further commanded to return or surrender to the petitioner the documents of title. The Court further decrees the following: 1. who received them under obligation to return them to Nicolas. papers. Diego’s share in the Diego Building.000. and all other documents in any form or manner pertaining to the latter’s share in the building. it is beyond cavil that petitioner was constrained to file the instant case to protect his interest because of respondents’ unreasonable and unjustified refusal to render an accounting and to remit to the petitioner his rightful share in rents and fruits in the Diego Building. Suffice it to state that every person must. as prayed for. Branch 40 in Civil Case No. the Petition is GRANTED. Eduardo should be principally responsible to Nicolas as well. from the period beginning 1993 up to the present. pertaining to Nicolas P. and made to them or are due. demandable and forthcoming during the .000. shall indemnify the latter for the same. 2005 Decision of the Dagupan City Regional Trial Court. receipts. contrary to law. "Although attorney’s fees are not allowed in the absence of stipulation. as the case may be. the court can award the same when the defendant’s act or omission has compelled the plaintiff to incur expenses to protect his interest or where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid. 99-02971-D. and the April 19. and thereafter commanded to jointly and severally remit to the petitioner all rents. 86512. act with justice. Diego’s share in the Diego Building.00.R. which are hereby deemed received by them during the said period.00 for each court appearance by his lawyer or lawyers. premises considered. contracts. Diego and Eduardo P. 2. which are deemed to be in their unauthorized and illegal possession. Diego are ORDERED to surrender possession and control. we deem it proper to award to petitioner attorney’s fees in the amount of P50. 3. Respondents Rodolfo P. in the exercise of his rights and in the performance of his duties. 2007 Decision and October 3. CV No. of Nicolas P. Diego and Eduardo P.Nicolas’s loss. and every person who.00 and the sum of P1."59 In the instant case.58 Attorney’s fees and other costs. being directly responsible for making and causing the wrongful payments to Rodolfo. monies. Diego and respondent Rodolfo P. Diego isDECLARED terminated/cancelled.1âwphi1 As such. payments and benefits of whatever kind or nature pertaining thereto. and observe honesty and good faith. WHEREFORE.000. give everyone his due. Respondents Rodolfo P. Diego are ORDERED to immediately render an accounting of all the transactions. just and demandable claim. wilfully or negligently causes damage to another. are hereby ANNULLED and SET ASIDE.60 as well as litigation expenses in the amount of P20. Cavite. HON. represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO.00 per counsel for each court appearance by his lawyer or lawyers.00.000. Dolorfino and Dominguez Law Offices for Sps. On November 29. Enriquez for private respondents. Joselito R.R. to solidarily pay the petitioner attorney’s fees in the amount ofP50. 095-84. immediately and without further delay upon receipt of this Decision. by way of compensation. 5. vs. COURT OF APPEALS. Respondents Rodolfo P. and the SPOUSES FLORENCIO IGNAO and SOLEDAD C. with legal interest from the filing of the Complaint.000. THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA. Diego and Eduardo P. vs. IGNAO. 1984. litigation expenses in the amount of P20.000. to his liabilities to the petitioner and to answer for all damages and other awards and interests which are owing to the latter under this Decision. petitioners. THE ROMAN CATHOLIC BISHOP OF IMUS.00 made by respondent Rodolfo P. SO ORDERED. Diego. 77425 June 19. 77450 June 19. private respondents as plaintiffs.said period and from the date of this Decision. THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA. G. THE ROMAN CATHOLIC BISHOP OF IMUS.00 and the sum of P1. CV No. respondents.: G. Respondents’ counterclaim is DISMISSED. IGNAO. 1991 THE ROMAN CATHOLIC ARCHBISHOP OF MANILA. 1991 THE ROMAN CATHOLIC ARCHBISHOP OF MANILA. respondents. and 6.R. Severino C. Diego are ORDERED. No. Ignao. These two petitions for review on certiorari1 seek to overturn the decision of the Court of Appeals in CA-G. No. 4. J. COURT OF APPEALS.000. as well as the order of said respondent court denying petitioner's motions for the reconsideration of its aforesaid decision. Dominguez for petitioner Roman Catholic Bishop of Imus. and the SPOUSES FLORENCIO IGNAO and SOLEDAD C.R. represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO. with legal interest from the filing of the Complaint. 054562 which reversed and set aside the order of the Regional Trial Court of Imus. filed a complaint for nullification of deed of . petitioners. REGALADO. The payment of P250. HON. Cavite dismissing Civil Case No. shall be APPLIED. On January 9. The deed of donation allegedly provides that the donee shall not dispose or sell the property within a period of one hundred (100) years from the execution of the deed of donation. 1985. now both deceased. as plaintiffs therein. before the Regional Trial Court. 1985. 115990 was issued by the Register of Deeds of Cavite on November 15.4 On December 17. 626. with the following dispositive portion: . executed a deed of donation in favor of therein defendant Roman Catholic Archbishop of Manila covering a parcel of land (Lot No.5 Private respondents thereafter appealed to the Court of Appeals raising the issues on (a) whether or not the action for rescission of contracts (deed of donation and deed of sale) has prescribed. with rejoinders thereto by private respondents.6 On December 23. therefore. 1986. Ignao in consideration of the sum of P114. the Roman Catholic Archbishop of Manila likewise filed a motion to dismiss on the ground that he is not a real party in interest and. petitioner Roman Catholic Bishop of Imus also filed a motion to dismiss on three (3) grounds. 1980 in the name of said petitioner spouses. 1984. Cadastral Survey of Kawit). Transfer Certificate of Title No. rendered a decision in favor of private respondents. have no legal capacity to sue. holding that the action has not yet prescibed. in whose administration all properties within the province of Cavite owned by the Archdiocese of Manila was allegedly transferred on April 26.donation. and (b) whether or not the dismissal of the action for rescission of contracts (deed of donation and deed of sale) on the ground of prescription carries with it the dismissal of the main action for reconveyance of real property. Branch XX. On December 19. Cavite. Cavite. petitioner Roman Catholic Bishop of Imus. Cavite and which was docketed as Civil Case No. What transpired thereafter is narrated by respondent court in its assailed decision. the first two (2) grounds of which were identical to that of the motion to dismiss filed by the Ignao spouses. the complaint does not state a cause of action against him. Imus. As a consequence of the sale. containing an area of 964 square meters. rescission of contract and reconveyance of real property with damages against petitioners Florencio and Soledad C. located at Kawit. dismissing the complaint on the ground that the cause of action has prescribed. 095-84 therein. petitioners Florencio Ignao and Soledad C. the trial court issued an order dated January 31. respondent Court of Appeals. private respondents alleged that on August 23.000. and (2) the complaint states no cause of action. and while still within the prohibitive period to dispose of the property. Ignao filed a motion to dismiss based on the grounds that (1) herein private respondents. 1984. It is further alleged that on or about June 30. Ignao and the Roman Catholic Bishop of Imus. 00.3 In their complaint. executed a deed of absolute sale of the property subject of the donation in favor of petitioners Florencio and Soledad C. 1930. more or less. otherwise a violation of such condition would render ipso facto null and void the deed of donation and the property would revert to the estate of the donors. 1962. the spouses Eusebio de Castro and Martina Rieta. together with the Roman Catholic Archbishop of Manila. and the third ground being that the cause of action has prescribed. 1980. After private respondents had filed their oppositions to the said motions to dismiss and the petitioners had countered with their respective replies. the filing of these appeals by certiorari. Article 732 of the Civil Code provides that donations inter vivosshall be governed by the general provisions on contracts and obligations in all that is not determined in Title III. Book III on donations.12 It is true that the aforesaid rules were applied to the contracts involved therein. and may be exercised against the donee's heirs. respondent court relied on the rule that a judicial action for rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. It is the contention of petitioners that the cause of action of herein private respondents has already prescribed. when the donee fails to comply with any of the conditions which the former imposed upon the latter. then the phrase reading "would render ipso facto null and void"would not appear in the deed of donation. the Order of January 31. and that it is not always necessary for the injured party to resort to court for rescission of the contract.10 It called attention to the holding that there is nothing in the law that prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention. No Costs.9 In support of its aforesaid position.8 hence. For where (sic) it otherwise and that the donors and the donee contemplated a court action during the execution of the deed of donation to have the donation judicially rescinded or declared null and void should the condition be violated. WE are of the opinion that there would be no legal necessity anymore to have the donation judicially declared null and void for the reason that the very deed of donation itself declares it so.11 It reiterated the doctrine that a judicial action is proper only when there is absence of a special provision granting the power of cancellation. 1987. hence a judicial declaration revoking the same is not necessary. may be transmitted to the heirs of the donor. Now.7 Petitioners Ignao and the Roman Catholic Bishop of Imus then filed their separate motions for reconsideration which were denied by respondent Court of Appeals in its resolution dated February 6. as is . The deed of donation involved herein expressly provides for automatic reversion of the property donated in case of violation of the condition therein. invoking Article 764 of the Civil Code which provides that "(t)he donation shall be revoked at the instance of the donor. the same is not applicable in the case at bar. We do not agree.WHEREFORE. Although it is true that under Article 764 of the Civil Code an action for the revocation of a donation must be brought within four (4) years from the non-compliance of the conditions of the donation. As aptly stated by the Court of Appeals: By the very express provision in the deed of donation itself that the violation of the condition thereof would render ipso facto null and void the deed of donation. 095-84 is hereby ordered REINSTATED and REMANDED to the lower court for further proceedings. said Title III does not have an explicit provision on the matter of a donation with a resolutory condition and which is subject to an express provision that the same shall be considered ipso facto revoked upon the breach of said resolutory condition imposed in the deed therefor. but we see no reason why the same should not apply to the donation in the present case." and that "(t)his action shall prescribe after four years from the non-compliance with the condition. 1985 dismissing appellants' complaint is SET ASIDE and Civil Case No. terms and conditions not contrary to law. the Court of Appeals committed no error in holding that the cause of action of herein private respondents has not yet prescribed since an action to enforce a written contract prescribes in ten (10) years. since the donation in the case at bar is also subject to the same rules because of its provision on automatic revocation upon the violation of a resolutory condition. constitutes an undue restriction on the rights arising from ownership of petitioners and is. Where such propriety is sustained.the case of the deed presently in question. public order or public policy. Said condition. On the foregoing ratiocinations.14 When a deed of donation. but it is not in itself the revocatory act. upon the happening of the resolutory condition or noncompliance with the conditions of the contract. we are of the opinion that. judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention. The rationale for the foregoing is that in contracts providing for automatic revocation. therefore. Nonetheless. the decision of the court will be merely declaratory of the revocation. expressly provides for automatic revocation and reversion of the property donated. is valid subject to the determination of the propriety of the rescission sought. that stipulation of the parties providing for automatic revocation of the deed of donation. in our opinion. the donation is automatically revoked without need of a judicial declaration to that effect. under Article 733 of the Civil Code is governed by the rules on contracts. That is not the situation in the case at bar. good customs. the rules on contract and the general rules on prescription should apply. without prior judicial action for that purpose. morals. the same should be dismissed on the ground that private respondents have no cause of action against petitioners. contrary to public policy. The suppletory application of the foregoing doctrinal rulings to the present controversy is consequently justified. The cause of action of private respondents is based on the alleged breach by petitioners of the resolutory condition in the deed of donation that the property donated should not be sold within a period of one hundred (100) years from the date of execution of the deed of donation. Abrigo. and not Article 764 of the Civil Code. vs. without need of going to court.13 It was held therein that said stipulation is in the nature of an agreement granting a party the right to rescind a contract unilaterally in case of breach. clauses. et al. Since Article 1306 of said Code authorizes the parties to a contract to establish such stipulations. and that. While what was the subject of that case was an onerous donation which. . as in this case. et al. but in order to determine whether or not the rescission was proper.15 It is our view that Article 764 was intended to provide a judicial remedy in case of non-fulfillment or contravention of conditions specified in the deed of donation if and when the parties have not agreed on the automatic revocation of such donation upon the occurrence of the contingency contemplated therein. from parity of reasons said pronouncements in De Luna pertinently apply. The validity of such a stipulation in the deed of donation providing for the automatic reversion of the donated property to the donor upon non-compliance of the condition was upheld in the recent case of De Luna. we find that although the action filed by private respondents may not be dismissed by reason of prescription. at the very least. both on the issue of prescription. It is significant that the provisions therein regarding a testator also necessarily involve. as specifically stated in said statutory provision. public order and public policy. but such oversight or inaction does not prevent this Court from passing upon and resolving the same. as a mode of acquiring ownership. which right is an indispensable attribute of ownership. This Court is clothed with ample authority to review matters. good customs. in the main. for an entire century.1âwphi1Under the third paragraph of Article 494. No reliance may accordingly be placed on said prohibitory paragraph in the deed of donation. must not be perpetual or for an unreasonable period of time. Once a donation is accepted. it is ineluctably related to petitioner's aforesaid assignment of error since both issues are grounded on and refer to the very same provision. morals. the same must not be contrary to law. being an act of liberality. declares that the dispositions of the testator declaring all or part of the estate inalienable for more than twenty (20) years are void. a donor or testator may prohibit partition for a period which shall not exceed twenty (20) years. Article 870. In the case at bar. the deed of sale supposedly constitutive of the cause of action for the nullification of the deed of donation is not in truth violative of the latter hence. even if they are not assigned as errors on appeal. if it finds that their consideration is necessary in . The net result is that. the imposition of an unreasonable period of prohibition to alienate the property should be deemed anathema to the basic and actual intent of either the donor or testator. it was likewise the controverted fundament of the motion to dismiss the case a quo. While the issue of the validity of the same provision was not squarely raised. in order to be valid.Donation. At the same time. should be declared as an illegal or impossible condition within the contemplation of Article 727 of the Civil Code. For that reason. That ruling of respondent court interpreting said provision was assigned as an error in the present petition. for lack of cause of action. we hold that the prohibition in the deed of donation against the alienation of the property It will readily be noted that the provision in the deed of donation against alienation of the land for one hundred (100) years was the very basis for the action to nullify the deed of d donation. That may be true. the devolution of property by gratuitous title hence. the case for private respondents must fail. which motion was sustained by the trial court and set aside by respondent court. the regulatory arm of the law is or must be interposed to prevent an unreasonable departure from the normative policy expressed in the aforesaid Articles 494 and 870 of the Code. Although the donor may impose certain conditions in the deed of donation. The condition imposed in the deed of donation in the case before us constitutes a patently unreasonable and undue restriction on the right of the donee to dispose of the property donated. Consequently. results in an effective transfer of title over the property from the donor to the donee. the donee becomes the absolute owner of the property donated. Such a prohibition against alienation. being an unreasonable emasculation and denial of an integral attribute of ownership. Certain provisions of the Civil Code illustrative of the aforesaid policy may be considered applicable by analogy. It may be argued that the validity of such prohibitory provision in the deed of donation was not specifically put in issue in the pleadings of the parties. such condition shall be considered as not imposed. as is generally the case of donations. on its part. absent said proscription. J. in the public interest and for the expeditious administration of justice.. Cavite. Promulgated: Respondent. we have held that an unassigned error closely related to an error properly assigned. AZCUNA.: This case arose from a complaint for unfair business practice[1] filed by petitioner Dorie Abesa Nicolas (Mrs. WHEREFORE. 158026 Petitioner. we have laid down the rule that the remand of the case to the lower court for further reception of evidence is not necessary where the Court is in a position to resolve the dispute based on the records before it. DORIE ABESA NICOLAS.J. such as where the ends of justice. April 23. DEL-NACIA CORPORATION.18 Additionally.19 The aforestated considerations obtain in and apply to the present case with respect to the matter of the validity of the resolutory condition in question. will be considered by the appellate court notwithstanding the failure to assign it as error.arriving at a just decision of the case:16 Thus. has resolved actions on the merits instead of remanding them to the trial court for further proceedings. No.versus . 2008 x -------------------------------------------------------------------------------------. Present: PUNO.R. 095-84 of the Regional Trial Court. On many occasions. Imus. C. C. G. Branch XX.*CORONA. and LEONARDO-DE CASTRO. SO ORDERED. the judgment of respondent court is SET ASIDE and another judgment is hereby rendered DISMISSING Civil Case No. JJ. . the Court.17 or upon which the determination of the question properly assigned is dependent. Chairperson. CARPIO. would not be subserved by the remand of the case. .x DECISION PUNO. the ownership of the land remains with Del-Nacia until full payment of the stipulated purchase price under the following terms and conditions: (3) Title to said parcel of land shall remain in the name of the OWNER until complete payment by the PURCHASER of all obligations herein stipulated. xxxx (5) In the event that any of the payments as stipulated be not paid when. 3-B-4.189. and payments to be made on the _____ day of each month thereafter beginning April 20. San Jose del Monte. On February 20. it is agreed that sums in arrears shall bear interest at the rate of EIGHTEEN (18%) per centum per annum payable monthly from the date on which said sums is due and payable. Del Nacia Ville No.Nicolas) against respondent Del-Nacia Corporation (DelNacia) before the Housing and Land Use Regulatory Board (HLURB).000) as first payment on account of the purchase price and agrees to pay the balance of FIVE HUNDRED TEN THOUSAND PESOS (P510. 1988. consisting of 10. at which time the OWNER agree to execute a final deed of sale in favor of the PURCHASER and cause the issuance of a certificate of title in the name of the latter. and as the same become due. 233702. or if the PURCHASER shall violate any of the conditions herein set forth then the entire unpaid balance due under this contract.45) interest being included on successive monthly balance at 18% per annum. Bulacan. free from liens and encumbrances except those provided in the Land Registration Act. covered by Transfer Certificate of Title No.000) at the office of the OWNER in the City of Quezon. the PURCHASER further agrees to pay to the OWNER a sum equal to ten (10%) per centum of the amount due as attorneys fees. situated at Lot No. (6) If any such payment or payments shall continue in arrears for more than sixty-days. where. The relevant parts of the Agreement are: (1) The PURCHASER agrees to pay to the OWNER upon execution of this Contract the sum of FORTY THOUSAND PESOS (P40. 5. and in such case. or such other office as the OWNER may designate in 120 equal monthly installment of NINE THOUSAND ONE HUNDRED EIGHTY NINE AND 45/100 PESOS (P9. 1988. those imposed by the .[3] Under the Agreement. the spouses Armando Nicolas and Dorie Abesa Nicolas (Spouses Nicolas) and Del-Nacia entered into a Land Purchase Agreement [2] (Agreement) for the sale by the latter to the former of a parcel of land. Philippines.000 square meters. with any interest which may have attached shall at once become due and payable and shall bear interest at the rate of TWELVE (12%) per centum per annum until paid. shall be considered as rents for the use and occupation of the abovementioned premises and as payments for the damages suffered on the OWNER on account of the failure of the PURCHASER to fulfill his part of this Contract and the PURCHASER hereby renounces all his rights to demand or reclaim the return of the same and further obligates himself to peacefully vacate the premises and deliver the same to the OWNER. that any consideration. and as a consequence therefore. the OWNER may dispose of the parcels of land covered by this Contract in favor of other persons. As found by Arbiter Jose A. however. October 1989. the PURCHASER shall be granted a period or periods of grace which in no case shall exceed (60) days to be counted from the condition breached ought to be complied with or the said payments ought have been made. HOWEVER. the monthly amortizations. Nicolas is delinquent in her monthly amortization for the following months: November 1988.000. the Contract shall be automatically cancelled and rescinded and of no force and effect. March 1989. May 1989. PROVIDED. during which period of grace the PURCHASER must comply with the said condition or satisfy all due monetary obligations including those which correspond to the period of grace. and for several months thereafter. Thereupon. February 1990- . together with all the improvements introduced in the premises. Atencio. June 1989-July 1989. HLURB Region III. Jr. as if this Contract had never been entered into. tolerance or relaxation of provisions shall not be interpreted as a renunciation on the part of OWNER of any rights granted in this Contract. Adjudication and Legal Affairs (OAAL). November 1989-December 1989. and those contained in Clauses (10) and (16) of this agreement. September 1989. OTHERWISE. the Spouses Nicolas took possession of the land.[5] Unfortunately. In case of such cancellation of this Contract all amounts paid in accordance with this agreement. Registration fees and documentary stamps of the deed of sale shall be paid by the PURCHASER.authorities. (HLURB Arbiter) of the Office of Appeals. the records of Del-Nacia indicate that Mrs. concession. xxxx (7) In case the PURCHASER fails to comply with any conditions of this contract and/or to pay any payments herein agreed upon. however.[4] Upon signing of the Agreement. that his/her possession under this section shall be only that of a tenant or lessee. paid on or before the 20 th of each month. Nicolas began to falter in her payments. Armando Nicolas died shortly after the signing of the Agreement and Mrs. the Spouses Nicolas paid the down payment of P40. and subject to ejectment proceedings during all the period of this agreement. (4) Only the PURCHASER shall be deemed for all legal purposes to take possession of the parcel of land upon payment of the down payment provided. December 1990-April 1991. Ordering the same respondent to execute the pertinent deed in favor of the complainant within fifteen (15) days from receipt of complainants full payment under paragraph b aforementioned and thereafter to deliver to the latter the Transfer Certificate of Title of the lot in question. Ordering respondent to fortwith furnish complainant accounting of the paid and unpaid amortizations including interests and penalty interests and other stipulated fees or charges covering the period or delinquent payments. 1993. Nicolass payment and sent it to her by registered mail.[11] Mrs. as a consequence of the latters default stating clearly and specifically the bases as stated in the contract and for the complainant to pay her unpaid obligations within forty five (45) days from receipt of the said computation/accounting. So Ordered. 1991. Del-Nacia then caused the notarial cancellation of the Agreement on December 3. Mrs. Nicolas filed a Complaint[9] against Del-Nacia before the HLURB. PENALTY INTERESTS AND OTHER STIPULATED FEES OR CHARGES IN THE UNILATERAL COMPUTATION TO BE MADE BY THE RESPONDENT-APPELLEE AS THE UNPAID OBLIGATION OF COMPLAINANT-APPELLANT. Nicolas to get the cash surrender value of her payment at its office. Declaring the notarial cancellation of the contract on December 3. 1991 as null and void.[8] On February 23. if complainant fails or refuses to pay within the period provided under paragraph b. b. Del-Nacia verbally informed Mrs.[6] Del-Nacia sent Mrs. However. d.September 1990. On December 15.651. The last payment of Mrs. 1994.A.[7] Subsequently. c. Nicolas notice to pay her arrearages with a grace period of sixty (60) days within which to make payment but to no avail. Nicolas and until now it remains in her possession. 1991. October 1990-November 1990. ARBITER ERRED IN ORDERING THE INCLUSION OF INTERESTS. Mrs. at the option of the respondent. 6552 and other legal remedies may be resorted to. the HLURB Arbiter rendered a Decision[10](Arbiter Decision) with the following disposition: PREMISES considered. SECOND ASSIGNMENT OF ERROR . Nicolas sought review of the Arbiter Decision by the HLURB Board of Commissions (HLURB Board) on the following assignment of errors: FIRST ASSIGNMENT OF ERROR THE HON.The check was received by Mrs. Nicolas did not claim the same. Del-Nacia prepared a check in the amount of P270.88 representing the cash surrender value of Mrs. Nicolas was made on July 19. Remedies provided under R. judgment is hereby rendered as follows: a. (e) Ordering respondent to pay this Board the amount of ten thousand (P10.D. WHEREFORE.[14] Del-Nacia filed a Motion for Reconsideration [15] and a Supplement to Motion for Reconsideration.29) representing the remaining balance of the installment purchase price of the land inclusive of legal interests at the rate of twelve percent (12%) per annum. [16] Meanwhile. on December 1. ARBITER ERRED IN NOT GRANTING THE PRAYER OF COMPLAINANTAPPELLANT IN HER COMPLAINT. ARBITER ERRED IN GIVING RESPONDENT-APPELLEE THE RIGHT TO RESORT TO REMEDIES PROVIDED UNDER R. in light of the foregoing premises. 6552 AND OTHER LEGAL REMEDIES.000. Quezon City.[12] The HLURB Board was partly receptive of the appeal and.THE HON. insofar as paragraph (b) of the dispositive portion is concerned and an additional paragraph e.A.000) as an administrative fine for violation of Section 5 of P. we hereby MODIFY the Decision dated 15 December 1994 of the Office a Quo. Nicolas filed a motion for the consignment of P173. Mrs. FOURTH ASSIGNMENT OF ERROR THE HON. 957 within thirty (30) days from finality hereof.957.00 TO COMPLAINANTAPPELLANT. it handed down a Decision[13] (HLURB Board Decision) adjudging that: SO ORDERED. FIFTH ASSIGNMENT OF ERROR THE HON. to wit: (b) Ordering complainant to pay respondent within sixty (60) days from receipt hereof the amount of one hundred seventy three thousand nine hundred fifty seven pesos and 29/1000 (P173. THIRD ASSIGNMENT OF ERROR THE HON.957.29. representing the balance . ARBITER ERRED IN ORDERING THE COMPLAINANT-APPELLANT TO PAY HER SUPPOSED UNPAID OBLIGATION BASED UPON THE UNILATERAL COMPUTATION OF RESPONDENT-APPELLEE WITHIN FORTY FIVE (45) DAYS FROM RECEIPT OF SAID COMPUTATION/ACCOUNTING. 1995. ARBITER ERRED IN NOT AWARDING ATTORNEYS FEES IN THE SUM OF P50. P. subject of the dispute. Nicolas filed a Petition for [20] Review with the Court of Appeals (CA) docketed as CA-G. with costs against Mrs. the CA rendered its Decision.[17] Consequently. 2003. for instance.P.[28] The instant petition prays that the O. 2003.of the purchase price of the land as found by the HLURB Board. Rule 45. Resolution. SP No. was not attached to the petition. 1998 (O. Mrs. [24] affirming the O. Nicolas filed an omnibus motion praying that the CA reconsider and set aside the dismissal of her petition and to admit her amended petition. Del-Nacia argues that the instant petition be denied for the following reasons: (1) failure to comply with section 4. Resolution. Original Decision and affirmed the Arbiter Decision in toto. to wit: WHEREFORE. The CA initially dismissed her petition for failing to comply with the procedural requirements of Section 6(c) of Rule 43 of the Revised Rules of Court. copies of her own pleadings filed before the proceedings below. however. however. such as.P. Nicolas was denied by the CA in its Resolution dated April 29. this Petition for Review on Certiorari[27]. was dismissed by its Decision dated March 4.P. since the Agreement and the .P. the HLURB Board resolved to deny Del-Nacias motion for reconsideration and ordered Mrs. and (2) failure to advance any special reason that would warrant the exercise by this Court of its discretionary power of review. Original Decision). in a Resolution dated January 5. Resolution.[23] On January 23. The Motion for Reconsideration [25] filed by Mrs. penalty interests and other stipulated charges based on the unilateral accounting or computation made by respondent.P.[29] It appears that the Agreement of the parties. 2001[19] (O.[26] Hence. Nevertheless. Resolution). which affirmed the HLURB Board Decision.P. the same is hereby AFFIRMED in toto. Nicolas.[22] The CA then required Del-Nacia to submit its comment to the petition.R. Before discussing the merits of the case. Nicolas to deposit with it for safekeeping the amount indicated in its Decision until Del-Nacia is willing to accept the same. finding no flaw in the appealed O. set aside the O. 68407. 1996. SO ORDERED. Original Decision. On June 21. the Office of the President.[21]Mrs. In its Comment. Del-Nacia urges this Court to dismiss the instant petition for failing to attach material portions of the records of the case that will support the same as required under Section 6 of Rule 46 of the Revised Rules of Court.[18]Upon motion for reconsideration. raising the lone issue of: WHETHER OR NOT complainant (now petitioner) is bound to pay the interests. Del-Nacia appealed to the Office of the President which. we shall first discuss its procedural aspect. be reinstated by this Court. Unsuccessful in her bid at overturning the O. Section 6 of Rule 1 states that the Rules shall be liberally construed in order to promote their objective of ensuring the just. she urges this Court to affirm the HLURB Board Decision[35] which reads: Cursory reading of the abovementioned document reveal that there is indeed no specific date indicated. On the basis of the foregoing.[36] According to Del-Nacia. A strict and rigid application of rules. the ends of justice would be served better. after all parties have been given full opportunity to ventilate their causes and defenses. as to when complainant should pay her monthly installments. any ambiguity therein should be interpreted in favor of the complainant. hence. The issue is whether Mrs. in past cases. In that way.[34] In this regard. resulting in technicalities that tend to frustrate rather than promote substantial justice. Nicolas contends that based on the payments she already made. It is clear that that the space provided for in Paragraph 1 of said document for the date or day of the month on which payment is to be made has been left blank.[32] She assails the application of her payments made by Del-Nacia since the latter applied the bulk of her payments to interest rather than the principal. Considering that the Land Purchase Agreement is a pro-forma document prepared by respondent. must be avoided. Nicolas disregarded paying the regular rate of interest. penalty interests and other stipulated charges to Del-Nacia.[31] Now on the merits of the case. speedy and inexpensive disposition of every action and proceeding. (5) and (6). she has overpaid the purchase price due under the Agreement.[33] According to her. of their Agreement. respectively. and could easily be referred to by this Court if necessary. we explained the rationale behind the Courts liberal stance as follows: We must stress that cases should be determined on the merits. the imposition of surcharges and penalty interests are unjustified. therefore. however. We rule in the affirmative. granted relief in favor of the petitioner despite this procedural infirmity. In fact. rather than on technicalities or procedural imperfections. a dismissal of the instant petition purely on technical grounds is not warranted. Nicolas is liable to pay interests. the penalties. Mrs.[30] Thus. Indeed. we find that complainant did not incur any delay. Nicolas was . Mrs. interests and surcharges being collected by Del-Nacia have no basis in fact or in law. overdue interest and penalty interest which were voluntarily agreed upon under paragraphs (1).[37] Del-Nacia contends that the records clearly establish that Mrs. the Court has. Rules of procedure are mere tools designed to expedite the decision or resolution of cases and other matters pending in court.other documents that were not attached to the petition are already part of the records of this case. We agree with the O. one can safely presume that the same was fully understood by appellee. Neither did she question the interest imposed by appellant for her payments made after the 20 th. the agreement was for appellee to [the] pay the balance (P510. Nicolas] incurred delay in the manner of payment of her monthly installment obligations is impressed with merit. Resolution. because no specific date [ is] indicated [in the purchase agreement] as to when complainant should pay her monthly installments adding that the space provided for . would virtually allow appellee to perpetually withhold installment payment without risk of being considered in default..[38] As found by the HLURB Arbiter. i. however. The adverted fact of a space in blank is of no moment for. Be that as it may. as she had repeatedly paid her monthly amortization on the 20th day of each.000. this Office is at a loss to understand the HLURBs conclusion about appellee not having defaulted in her installment payments. 1988. supra. . A fair understanding of this provision would simply mean that payment should be made effected every 20th day of each month following April 20.45. strikes this Office as too simplistic to be accorded cogency. (5) and (6) of the Agreement. that appellee [Mrs.The Housing Arbiter. The absurdity of this explanation needs no belaboring. 1988. supra. the monthly installment is to fall due and be payable on the 20th day of the succeeding months. Under #1 of the basic purchase agreement. payments to be made on the __ day of each month thereafter beginning April 20. It cannot be overemphasized that a contract is the law between the parties.[39] It is a wellsettled rule that factual findings of administrative agencies are conclusive and binding on the Court when supported by substantial evidence. or a few days thereafter. Mrs. e. appellee undertook to pay 120 equal monthly installments of P9. was of the same view. the installment period to start from April 20. to wit: Appellants [Del-Nacia] submission. to reiterate.00) of the purchase price in 120 equal monthly installments. in his evaluation as trier of facts of appellees records of payment.[40] which was adopted and affirmed by the CA. and in case of delay. Nicolas incurred delay in the payment of her monthly amortizations. Based on the records. under paragraphs (1). Nicolas was bound to pay regular interest.189. 1988. the date or day of the month which payment is to be made has been left blank.in delay in her payments of the monthly amortizations and she has not disputed the same.[41] Clearly. The use of the phrase120 equal monthly installments and thereafter beginning April 20. overdue interest and penalty. The explanation adverted to above of the HLURB. [42] and courts have no choice but to enforce such contract so long as .P. 1988. the records of DelNacia shows that Mrs. if pursued to its logical conclusion. 1988 can mean only one thing that after April 20. The explanation given by the HLURB Proper why it considered appellee not to have been in delay. . and the debtor incurs in delay. if there is no stipulation to the contrary. a perusal of the formula [46] for the computation of regular interest.101. the indemnity for damages.45 per month. and not P10. In obligations with a penal clause. Should there be such an agreement. it is not the amount that the vendor will have received in the aggregate after fifteen (15) years if the vendee shall have religiously paid the .00. No interest shall be due unless it has been expressly stipulated in writing.600.00.00] shall be paid in 180 monthly installments at P89. Article 2209. and that "the balance [of P10.. there being no stipulation to the contrary. which is sanctioned by law. On Mrs. morals. shall be the payment of the interest agreed upon x x x. the amount payable if the price of the lots were to be paid in cash and in full at the execution of the contract. v. the same is sanctioned by the following provisions of the Civil Code: Article 1956.[43] In this connection. To be sure.00 may thus be seen to be the cash price of the subdivision lots." This stipulation clearly specified that an interest charge of six percent (6%) per annum was included in the monthly installment price: private respondent could not have helped noticing that P89. good customs or public policy. and as such the two are different and distinct things which may be demanded separately. the penalty does not include the interest. In Bachrach Motor Company v. the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance. that is.800. Espiritu. Nicolas contention that she should not pay interest and the other charges based on the unilateral accounting or computation made by DelNacia. The same principle was reiterated in Equitable Banking Corp. a stipulation for the payment of interest and penalty apart from interest in case of delay is not contrary to law.[47] involves similar facts to the case at bar where we ruled as follows: Examination of the record shows that the questioned Contract to Buy and Sell the subdivision lots provided for payment by private respondent of the sum of P200.600. Moreover. Article 1226. moral. until the purchase price is fully paid. overdue interest and penalty interest used by Del-Nacia reveal that the same is in accord with the provisions of the Agreement and cannot be said to have been unilaterally imposed by Del-Nacia.45 multiplied by 180 monthly installments equals P16.they are not contrary to law.[44] the Court ruled that the Civil Code permits the agreement upon a penalty apart from the interest. good customs or public policy. Liwanag et al.[45] where this Court held that the stipulation about payment of such additional rate partakes of the nature of a penalty clause. the case of Relucio v. The contract price of P10. including interest rate at six percent (6%) per annum. If the obligation consists in the payment of a sum of money. BrillanteGarfin (Relucio).00 as downpayment. Nicolas currently finds herself in is that the obligations which she voluntary undertook under the Agreement turned out to be more onerous than what she expected. upon the other hand.[48] In Relucio. P10.501. which authorizes the payment of interest when contractually stipulated for by the parties or when implied in recognized commercial custom or usage.101. Given the foregoing. as in the instant case.[51] That the terms of a . could have deposited that amount in a bank.. after fifteen (15) years. of the subdivision lots the sum total of the monthly installments (i.00) typically.600. upon receiving the full cash price. and earned interest income which at six percent (6%) per year and for fifteen (15) years. Doctrinal is the rule that courts may not extricate parties from the necessary consequences of their acts. would precisely total P5. That economic fact is.[49] In the same vein.101. the Court also sustained the sellers theory of declining balance whereby the seller credited a bigger sum of the monthly amortization to interest rather than the principal. an examination of the application of Mrs. thus amortizing the balance of the principal purchase price as that balance gradually declined. for instance. For the vendor. Vendor and vendee are legally free to stipulate for the payment of either the cash price of a subdivision lot or its installment price.00 delivered in full today is simply worth much more than a long series of small payments totalling. however. P10. he is in effect paying interest on the cash price. such that in [During] the succeeding monthly payments. the interest component (in absolute terms) correspondingly fell while the component credited to the principal increased proportionately. shows that the same is in accord with the theory of declining balance which was affirmed by this Court in Relucio. it appears that the only dilemma which Mrs. The contract for the purchase and sale of a piece of land on the installment payment system in the case at bar is not only quite lawful. it also reflects a very wide spread usage or custom in our present day commercial life. Should the vendee opt to purchase a subdivision lot via the installment payment system. recognized by law. is to ignore that simple economic fact.00 (the difference between the installment price of P16. as private respondent argues. The installment price. Nicolas payments by Del-Nacia in the table [50] the latter prepared as reflected in the records of the case. whether the fact and rate of such interest payment is disclosed in the contract or not.00. that mere prompt payment of the monthly installments as they fell due would obviate application of the interest charge of six percent (6%) per annum.600. has an interest component which compensates the vendor for waiting fifteen (15) years before receiving the total principal amount of P10. of course.600. as the outstanding balance on the principal gradually declined.00 ) To suppose. Economically or financially. P16.e.00.monthly installments.600.00 and the cash price of P10. ... Branch 57....: ERMINDA F.00. seeking YNARES-SANTIAGO.... to reverse and set aside the Decision. modified the Decision dated 30 April 2001 of AUSTRIA-MARTINEZ... September 12... Promulgated: WHEREFORE.. the appeal is PARTLY GRANTED..versus - G.contract turn out to be financially disadvantageous to them will not relieve them of their obligations therein..... in Case No... Inc.. Petitioner. premises considered.... The dispositive portion of the assailed appellate courts Decision thus reads: SUPERVALUE....R. the Regional Trial Court (RTC) of Makati. the petition is DISMISSED.R. No. representing the security deposits made by the petitioner upon the commencement of REYES... J.000.. their Contract of Lease. filed by petitioner Erminda F. 2001 Decision of the Regional Trial Court of Makati. FLORENTINO. . 00-1015..[2] dated 19 April 2006 of the Court of Appeals in CA-G.. 200 x... 73853..... JJ... Civil respondent Supervalue. and of P192.. in its assailed Decision and Resolution.[1] dated 10 October 2003 and the Resolution. The appellate court.. The April 30.. INC.-x DECISION CHICO-NAZARIO.. Respondent. 172384 Before this Court is a Petition for Review Present: on Certiorari under Rule 45 of the Revised Rules of Court.000..[52] IN VIEW WHEREOF. Branch 57 is therefore MODIFIED to wit: (a) the portion ordering the [herein respondent] to pay the amount of P192. finding the CHICO-NAZARIO..00 representing the security . Florentino.. CV No. liable for the sum NACHURA.. Costs against the petitioner.. Chairperson. The decision of the Court of Appeals is affirmed. deposits and P50. again in violation of the terms of the contract. petitioner and respondent executed three Contracts of Lease containing similar terms and conditions over the cart-type stalls at SM North Edsa and SM Southmall and a store space at Respondent observed that petitioner was frequently closing earlier than the usual mall hours. a sole proprietorship engaged in the retail of empanada with outlets in different malls and business establishments within Metro Manila. The term of each contract is for a period of four months and may be renewed upon agreement of the parties. both dated 14 January 2000. A stern warning was thus given to petitioner to refrain from committing similar infractions in the future in order to avoid the termination of the lease contract.[4] Respondent also charged petitioner with selling a new variety of empanada called mini-embutido and of increasing the price of her merchandise from P20.000.[9] Petitioner is doing business under the business name Empanada Royale.[8] The factual and procedural antecedents of the instant petition are as follows: In the first letter.[7] Before the expiration of said Contracts of Lease. the parties agreed to renew the same by extending their terms until 31 March 2000. and (b) the portion ordering the return to [petitioner] the properties seized by [respondent] after the former settled her obligation with the latter is however MAINTAINED.[5] On 8 March 1999. is hereby REVERSED and SET ASIDE. without the prior approval of the respondent.00 as attorneys fees in favor of the [herein petitioner] as well as giving [respondent] the option to reimburse [petitioner] of the value of the improvements introduced by the [petitioner] on the leased [premises] should [respondent] choose to appropriate itself or require the [petitioner] to remove the improvements. petitioner was charged with violating Section 8 of the Contracts of Lease by not opening on 16 December 1999 and 26 December 1999. either because of non-delivery or delay in the delivery of stocks to her outlets. petitioner received two letters from the respondent. transmitted through facsimile transmissions. [10] Respondent. or on 4 February 2000.00.00 toP22. is a domestic corporation engaged in the business of leasing stalls and commercial store spaces located inside SM Malls found all throughout the country. on the other hand.[11] .[3] SM Megamall.[6] Upon the expiration of the original Contracts of Lease. petitioner alleged that the respondent. only to find out a year later that the respondent will no longer renew her lease contracts for all three outlets. petitioner claimed that the respondent seized her equipment and personal belongings found inside the store space in SM Megamall after the lease contract for the said outlet expired and despite repeated written demands from the petitioner.00. petitioner alleged that the respondent made verbal representations that the Contracts of Lease will be renewed from time to time and.000.000. To the contrary. Petitioner also asked for the award of P300. through the said representations.000.00. respondent continuously refused to return the seized items.00 as attorneys fees and expenses of litigation. P50.[17] In addition. in the sum of P192. respondent informed the petitioner that it will no longer renew the Contracts of Lease for the three outlets. taste and ingredients as those of pork empanada.000. cost of improvements and the value of the personal properties seized.00 as exemplary damages.[13] Such explanation notwithstanding. petitioner demanded that the respondent release the equipment and personal belongings it seized from the SM Megamall store space and return the security deposits.[20] . [15] On 17 August 2000. its size was reduced in order to make it more affordable to the buyers. 001015. petitioner explained that the mini-embutido is not a new variety of empanada but had similar fillings. the petitioner was induced to introduce improvements upon the store space at SM Megamall in the sum of P200.00 as moral damages. and P80. without justifiable cause and without previous demand. turned over by the petitioner upon signing of the Contracts of Lease. respondent still refused to renew its Contracts of Lease with the petitioner.[19] Petitioner thus prayed for the award of actual damages in the sum of P472. only. Branch 57.000. but the latter failed or refused to comply therewith. petitioner sent respondent another letter reiterating her previous demands.[18] Further. an action for Specific Performance.00. On 15 June 2000.000.In the second letter. Sum of Money and Damages was filed by the petitioner against the respondent before the RTC of Makati.[16] In her Complaint docketed as Civil Case No.[12] In a letter-reply dated 11 February 2000. upon their expiration on 31 March 2000. representing the sum of security deposits.00. [14] In a letter dated 8 May 2000.000. respondent took possession of the store space in SM Megamall and confiscated the equipment and personal belongings of the petitioner found therein after the expiration of the lease contract. refused to return the security deposits in the amount ofP192. electricity and water bills. respondent was justified in forfeiting the security deposits in the latters favor. the respondent thus opted not to renew its Contracts of Lease with her anymore. The [respondent] is likewise ordered to return to the [petitioner] the various properties seized by the former after settling her account with the [respondent].00 representing the security deposits made by the [petitioner] and P50.For its part. The other damages claimed by the plaintiff are denied for lack of merit.000. premises duly considered. among other charges incidental to the lease agreements. as mandated by the provision of Section 2 of the Contract of Lease. and since petitioner committed several infractions thereof. The security deposits were made in order to ensure faithful compliance with the terms of their lease agreements. .00 as and for attorneys fees. however. On 30 April 2001. considering that the petitioner failed to settle the said obligations up to the time the complaint was filed. Respondent claimed that the seizure of petitioners personal belongings and equipment was in the exercise of its retaining lien. even though the principal thing may suffer damage thereby. the [respondent] may choose either to reimburse the [petitioner] one half (1/2) of the value of the improvements introduced by the plaintiff at SM Megamall should [respondent] choose to appropriate the improvements to itself or require the [petitioner] to remove the improvements. and rental adjustment. judgment is hereby rendered ordering the [herein respondent] to pay [herein petitioner] the amount of P192. [Petitioner] shall not. respondent countered that petitioner committed several violations of the terms of their Contracts of Lease by not opening from 16 December 1999 to 26 December 1999. cause anymore impairment upon the said leased premises than is necessary.000. The decretal part of the RTC Judgment reads: WHEREFORE. Respondent finally averred that petitioner is liable for the amount P106. and by introducing a new variety of empanada without the prior consent of the respondent. representing the penalty for selling a new variety of empanada. Respondent also alleged that petitioner infringed the lease contract by frequently closing earlier than the agreed closing hours.09. the RTC rendered a Judgment [22] in favor of the petitioner and found that the physical takeover by the respondent of the leased premises and the seizure of petitioners equipment and personal belongings without prior notice were illegal.474. Lastly.[21] Considering that petitioner already committed several breaches of contract. the respondent appealed the adverse RTC Judgment to the Court of Appeals.Aggrieved. maintained the order of the trial court for respondent to return to petitioner her properties after she has settled her obligations to the respondent. DEPOSIT. the appellate court declared that in view of the breaches of contract committed by the petitioner. the Court of Appeals modified the RTC Judgment and found that the respondent was justified in forfeiting the security deposits and was not liable to reimburse the petitioner for the value of the improvements introduced in the leased premises and to pay for attorneys fees. Whether or not the respondent is liable to reimburse the petitioner for the sum of the improvements she introduced in the leased premises. this instant Petition for Review on Certiorari[26] filed by the petitioner assailing the Court of Appeals Decision. In a Decision[23] dated 10 October 2003. The LESSEE shall make a cash deposit in the sum of SIXTY THOUSAND PESOS (P60. Moreover. The appellate court denied petitioners Motion for Reconsideration in a Resolution [25] dated 19 April 2006.] the deposit shall be refunded to the LESSEE upon the expiration of this Lease .00) equivalent to three (3) months rent as security for the full and faithful performance to each and every term. For the resolution of this Court are the following issues: I.[27] The appellate court. The deposit shall remain intact during the entire term and shall not be applied as payment for any monetary obligations of the LESSEE under this contract. covenant and condition of this lease and not as a pre-payment of rent. Hence. If at any time during the term of this lease the rent is increased[. since the petitioner did not obtain the consent of the respondent before she introduced improvements on the SM Megamall store space. provision. II. [24] The Court of Appeals.] the LESSEE on demand shall make an additional deposit equal to the increase in rent. the respondent is justified in forfeiting the security deposits. Whether or not the respondent is liable for attorneys fees. In modifying the findings of the lower court. Whether or not the respondent is liable to return the security deposits to the petitions. the respondent has therefore no obligation to reimburse the petitioner for the amount expended in connection with the said improvements. If the LESSEE shall faithfully perform every provision of this lease[.000. however. III. to wit: Section 5. in finding that the respondent is authorized to forfeit the security deposits. relied on the provisions of Sections 5 and 18 of the Contract of Lease. The LESSOR shall not be required to keep the deposit separate from its general funds and the deposit shall not be entitled to interest. non-performance or non-observance of the terms and conditions herein provided shall constitute default which shall be sufficient ground to terminate this lease. damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. As a general rule. good customs. Nevertheless. if there is no stipulation to the contrary. 1226. and LESSOR shall forfeit in its favor the deposit tendered without prejudice to any such other appropriate action as may be legally authorized. courts may equitably reduce a stipulated penalty in the contracts in two instances: (1) if the principal obligation has been partly or irregularly complied with. courts are not at liberty to ignore the freedoms of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law. In obligations with a penal clause. its extension or renewal. the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance.[29] The obligor would then be bound to pay the stipulated indemnity without the necessity of proof of the existence and the measure of damages caused by the breach. A penal clause is an accessory undertaking to assume greater liability in case of breach.[28] Since it was already established by the trial court that the petitioner was guilty of committing several breaches of contract. It is attached to an obligation in order to insure performance and has a double function: (1) to provide for liquidated damages.and upon satisfaction of obligation to the LESSOR. Nevertheless. Any breach. the Court of Appeals decreed that she cannot therefore rightfully demand the return of the security deposits for the same are deemed forfeited by reason of evident contractual violations.[30] Article 1226 of the Civil Code states: Art. and (2) even if there has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229 of the Civil Code which clearly provides: . the LESSOR shall demand that LESSEE immediately vacate the premises. It is undisputed that the above-quoted provision found in all Contracts of Lease is in the nature of a penal clause to ensure petitioners faithful compliance with the terms and conditions of the said contracts. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. public order or public policy. TERMINATION. morals. and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. In which event. all monetary xxxx Section 18. ETC. shall become LESSORs property without compensation/reimbursement but the LESSOR reserves the right to require the . ALTERATIONS. by and large.Art. additions or improvements made on the leased premises. Court of Appeals. or improvements without the prior written consent of LESSOR. without defacing the buildings or damaging its floorings. the following provision in the Contracts of Lease will enlighten us in resolving this issue: Section 11.00 to the petitioner.000. extent and purpose of the penalty. The respondent is therefore under the obligation to return the 50% of P192. The LESSEE shall not make any alterations. except movable or fixtures put in at LESSEEs expense and which are removable. the mode of breach and its consequences. the nature of the obligation. the supervening realities. the type. the application of which.000. and all alterations. The forfeiture of the entire sum of P192. It is but equitable therefore to reduce the penalty of the petitioner to 50% of the total amount of security deposits. and the like.[31] In ascertaining whether the penalty is unconscionable or not. is addressed to the sound discretion of the court. the penalty may also be reduced by the courts if it is iniquitous or unconscionable. but not necessarily confined to. In the instant case. the forfeiture of the entire amount of the security deposits in the sum of P192. Turning now to the liability of the respondent to reimburse the petitioner for one-half of the expenses incurred for the improvements on the leased store space at SMMegamall. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. xxx. this court set out the following standard in Ligutan v.[32] to wit: The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factor as. IMPROVEMENTS. additions.00 was excessive and unconscionable considering that the gravity of the breaches committed by the petitioner is not of such degree that the respondent was unduly prejudiced thereby. 1229.00 is clearly a usurious and iniquitous penalty for the transgressions committed by the petitioner.000. It is in the exercise of its sound discretion that this court tempered the penalty for the breaches committed by the petitioner to 50% of the amount of the security deposits. ADDITIONS. Even if there has been no performance. the standing and relationship of the parties. without altering the form or substance of the property leased. 1678. especially store spaces located inside malls and big commercial establishments. It was not even alleged by the petitioner that she obtained such consent or she at least attempted to secure the same.000. In the case at bar. additions or improvements upon expiration of the lease. Certainly. Should the lessor refuse to reimburse said amount. Court of Appeals. On the other hand. it was not shown that petitioner previously secured the consent of the respondent before she made the improvements on the leased space in SM Megamall. it is consonant with human experience that lessees. [34] Moreover. The foregoing provision in the Contract of Lease mandates that before the petitioner can introduce any improvement on the leased premises. If the lessee makes. useful improvements which are suitable to the use for which the lease is intended. both must agree to renew if a new contract is to come about. the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. In ruling that the respondent is liable to reimburse petitioner one half of the amount of improvements made on the leased store space should it choose to appropriate the same. the lessee may remove the improvements. the petitioner asserted that respondent allegedly misrepresented to her that it would renew the terms of the contracts from time to time after their expirations. This argument was squarely addressed by this court in Fernandez v. hence. and that the petitioner was so induced thereby that she expended the sum of P200. she should first obtain respondents consent. even though the principal thing may suffer .removal of the said alterations.[33] thus: The Court ruled that the stipulation of the parties in their lease contract to be renewable at the option of both parties stresses that the faculty to renew was given not to the lessee alone nor to the lessor by himself but to the two simultaneously. no inducement or misrepresentation from the lessor is necessary for this purpose. for it is not only a matter of necessity that a lessee should re-design its place of business but a business strategy as well. in good faith. and unenforceable under the statute of frauds. would renovate the place and introduce improvements thereon according to the needs and nature of their business and in harmony with their trademark designs as part of their marketing ploy to attract customers. the RTC relied on the provision of Article 1678 of the Civil Code which provides: Art. before occupying the leased premises. Petitioners contention that respondents had verbally agreed to extend the lease indefinitely is inadmissible to qualify the terms of the written contract under the parole evidence rule.00 for the improvement of the store space leased. but only possessor in good faith may retain the thing until he has been reimbursed therefor. the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. Necessary expenses shall be refunded to every possessor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention. to be entitled to reimbursement for improvements introduced on the property. he shall pay reasonable rent. the lessor is under the obligation to pay the lessee one-half of the value of the improvements made should the lessor choose to appropriate the improvements. While it is true that under the above-quoted provision of the Civil Code. after payment of the indemnity provided for in articles 546 and 548. which provide: Art.e. However. Court of Appeals. In Geminiano v. The parties shall agree upon the terms of the lease and in case of disagreement. cause any more impairment upon the property leased than is necessary. and the one who sowed. however.damage thereby. sowing or planting. the proper rent. which allow full reimbursement of useful improvements and retention of the premises until reimbursement is made. one who builds on land with the belief that he is the owner thereof. 546. The owner of the land on which anything has been built. xxxx Art. 448. Article 1678 however should be read together with Article 448 and Article 546 of the same statute. Articles 448 and 546 of the Civil Code. A builder in good faith is one who is unaware of any flaw in his title to the land at the time he builds on it. the petitioner must be considered a builder in good faith. if the owner of the land does not choose to appropriate the building or trees after proper indemnity.[36] this Court was emphatic in declaring that lessees are not possessors or builders in good faith. i. the court shall fix the terms thereof.. shall have the right to appropriate as his own the works. In such case. the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. thus: . the petitioner cannot claim that she was not aware of any flaw in her title or was under the belief that she is the owner of the subject premises for it is a settled fact that she is merely a lessee thereof. Further. He shall not. Thus. apply only to a possessor in good faith. sown or planted in good faith.[35] In this case. or to oblige the one who built or planted to pay the price of the land. it would always be in the power of the tenant to "improve" his landlord out of his property. G. i. As we have found herein. which allows full reimbursement of useful improvements and retention of the premises until reimbursement is made. there is basis for respondents refusal to return to petitioner the security deposits and to reimburse the costs of the improvements in the leased premises.e. we resolve to likewise deny the award of the same. 2013 SPOUSES FLORENTINO T.00. one who builds on land with the belief that he is the owner thereof. this Court has held that Article 448 of the Civil Code. Plainly. in relation to Article 546 of the same Code. In a plethora of cases.. the instant Petition is PARTLY GRANTED. It does not apply where one's only interest is that of a lessee under a rental contract. The award of attorneys fees is therefore not proper in the instant case. Respondent. The Court of Appeals Decision dated 10 October 2003 in CA-G. Since petitioners interest in the store space is merely that of the lessee under the lease contract.000. 197861 June 5. Petitioners. the private respondents knew that their occupation of the premises would continue only for the life of the lease. WHEREFORE. No costs. they cannot be considered as possessors nor builders in good faith. Anent the claim for attorneys fees. 73853 is hereby AFFIRMED with the MODIFICATION that the respondent may forfeit only 50% of the total amount of the security deposits in the sum ofP192. vs. applies only to a possessor in good faith. otherwise. she cannot therefore be considered a builder in good faith. No. Attorneys fees may be awarded when a party is compelled to litigate or to incur expenses to protect its interest by reason of unjustified act of the other.R. premises considered. MALLARI. DECISION .Consequently. PRUDENTIAL BANK (now BANK OF THE PHILIPPINE ISLANDS). respondent may appropriate the improvements introduced on the leased premises without any obligation to reimburse the petitioner for the sum expended. it was not shown that the respondent unjustifiably refused to grant the demands of the petitioner so as to compel the latter to initiate legal action to enforce her right. CV No.R. and must return the remaining 50% to the petitioner. MALLARI and AUREA V.Being mere lessees.[37] In the instant petition. On April 20. 1990. 1985.a.. Petitioner Florentino executed a Deed of Assignment4 wherein he authorized the respondent bank to pay his loan with his time deposit with the latter in the amount of P300. while the P1. BDS 606-895 with a maturity date of March 22. a penalty and collection charges of 12% p. 1992. of the total amount due.. petitioners spouses Florentino and Aurea Mallari (petitioners) obtained again from respondent bank another loan of P1.82 for PN No.000.). Petitioners executed a Deed of Real Estate Mortgage6 in favor of respondent bank covering petitioners' property under Transfer Certificate of Title (TCT) No. BDS 606-89. 2010 and the Resolution2 dated July 20. 2011 of the Court of Appeals (CA) in CA-G.R. J. of the total amount due. the latter.a. respondent bank filed with the Regional Trial Court (RTC) of Tarlac. that: (1) the P300. among others.00 and.00 loan was already P3. 284051 had already been assigned to respondent bank. a petition for the extrajudicial foreclosure of petitioners' mortgaged property for the satisfaction of the latter's obligation ofP1.171.a.000.294.836. deeds. BD 84-055 and P2. 1992.000.18.991. They stipulated that the loan will bear 23% interest p. 1992.043. temporary restraining order and damages claiming.00.a. respondent bank's Assistant Manager sent petitioners two (2) separate Statements of Account as of April 23. the loan was subject to an interest rate of 21% per annum (p.7 On April 10. petitioner Florentino T. (2) respondent bank .3 Under the promissory note. a loan in the amount of P300.00 as evidenced by Promissory Note (PN) No. thus. and penalty and collection charges of 12% p.54 for PN No.7 million as evidenced by PN No. attorney's fees equivalent to 15% of the total amount due but not less than P200. 65993. The loan had a maturity date of January 10. On February 25. T-215175 of the Register of Deeds of Tarlac to answer for the said loan. which when computed up to January 31. 1992. the auction sale was set by the Provincial Sheriff on April 23. but was renewed up to February 17. because the time deposit with the same amount under Certificate of Time Deposit No. The antecedent facts are as follows: On December 11. preliminary injunction.a. amounted to P571. attorney's fees equivalent to 15% p.000. i. 1984. 1989.e. petitioners filed a complaint for annulment of mortgage.PERALTA. but not less than P200. thus. 1985.700. 1992. CV No. Petitioners failed to settle their loan obligations with respondent bank.00 loan obligation should have been considered paid. the loan of P300. 1992.218.54. On December 22.000.000. in case of default.00. through its lawyer. Mallari (Florentino) obtained from respondent Prudential BankTarlac Branch (respondent bank). BD 84-055. sent a demand letter to the former for them to pay their obligations.: Before us is a Petition for Review on Certiorari under Rule 45.700.00 was increased to P594. assailing the Decision1 dated June 17. injunction.00 secured by such mortgage. Considering there is no evidence of bad faith. On November 15. 1992 provided for a computation of interest and penalty charges only from May 26. the RTC reversed itself and issued the restraining order in its Order9 dated January 14. 1993. 1992. Subsequently. Respondent bank also claimed that petitioners were fully apprised of the bank's terms and conditions. respondent bank filed a Demurrer to Evidence. this case is hereby ordered DISMISSED. the RTC issued its Order13 denying respondent bank's Motion to Dismiss Complaint.7 million covered by PN No.00 loan covered by another PN No.000.00. Petitioner Florentino was presented as the lone witness for the plaintiffs.12 On November 19. Subsequently. and not the P300. which were used in computing for interest charges. and (3) the statement of account as of April 10. Petitioners asked the court to restrain respondent bank from proceeding with the scheduled foreclosure sale.still added the P300. In an Order8 dated November 10. in petitioners' Supplemental Motion for Issuance of a Restraining Order and/or Preliminary Injunction to enjoin respondent bank and the Provincial Sheriff from effecting or conducting the auction sale. Respondent bank filed its Answer with counterclaim arguing that: (1) the interest rates were clearly provided in the promissory notes. and that the extrajudicial foreclosure was sought for the satisfaction of the second loan in the amount of P1. the RTC denied the Application for a Writ of Preliminary Injunction. Trial thereafter ensued. 1998.500.000. (2) as early as January 1986. 1993. Respondent bank then proceeded with the extrajudicial foreclosure of the mortgaged property. 84-055. since the proceeds of petitioners' time deposit was applied to the payment of interest and penalty charges for the preceding period. Respondent bank filed its Motion to Lift Restraining Order. 1989. the dispositive portion of which reads: WHEREFORE. respondent bank filed a Motion to Dismiss Complaint11 for failure to prosecute action for unreasonable length of time to which petitioners filed their Opposition. BDS 606-89 and the real estate mortgage. a Certificate of Sale was issued to respondent bank being the highest bidder in the amount of P3. 1999. . 1993. the Court need not order the plaintiffs to pay damages under the general concept that there should be no premium on the right to litigate. the RTC issued its Order14 granting respondent's demurrer to evidence.00 loan. On July 7. which the RTC granted in its Order10 dated March 9. petitioners' time deposit was made to apply for the payment of interest of their P300.000.000.00 loan to theP1. However. and (3) they realized that there were onerous terms and conditions imposed by respondent bank when it tried to unilaterally increase the charges and interest over and above those stipulated.7 million loan obligation for purposes of applying the proceeds of the auction sale. 1993.000. hence. The RTC found that the 23% interest rate p. It found that since petitioners' obligation had reached P2. the latter should return to petitioners the difference of P1. which was later extended to February 17. Thus. petitioners had assigned petitioner Florentino's time deposit in the amount of P300. 2010.7 million and respondent bank's bid price was P3. the stipulated interest and penalty charges from January 31. 7550 is hereby AFFIRMED.7 million loan which petitioners obtained from respondent bank after the P300. the instant appeal is hereby DENIED.7 million loan which showed they had not complied with any part of the obligation. in Civil Case No.00 was equivalent only to the principal amount of the loan ofP300. Tarlac City.000.5 million as of the auction sale.00 in favor of respondent bank. 1992. after the restraining order was lifted. if the loan was unpaid. Branch 64. thus.000.00 as penalty charges was unjust and without basis.991.00 loan.00 loan to the P1. However. which was then the prevailing loan rate of interest could not be considered unconscionable. it had reached the amount of P3.00 and would not be sufficient to cover the interest.18 per Statement of Account dated April 27.8 million.171. respondent bank should had just applied the time deposit to the loan.. since petitioners had not paid any single centavo of the P1. the dispositive portion of which reads: WHEREFORE. As to the P1.600. collection charges and attorney's fees agreed upon. 1993. and allowed the loan interest to accumulate reaching the amount of P594. but the certificate of sale was executed by the sheriff only on July 7. 1985. the CA issued its assailed Decision.294.000. It also found that Article 1229 of the Civil Code invoked by petitioners for the reduction of the interest was not applicable. the amount of P292. penalty.000. since banks are not hospitable or equitable institutions but are entities formed primarily for profit.7 million loan obligation for purposes of applying the proceeds of the auction sale. in the Statement of Account dated . which maturity coincided with petitioners' loan maturity. The RTC found no legal basis for petitioners' claim that since the total obligation was P1.a. and that contrary to petitioners' claim. 1992. 1999 issued by the Regional Trial Court (RTC). 1993 added to the loan already amounted to P3. A Comment was filed by respondent bank and petitioners filed their Reply thereto.16 The CA found that the time deposit of P300. respondent bank did not add the P300. On June 17.00 loan.000. The Order dated November 15. 1992 to July 7.54 as of April 10. Petitioners appealed the RTC decision to the CA.043.5 million. SO ORDERED. which was computed based on the 23% interest rate and 12% penalty charge agreed upon by the parties.82 as of January 31.836. respondent bank did not.NO COSTS.15 The RTC found that as to the P300. 00 loan excessive. 1999. which we find under the circumstances excessive and reduced the same to 1% per month.23 where the stipulated interest rates were 7% and 5% a month. . terms and conditions as they may deem convenient. valid.54. the interest rate agreed upon by the parties was only 23% p. We said that we need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive. petitioners now contend that the interest rate of 23% p.a.a. In this case. or less than 2% per month.000.5% per month on aP500.a. 1992. In Toring v.. good customs.22 the stipulated interest rates involved were 3% and 3.19 and Chua v. As Article 1306 of the Civil Code provides. since such contract is the law between the parties.April 10. penalty charge on petitioners'P1.a. which are much lower than those interest rates agreed upon by the parties in the above-mentioned cases. Thus. the stipulation was void for being contrary to morals. Timan. TARLAC CITY. petitioners and respondent bank agreed upon on a 23% p. COURT OF APPEALS ERRED IN AFFIRMING THE ORDER OF THE RTC-BRANCH 64.20 We are not persuaded. Spouses Ganzon-Olan. provided they are not contrary to law.24 In this case. but such freedom is not absolute. clauses. Petitioners filed their Motion for Reconsideration. However.21 we found the stipulated interest rate of 66% p.7 million loan.81% per month on a P10 million loan. unconscionable and exorbitant. likewise. petitioners filed this petition for review arguing that: THE HON.000. interest rate on the P1.700. which the CA denied in a Resolution dated July 20." Hence. invoking our ruling in Medel v.00 loan was added to the P1. the outstanding balance of petitioners' loan wasP594. imposed by respondent bank is excessive or unconscionable.a.a. Spouses GanzonOlan. Hence.00 loan to which they agreed upon is excessive or unconscionable under the circumstances. It also found not persuasive petitioners' claim that the P300.a. public order.18 Toring v. found that the interest rates and penalty charges imposed were not unconscionable and adopted in toto the findings of the RTC on the matter.000. Court of Appeals.7 million loan. "The contracting parties may establish such stipulations. we had reduced the same to 1% per month or 12% p. hence. DATED NOVEMBER 15. which are equivalent to 84% and 60% p. the parties thereto are bound to comply with them.a. Timan. if the stipulations in the contract are In Medel v. contrary to morals if not against the law and declared such stipulation void. respectively. The CA. interest rate and the 12% p.. 2011. unconscionable and exorbitant.17 The issue for resolution is whether the 23% p. DESPITE THE FACT THAT THE SAME IS CONTRARY TO SETTLED JURISPRUDENCE ON THE MATTER. Court of Appeals. or a 5. morals. or public policy. hence. Parties are free to enter into agreements and stipulate as to the terms and conditions of their contract. While in Chua v.043. CA. Also referred to as a penalty clause.a. we answered in the negative and held: In Spouses Zacarias Bacolor and Catherine Bacolor v.25 where the issue raised was whether the 24% p. in Garcia v. and is separate and distinct from interest payment.1âwphi1 This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. provided for in the subject mortgage contracts for a loan of P225.00.00 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender. interest rate imposed on petitioners' loan in this case can by no means be considered excessive or unconscionable. In Ruiz v. stipulated interest rate was not considered unconscionable.a. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. The obligor would then be bound to pay the stipulated amount of indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. We do not consider the interest rate of 23% p. Based on the above jurisprudence. x x x28 And in Development Bank of the Philippines v. considering that the mortgage agreement was freely entered into by both parties. Court of Appeals. agreed upon by petitioners and respondent bank to be unconscionable. Moreover.there is no similarity of factual milieu for the application of those cases.a. this Court sustained the agreement of the parties to a 24% per annum interest on an P8. the same is the law between them and they are bound to comply with the provisions contained therein. As such.00.000..a.27 we held: The 1% surcharge on the principal loan for every month of default is valid. 2227 of the New Civil Code. may not be considered unconscionable.250. thus.649.. the Court finds that the 24% per annum interest rate.a. Dagupan City Branch. the 23% p. Family Foods Manufacturing Co. the Court ruled that the borrowers cannot renege on their obligation to comply with what is incumbent upon them under the contract of loan as the said contract is the law between the parties and they are bound by its stipulations. penalty charge excessive or unconscionable. stipulated interest rate is unreasonable under the circumstances.29 we held that: .000. agreed upon by the parties. it is expressly recognized by law.26 Clearly. may not be considered as unconscionable and excessive. this Court held that the interest rate of 24% per annum on a loan of P244. In Villanueva v. Court of Appeals. Banco Filipino Savings and Mortgage Bank. Ltd. We also do not find the stipulated 12% p. Also. jurisprudence establish that the 24% p. and from an order of the same court denying a motion of the defendantsappellants for the reconsideration of the judgment on the ground that they were deprived of their day in court. in order to avoid the payment of the penalty. Sta. Cruz. WHEREFORE. A contract is the law between the parties and they are bound by the stipulations therein. No. and since there was no showing that petitioners' failure to perform their obligation was due to force majeure or to respondent bank's acts. 1954 MARTINA QUIZANA. The non-performance gives rise to the presumption of fault. Salaping umiiral dito sa Filipinas na aming tinanggap na husto at walang kulang sa kanya sa condicion na ang halagang aming inutang ay ibabalik o . LABRADOR. defendants-appellants. with interest from the time of the filing of the complaint. G. signed by the defendants-appellants on October 4. The action was originally instituted in the justice of the peace court of Sta. vs.R. 2010 and the Resolution dated July 20.30 Here. SO ORDERED. and the same is based on an actionable document attached to the complaint. Sabino Palomares for appellee. wherein the defendants-appellants are ordered to pay the plaintiff-appellee the sum of P550.the failure of the performance was due to either force majeure or the acts of the creditor himself. Cruz. 2011 of the Court of Appeals are hereby AFFIRMED. GAUDENCIO REDUGERIO and JOSEFA POSTRADO. at naninirahan sa Hupi. Marinduque. L-6220 May 7. 1948. J. Samson and Amante for appellants. penalty charge.00). balo. plaintiff-appellee. The Decision dated June 17. and containing the following pertinent provisions: Na alang-alang sa aming mahigpit na pangangailangan ay kaming magasawa ay lumapit kay Ginang Martina Quizana. the debtor has the burden of proving an excuse .a. petitioners cannot now back out on their obligation to pay the penalty charge. petitioners defaulted in the payment of their loan obligation with respondent bank and their contract provided for the payment of 12% p. at kami ay umutang sa kanya ng halagang Limang Daan at Limang Pung Piso (P550.x x x The enforcement of the penalty can be demanded by the creditor only when the non-performance is due to the fault or fraud of the debtor. the petition for review is DENIED.: This is an appeal to this Court from a decision rendered by the Court of First Instance of Marinduque. Marinduque. Kapuluang Filipinas at ito ay nalilibot ng mga kahanganang sumusunod: Sa Norte. sa este. Josefa Postrado. the defendantsappellants did not execute the document as agreed upon. The main question raised in this appeal is the nature and effect of the actionable document mentioned above. This last contention of the plaintiff-appellee is due to a loose language in the answer filed with the Court of First Instance.babayaran namin sa kanya sa katapusan ng buwan ng Enero. Pinagkasunduan din naming magasawa sa sakaling hindi kami makabayad sa taning na panahon ay aming ipifrenda o isasangla sa kanya ang isa naming palagay na niogan sa lugar nang Cororocho." alleging that on the day set for the hearing (August 16. Catalina Reforma. at sa Oeste. 1951). On the date of the trial the court denied the defendants-appellants' motion for continuance. praying that the decision be set aside on the ground that sufficient time in advance was given to the court to pass upon their motion for continuance. As early as July 30 counsel for the defendants-appellants presented an "Urgent Motion for Continuance. in the absence of the defendantsappellants and their counsel. according to their answer. sa sur. but that the same was not passed upon. The case was set for hearing in the Court of First Instance on August 16. barrio ng Balogo. ______ na nasa pangalan ko. Reodoro Ricamora. and that even if it were so. municipio ng Santa Cruz. which fixed payment on January 31. claims that this part of the written obligation is not binding upon him for the reason that he did not sign the agreement. filed a motion for reconsideration. Dionisio Ariola. no natatala sa gobierno sa ilalim ng Declaracion No. the defendants-appellants appealed to the Court of First Instance. lalawigang Marinduque. they would appear in the hearing of two criminal cases previously set for trial before they received notice of the hearing on the aforesaid date. but. 1949. This motion was not acted upon until the day of the trial. Judgement having been rendered by the justice of the peace court of Sta. it will be seen that what the defendants-appellants wanted to allege is that they themselves had offered to execute the document of . and after hearing the evidence for the plaintiff. In that court they reiterated the defenses that they presented in the justice of the peace court. and enforced its last first part. as special defense. Dalmacio Constantino. taong 1949. they offered to pledge the land specified in the agreement and transfer possession thereof to the plaintiff-appellee. The defendants-appellants admit the execution of the document. but that the latter refused said offer. but claim. 1951. Cruz. 1949. But upon careful scrutiny. rendered the decision appealed from. and was set for hearing on August 4. that since the 31st of January. for his part. The trial court evidently ignored the second part of defendants-appellants' written obligation. The plaintiff-appellee. The motion was submitted on August 2. This motion for reconsideration was denied. Defendants-appellants upon receiving copy of the decision. demanded the plaintiff-appellee to do so. 1206. but the obligor may render another in substitution. there is no ground or reason why it should not be given effect. is valid and binding and effective upon the plaintiff-appellee. (emphasis ours. it is not contrary to law or public morals or public policy. The decisive question at issue. xxx xxx xxx This is a new provision and is not found in the old Spanish Civil Code. therefore. 2253. in compliance with the terms and conditions thereof. and notwithstanding the absence of any legal provision at the time it was entered into government it. the defendants made efforts to execute the necessary documents of mortgage and to deliver the same to the plaintiff. defined in article 1206 of Civil Code of the Philippines. This second part of the obligation in question is what is known in law as a facultative obligation. . including the paragraph on the constitution of the mortgage. . in which the obligors agreed and promised to deliver a mortgage over the parcel of land described therein. When plaintiffappellee received the document. The acceptance by him of the written obligation without objection and protest. thus: ART. as the parties had freely and voluntarily entered into it. . It is a new right which should be declared effective at once. the obligation is called facultative. upon their failure to pay the debt on a date specified in the proceeding paragraph. he thereby accepted the said condition of the agreement. in consonance with the provisions of article 2253 of the Civil Code of the Philippines. the creditor. without any objection on his part to the paragraph thereof in which the obligors offered to deliver a mortgage on a property of theirs in case they failed to pay the debt on the day stipulated. which provides: ART. When only one prestation has been agreed upon. That immediately after the due date of the loan Annex "A" of the complaint. and the fact that he kept it and based his action thereon. but that the latter refused to have it executed unless. which was the one in force at the time of the execution of the agreement. is whether the second part of the written obligation. but the plaintiff refused to execute the proper documents and insisted on another portion of defendants' as additional security for the said loan. an additional security was furnished. The other reasons adduced by the plaintiff-appellee for claiming that the agreement was not binding upon him also deserves scant consideration.) In our opinion it is not true that defendants-appellants had not offered to execute the deed of mortgage.mortgage and deliver the same to the plaintiff-appellee. But if a right should be declared for the first time in this Code. are concrete and positive proof that he agreed and contested to all its terms. Thus the answer reads: 5. There is nothing in the agreement which would argue against its enforcement. it shall be effective at . In view of our favorable resolution on the important question raised by the defendants-appellants on this appeal. and in accordance with the provisions of the written obligation.. Petitioners. (Arco Pulp and Paper) through its Chief Executive Officer and President. It cannot be presumed and may be implied only if the old and new contracts are incompatible on every point. and Concepcion. which stemmed from a complaint3 filed in the Regional Trial Court of Valenzuela City. Jugo.968. Arco Pulp and Paper issued a post-dated .: Novation must be stated in clear and unequivocal terms to extinguish an obligation. of the same origin. Lim the value of the raw materials or deliver to him their finished products of equivalent value.4 From February 2007 to March 2007.. C. cartons. G. 2014 ARCO PULP AND PAPER CO. it becomes unnecessary to consider the other question of procedure raised by them. DAN T. and other raw materials. Montemayor.6 Dan T.once. The facts are as follows: Dan T. Lim works in the business of supplying scrap papers. Candida A. Enterprises. Inc.31 to Arco Pulp and Paper Company. Respondent. to factories engaged in the paper mill business. Paras. concur.J. Bengzon. in which court the defendants-appellants shall present a duly executed deed of mortgage over the property described in the written obligation. For the foregoing considerations. the judgment appealed from is hereby reversed. INC. with a period of payment to be agreed upon by the parties with the approval of the court. for collection of sum of money. 95709. Pablo. provided said new right does not prejudice or impair any vested or acquired right. and CANDIDA A. Bautista Angelo. Before us is a petition for review on certiorari1 assailing the Court of Appeals’ decision2 in CA-G. Without costs.. Santos. No.5 The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. LIM. 206806 June 25. SANTOS. J. JJ. Branch 171. doing business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS ENTERPRISES. even though the act or event which gives rise thereto may have been done or may have occurred under the prior legislation. the case is hereby remanded to the Court of First Instance.220.R. CV No. under the name Quality Paper and Plastic Products. he delivered scrap papers worth 7. DECISION LEONEN. vs.R. Lim alleged that when he delivered the raw materials. 17 Dan T. Arco Pulp and Paper filed its answer15 but failed to have its representatives attend the pre-trial hearing. full width 76 inches at the price of P18. Branch 171.968. Dan T. He argued that if his name was mentioned in the contract. holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement. Hence. 2007. (price subject to change per advance notice). it was only for supplying the parties their required scrap papers..8 When he deposited the check on April 18. novation took place.check dated April 18. 2008 and ordering Arco Pulp and Paper to jointly and severally pay Dan T. Lim.50 per kg. 20077 in the amount of 1. with the assurance that the check would not bounce. 2007. for his account. It has been agreed further that the Local OCC materials to be used for the production of the above Test Liners will be supplied by Quality Paper & Plastic Products Ent. Lim filed a complaint14 for collection of sum of money with prayer for attachment with the Regional Trial Court. Schedule of deliveries are as follows: . on May 28. the trial court allowed Dan T.31. The memorandum of agreement reads as follows: Per meeting held at ARCO. Quantity of Local OCC delivery will be based on the quantity of Test Liner delivered to Megapack Container Corp. Santos and Mr.. Lim.31 with interest at 12% per annum from . but no payment was made to him.487.968. novation did not take place since the memorandum of agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private agreement between them.50 per kg. Eric Sy’s account.. 2013.. 2008. According to the memorandum.9 On the same day. it has been mutually agreed between Mrs. 2007. the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM. total of 600 Metric Tons at P6. April 18. owned by Eric Sy. through his company.220. the raw materials would be supplied by Dan T.766. 2007. Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement10 where Arco Pulp and Paper bound themselves to deliver their finished products to Megapack Container Corporation. Quality Paper and Plastic Products. where his conformity through a separate contract was indispensable. Valenzuela City. it was dishonored for being drawn against a closed account.Lim sent a letter12 to Arco Pulp and Paper demanding payment of the amount of 7. to Megapack Container for Mr.19 On January 11. Candida A. the Court of Appeals20 rendered a decision21 reversing and setting aside the judgment dated September 19. based on the above production schedule. which extinguished Arco Pulp and Paper’s obligation to Dan T. Lim to present his evidence ex parte.16 On September 19.13 Dan T. According to him. Lim the amount ofP7.220.68 as partial payment.11 On May 5. Lim appealed18 the judgment with the Court of Appeals. 28 He also argues that the Court of Appeals was correct in holding petitioners solidarily liable since petitioner Candida A. petitioners argue that the execution of the memorandum of agreement constituted a novation of the original obligation since Eric Sy became the new debtor of respondent. The obligation between the parties was an alternative obligation The rule on alternative obligations is governed by Article 1199 of the Civil Code.31 with damages since the debt of petitioners remains unpaid. They also argue that there is no legal basis to hold petitioner Candida A. 99-2-04-SC dated November 21. argues that the Court of Appeals was correct in ruling that there was no proper novation in this case. Inc.. on the other hand. They also argue that when respondent allowed them to deliver the finished products to Eric Sy. they allege. and attorney’s fees can be awarded The petition is denied. Whether moral damages.27 Respondent. Santos.000. petitioners reiterate that novation took place since there was nothing in the memorandum of agreement showing that the obligation was alternative. 3. The Court of Appeals. Lim was entitled to damages and attorney’s fees due to the bad faith exhibited by Arco Pulp and Paper in not honoring its undertaking. which states: .the time of demand. P50.22 The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an alternative obligation. Candida A. On one hand. bring this petition for review on certiorari.000. No. He argues that the Court of Appeals was correct in ordering the payment of 7. P50. Santos was "the prime mover for such outstanding corporate liability.31 The issues to be resolved by this court are as follows: 1.00 exemplary damages. but it was noted without action in view of A.M. Santos was solidarily liable with Arco Pulp and Paper Co.220.000.23 It also ruled that Dan T.00 moral damages. Whether the obligation between the parties was extinguished by novation 2. also erred in awarding moral and exemplary damages and attorney’s fees to respondent who did not show proof that he was entitled to damages. Whether Candida A.24 25 Its motion for reconsideration having been denied.26 Arco Pulp and Paper and its President and Chief Executive Officer. exemplary damages. 2000.968."29 In their reply. and P50.00 attorney’s fees. the original obligation was novated. Santos personally liable for the transaction that petitioner corporation entered into with respondent.30 A rejoinder was submitted by respondent. 33 The choice of the debtor must also be communicated to the creditor who must receive notice of it since: The object of this notice is to give the creditor . and the fulfillment of one is sufficient. The memorandum of agreement did not constitute a novation of the original contract The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation of the contract between the parties. in the alternative. thereby extinguishing the option to deliver the finished products of equivalent value to respondent. or to impugn the election made by the debtor.968. By agreement.34 According to the factual findings of the trial court and the appellate court. whereby petitioner Arco Pulp and Paper. This choice was also shown by the terms of the memorandum of agreement. opportunity to express his consent. had the option to either (1) pay the price or(2) deliver the finished products of equivalent value to respondent. . they exercised their option to pay the price. after receiving the raw materials from respondent. When petitioner Arco Pulp and Paper opted instead to deliver the finished products to a third person.220. or if impugned by the latter. The payment for this delivery became petitioner Arco Pulp and Paper’s obligation. . and only after said notice shall the election take legal effect when consented by the creditor. When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap papers. the original contract between the parties was for respondent to deliver scrap papers worth P7. The memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished products would be to a third person. . therefore.Article 1199. A person alternatively bound by different prestations shall completely perform one of them.31 to petitioner Arco Pulp and Paper. "In an alternative obligation. as the debtor. which was executed on the same day. it did not novate the original obligation between the parties."32 The right of election is extinguished when the party who may exercise that option categorically and unequivocally makes his or her choice known.35 The appellate court. there is more than one object. Respondent’s receipt of the check and his subsequent act of depositing it constituted his notice of petitioner Arco Pulp and Paper’s option to pay. deliver to him the finished products of equivalent value. would either pay him the price of the raw materials or. determined by the choice of the debtor who generally has the right of election. correctly identified the obligation between the parties as an alternative obligation. petitioner Arco Pulp and Paper. when declared proper by a competent court. The creditor cannot be compelled to receive part of one and part of the other undertaking. there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement." In general. (1204) Article 1293. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. may be made even without the knowledge or against the will of the latter. it is imperative that it be so declared in unequivocal terms. Novation which consists in substituting a new debtor in the place of the original one. As such. or by subrogating a third person to the rights of the creditor. Obligations may be modified by: (1) Changing their object or principal conditions. In delegacion. Both modes of substitution by the debtor require the consent of the creditor. or that the old and the new obligations be on every point incompatible with each other. It occurs only when the new contract declares so "in unequivocal terms" or that "the old and the new obligations be on every point incompatible with each other. In expromision. (1203) Article 1292. Article 1293 of the Civil Code defines novation as follows: "Art. In order that an obligation may be extinguished by another which substitute the same."36 Novation was extensively discussed by this court in Garcia v. may be made even without the knowledge or against the will of the latter. Novation which consists in substituting a new debtor in the place of the original one. Novation may also be extinctive or modificatory. (1205a) Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or when there is subrogation of the creditor. it logically requires the consent of the third person and the creditor. (2) Substituting the person of the debtor. and the creditor accepts. a third person who consents to the substitution and assumes the obligation. since it consists of a third person’s assumption of the obligation. 1293. but not without the consent of the creditor.The rules on novation are outlined in the Civil Code. but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. Whether extinctive or . the initiative for the change does not come from — and may even be made without the knowledge of — the debtor. thus: Article 1291. thus. the debtor offers. by substituting a new debtor in place of the old one. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (3) Subrogating a third person in the rights of the creditor. Llamas:37 Novation is a mode of extinguishing an obligation by changing its objects or principal obligations. the consent of these three persons are necessary. Santos and Mr. referred to as objective or real novation. the obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. 2007. So it is deeply rooted in the Roman Law jurisprudence.1) There must be a previous valid obligation. For novation to take place. the following requisites must concur: 4) There must be a valid new contract. 2) The parties concerned must agree to a new contract. The memorandum of agreement must also state in clear and unequivocal . the old obligation for the new one. It is implied when the new obligation is incompatible with the old one on every point. . the principle — novatio non praesumitur —that novation is never presumed. Novation must be expressly consented to. The consent of the creditor must also be secured for the novation to be valid: 3) The old contract must be extinguished. Candida A. debitum pro debito — basically extinguishing In this case. This is clear from the first line of the memorandum. an act known as subjective or personal novation. respondent must have first agreed to the substitution of Eric Sy as his new debtor. thus: In the civil law setting. which states: Per meeting held at ARCO. . novatio is literally construed as to make new. The test of incompatibility is whether the two obligations can stand together. his conformity to the contract need not be secured. Eric Sy. or by substituting the person of the debtor or subrogating a third person to the rights of the creditor. it has been mutually agreed between Mrs.40 (Emphasis supplied) modificatory. its animus must be ever present.41 If the memorandum of agreement was intended to novate the original agreement between the parties. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. it is never presumed.39 (Emphasis supplied) There is nothing in the memorandum of agreement that states that with its execution. each one with its own independent existence.At bottom. It also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as respondent’s debtor. novation is made either by changing the object or the principal conditions.38 (Emphasis supplied) Because novation requires that it be clear and unequivocal. . the conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement. for novation tobe a jural reality. April 18. It merely shows that petitioner Arco Pulp and Paper opted to deliver the finished products to a third person instead. Novation may also be express or implied. respondent was not privy to the memorandum of agreement. thus. Moreover. reckless. (2) second. clearly sustained by the claimant. As this court stated: Moral damages are not recoverable simply because a contract has been breached. the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant. under the circumstances. the award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code. Since there was no novation. Neither of these circumstances is present in this case. there must be culpable act or omission factually established. (3) third.42 Further.43 Here. mental or psychological. therefore. petitioner Arco Pulp and Paper not only issued an unfunded check but also entered into a contract with a third person in an effort to evade its liability. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. This injury undoubtedly was caused by petitioner Arco Pulp and Paper’s act of refusing to pay its obligations. the injury suffered by respondent is the loss of P7. whether physical. They are recoverable only if the party from whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. Petitioners are liable for damages Under Article 2220 of the Civil Code. it showed that the former neither acknowledged nor consented to the latter as his new debtor. This has remained unpaid since 2007. This proves the third requirement.968.968. and not to Eric Sy.terms that it has replaced the original obligation of petitioner Arco Pulp and Paper to respondent. malicious or in bad faith. and oppressive or abusive. Petitioner Arco Pulp and Paper. When the obligation became due and demandable. moral damages may be awarded in case of breach of contract where the breach is due to fraud or bad faith: Art. Willfull injury to property may be a legal ground for awarding moral damages if the court should find that.220. These acts.220. to wit: (1)first. The breach must be wanton. Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their alleged intent to pass on their obligation to Eric Sy. clearly show that novation did not take place. the following requisites must be proven for the recovery of moral damages: An award of moral damages would require certain conditions to be met.31. (Emphasis supplied) Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach was due to fraud or bad faith. . must still pay respondent the full amount of P7. 2220. When respondent sent his letter of demand to petitioner Arco Pulp and Paper. petitioner Arco Pulp and Paper’s obligation to respondent remains valid and existing.31 from his business. there must be an injury. and (4) fourth. when taken together. such damages are justly due. and 35. (2) Quasi-delicts causing physical injuries. Article 19. When a party breaches a contract. which may become the basis of an action for damages. (3) Seduction. Breaches of contract done in bad faith. he or she goes against Article 19 of the Civil Code. 34. however. 26. cannot be its sole basis: Article 19 is the general rule which governs the conduct of human relations. It allows recovery should the act have been willful or negligent. (7) Libel. and observe honesty and good faith. act with justice. Failure to do so results in an abuse of that right. Article 21. shall indemnify the latter for the same. Every person must. (6) Illegal search. 30. (10) Acts and actions referred to in Articles 21. 28. good customs. 32. slander or any other form of defamation. give everyone his due. (8) Malicious prosecution. (9) Acts mentioned in Article 309. 29. (5) Illegal or arbitrary detention or arrest. good customs or public policy shall compensate the latter for the damage. To be actionable. wilfully or negligently causes damage to another. By itself. however. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries.44 Article 20 and 21 of the Civil Code are as follows: Article 20. 27. Article 19 describes the degree of care required so that an actionable tort may arise when it is alleged together with Article 20 or Article 21. contrary to law. and public policy: Article 20 concerns violations of existing law as basis for an injury. in the exercise of his rights and in the performance of his duties. Every person who. or other lascivious acts.As to the fourth requisite. are not specified within this enumeration. Persons who have the right to enter into contractual relations must exercise that right with honesty and good faith. Article 2219 of the Civil Code provides that moral damages may be awarded in the following instances: Article 2219. which states: Article 19.Any person who wilfully causes loss or injury to another in a manner that is contrary to morals. while Article 21 only concerns with lawful acts that are contrary to morals. abduction. Willful may refer to the intention to do the act and the desire to achieve the outcome which . it is not the basis of an actionable tort. (4) Adultery or concubinage. rape. Article 20 requires a violation of law. a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud. When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to respondent. it attempted to shift their obligations to a third person without the consent of respondent. therefore. or abusive. however. Lasala:46 Article 21. When a party reneges on his or her obligations arising from contracts in bad faith. Petitioner Arco Pulp and Paper’s actions clearly show "a dishonest purpose or some moral obliquity and . it is also a violation of Article 1159. and public policy. oppressive. Hence. Article 2219.is considered by the plaintiff in tort action as injurious. the person claiming bad faith must prove its existence by clear and convincing evidence for the law always presumes good faith. Article 2220 requires that the breach be done fraudulently or in bad faith. In cases under Article 21. the act is not only contrary to morals. a question of intention.47 (Emphasis supplied) Since a finding of bad faith is generally premised on the intent of the doer. it was presumably with the knowledge that it was being drawn against a closed account. they run the risk of violating Article 1159 of the Civil Code: Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong. that is. concerns injuries that may be caused by acts which are not necessarily proscribed by law. This article requires that the act be willful. not only under Article 2220. It is. it requires an examination of the circumstances in each case. but also under Articles 19 and 20 in relation to Article 1159. which can be inferred from one’s conduct and/or contemporaneous statements. Negligence may refer to a situation where the act was consciously done but without intending the result which the plaintiff considers as injurious. Bad faith does not simply connote bad judgment or negligence.45 To recover moral damages in an action for breach of contract. are not recoverable on the mere breach of the contract. is not an exhaustive list of the instances where moral damages may be recovered since it only specifies. the legal issues revolve around whether such outcome should be considered a legal injury on the part of the plaintiff or whether the commission of the act was done in violation of the standards of care required in Article 19. therefore. on the other hand. Breaches of contract become the basis of moral damages. the breach must be palpably wanton. reckless and malicious. in bad faith. among others. In Adriano v. good customs. When parties act in bad faith and do not faithfully comply with their obligations under contract. Worse. that there was an intention to do the act and a desire to achieve the outcome. Moral damages. Article 21. or malevolent manner. Dalisay held that: Also known as ‘punitive’ or ‘vindictive’ damages. Article 2234. The terms punitive or vindictive damages are often used to refer to those species of damages that may be awarded against a person to punish him for his outrageous conduct. insult or fraud or gross fraud—that intensifies the injury. and only after the claimant's right to them has been established. Development Bank of the Philippines.49 we stated that: The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a similar offense. wantonness. The case of People v.50 (Emphasis supplied. Exemplary damages cannot be recovered as a matter of right. (2) that they cannot be recovered as a matter of right. Under the Civil Code. used interchangeably. Ranteciting People v. be awarded. These terms are generally."48 Moral damages may. malice. but not always. the theory being that there should be compensation for the hurt caused by the highly reprehensible conduct of the defendant—associated with such circumstances as willfulness. While the amount of the exemplary damages need not be proven. Exemplary damages may also be awarded. their determination depending upon the amount of compensatory damages that may be awarded to the claimant. there is preference in the use of exemplary damages when the award is to account for injury to feelings and for the sense of indignity and humiliation suffered by a person as a result of an injury that has been maliciously and wantonly inflicted. exemplary or corrective damages are intended to serve as a deterrent to serious wrong doings. In Tankeh v. citations omitted) The requisites for the award of exemplary damages are as follows: (1) they may be imposed by way of example in addition to compensatory damages. temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud. In either case. exemplary damages are due in the following circumstances: Article 2232. Article 2233. oppressive. the court may award exemplary damages if the defendant acted in a wanton. In contracts and quasi-contracts. the plaintiff must show that he is entitled to moral. oppression. reckless. the court will decide whether or not they should be adjudicated. and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a punishment for those guilty of outrageous conduct. In common law. and . these damages are intended in good measure to deter the wrongdoer and others like him from similar conduct in the future. gross negligence or recklessness.conscious doing of a wrong. fraudulent. therefore. in general. are its sole liabilities. except: (1) When exemplary damages are awarded[. or to confuse legitimate issues. In the absence of stipulation. Nevertheless.(3) the act must be accompanied by bad faith or done in a wanton. Before a director or officer of a corporation can be held personally liable for corporate obligations. Santos is solidarily liable with petitioner corporation Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced to prove that the transaction was also a personal undertaking of petitioner Santos. this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act.. the following requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation. Since the award of exemplary damages is proper. negligence or bad faith. . considering that these obligations were freely entered into by them. attorney’s fees and cost of the suit may also be recovered. the circumvention of statutes. We disagree. from the people comprising it. other than judicial costs. fraudulent. International Exchange Bank. however. officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation. A director.] Petitioner Candida A. Article 2208 of the Civil Code states: Article 2208.52 we stated that: Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and.. acting through its directors. officers and employees. Exemplary damages may also be awarded in this case to serve as a deterrent to those who use fraudulent means to evade their liabilities. oppressive or malevolent manner. Following this principle. and (2) the complainant must clearly and convincingly prove such unlawful acts. In Heirs of Fe Tan Uy v. or that the officer was guilty of gross negligence or bad faith. obligations incurred by the corporation..51 Business owners must always be forthright in their dealings. While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45. or as a vehicle for the evasion of an existing obligation. attorney's fees and expenses of litigation. this Court can take cognizance of factual issues if the findings of the lower court are not supported by the evidence on record or . cannot be recovered. They cannot be allowed to renege on their obligations. 57 We agree with the Court of Appeals. she not only issued an unfunded check but also contracted with a third party in an effort to shift petitioner Arco Pulp and Paper’s liability. officers. or employees of a corporation cannot be held personally liable for obligations incurred by the corporation. petitioner Santos entered into a contract with respondent in her capacity as the President and Chief Executive Officer of Arco Pulp and Paper. that the corporate veil must be pierced. and (2) such negligence or bad faith was clearly and convincingly proven.487. in which case. Co. Here.56 (Emphasis supplied) According to the Court of Appeals. the corporate veil may be pierced. be petitioner Santos’ personal undertaking for which she would be solidarily liable with petitioner Arco Pulp and Paper. Under the doctrine."54 Any obligation arising from these acts would not. ordinarily. This is clear on the face of the check bearing the account name. After the check in the amount of 1.1âwphi1 When petitioner Arco Pulp and Paper’s obligation to respondent became due and demandable. We find. and petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper. such as to evade a just and due obligation. the fiction will be disregarded and the individuals composing it and the two corporations will be treated as identical.68 issued by [petitioner] Santos was dishonored for being drawn against a closed account. to shield or perpetrate fraud or to carry out similar or inequitable considerations. Petitioner Santos cannot be allowed to hide behind the corporate veil. Binswanger Philippines:55 Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes. as in this case.766. however. "Arco Pulp & Paper. that (1) the officer is guilty of negligence or bad faith. Inc. In Livesey v. She unjustifiably refused to honor petitioner corporation’s obligations to respondent. We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor their undertaking in favor of the [respondent]. These acts prompted the [respondent] to avail of the remedies provided by law in order to protect his rights. [petitioner] corporation denied any privity with [respondent]. petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper. other unjustifiable aims or intentions. These acts clearly amount to bad faith. In this instance.53 (Emphasis supplied) As a general rule. this veil of corporate fiction may be pierced if complainant is able to prove. directors. stating that: In the present case.. or to justify a wrong. .are based on a misapprehension of facts. However. She also issued the check in partial payment of petitioner corporation’s obligations to respondent on behalf of petitioner Arco Pulp and Paper. i. Nacar effectively amended the guidelines stated in Eastern Shipping v. the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). be on the amount finally adjudged. a loan or forbearance of money. When the obligation is breached. regardless of its source. where the demand is established with reasonable certainty. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. is breached. i. law. Gallery Frames58 In view.The rate of interest due on the obligation must be reduced in view of Nacar v.e. No interest. Civil Code). The actual base for the computation of legal interest shall. the rate of interest shall be 6% per annum to be computed from default. shall be adjudged on unliquidated claims or damages. as follows: 1. but when such certainty cannot be so reasonably established at the time the demand is made. contracts. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.60 and we have laid down the following guidelines with regard to the rate of legal interest: To recapitulate and for future guidance. 1169. except when or until the demand can be established with reasonable certainty... With regard particularly to an award of interest in the concept of actual and compensatory damages. the guidelines laid down in the case of Eastern Shipping Linesare accordingly modified to embody BSP-MB Circular No. 799. however. Accordingly. not constituting a loan or forbearance of money. in any case. and it consists in the payment of a sum of money. II. Gallery Frames.e. Furthermore. as well as the accrual thereof. When an obligation. an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. however. i.59 the rate of interest due on the obligation must be modified from 12% per annum to 6% per annum from the time of demand. the contravenor can be held liable for damages. 2013 in Nacar v. In the absence of stipulation. 2. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. as follows: I. When an obligation. the rate of interest.. quasi-contracts. the interest due should be that which may have been stipulated in writing. Court of Appeals. of the promulgation by this court of the decision dated August 13.e. . the interest due shall itself earn legal interest from the time it is judicially demanded. is imposed. delicts or quasi-delicts is breached. interest. WHEREFORE.00.968. 58982 and the CA Resolution dated April 26.: Before the Court is a Petition for Review on Certiorari of the Decision1 dated November 14. 2006 SPOUSES VICENTE YU AND DEMETRIA LEEYU. with moral damages in the amount of P50.31 with interest of 6% per annum at the time of demand until finality of judgment and its full satisfaction. J. Yu and Virginia A. the petition is DENIED in part. shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. Petitioners Arco Pulp & Paper Co. Tiu. or Yu Tian Hock aka Victorino/Vicente Yu. This interest shall continue to be due from the finality of this decision until its full satisfaction. When the judgment of the court awarding a sum of money becomes final and executory. DECISION AUSTRIA-MARTINEZ. 2000 of the Court of Appeals (CA) in CA-G. whether the case falls under paragraph 1 or paragraph 2.220. No.) According to these guidelines. 95709 is AFFIRMED. judgments that have become final and executory prior to July 1. the interest due on the obligation of P7. and Candida A.000. and participation over several parcels of land located in Dagupan City and Quezon City. which denied petitioner’s Motion for Reconsideration. 19953 and December 4. vs. in favor of the Philippine Commercial International Bank (respondent) as security for the payment of a loan in the amount of P9.31 should now be at 6% per annum. 2007.5 . citations omitted.R. 2001. Petitioners. exemplary damages in the amount ofP50.968. the rate of legal interest. mortgaged their title. computed from May 5. SP No.61 (Emphasis supplied. shall be 6% per annum from such finality until its satisfaction.. G.220. in addition to the above. Respondent. 147902 March 17. The decision in CA-G.00. 19942 and Amendments of Real Estate Mortgage dated April 4.000. The factual background of the case is as follows: Under a Real Estate Mortgage dated August 15. 2013. Santos are hereby ordered solidarily to pay respondent Dan T. this interim period being deemed to be by then an equivalent to a forbearance of credit.R.000.000.R. Inc. CV No. PHILIPPINE COMMERCIAL INTERNATIONAL BANK.00.4 spouses Vicente Yu and Demetria Lee-Yu (petitioners) and spouses Ramon T.3.00. 1995. And.000. and attorney's fees in the amount of P50. when respondent sent his letter of demand to petitioners. above. Lim the amount of P7. 1999. petitioners filed a complaint for Annulment of Certificate of Sale before the Regional Trial Court of Dagupan City. the interest. 99-00988-D and raffled to Branch 43 (RTC Branch 43). On February 14. 1999. RTC Branch 43 denied petitioners’ Motion for Reconsideration. Tondaligan.10 Hearing was conducted on September 14. or on August 20. 1999 and respondent presented its evidence ex-parte. 1998. On May 8. petitioners filed a Petition for Certiorari with the CA. 2000. 1998 at 10:00 o’clock in the morning or soon thereafter in front of the Justice Hall. further arguing that the pendency of Civil Case No. ruling that the filing of a motion to dismiss is not allowed in petitions for issuance of writ of possession under Section 7 of Act No.6 On August 3. the resolution of which is determinative on the propriety of the issuance of a writ of possession. petitioners filed a Motion to Dismiss and to Strike Out Testimony of Rodante Manuel stating that the Certificate of Sale dated September 14.13 At the auction sale on September 10. holding that the principle of prejudicial question is not applicable because the case pending before RTC Branch 44 is also a civil case and not a criminal case. respondent filed an Ex-Parte Petition for Writ of Possession before the Regional Trial Court of Dagupan City.874. 1998. 99-00988-D in RTC Branch 43.015.8 On September 14. respondent filed on July 21.7 by conducting two separate foreclosure proceedings on the mortgage properties in Dagupan City and Quezon City and indicating in the two notices of extra-judicial sale that petitioners’ obligation is P10.16 On June 1. the City Sheriff issued a Notice of Extra-Judicial Sale scheduling the auction sale on September 10.11 The testimony of Rodante Manuel was admitted ex-parte and thereafter the petition was deemed submitted for resolution. 1998. 1998 with the Office of the Clerk of Court and ExOfficio Sheriff of the Regional Trial Court of Dagupan City a Petition for Extra-Judicial Foreclosure of Real Estate Mortgage on the Dagupan City properties. 2000. 3135. and the penalties due thereon. docketed as Special Proceeding No. 2000. the CA dismissed petitioners’ Petition for Certiorari on the grounds that . Dagupan City.As the petitioners failed to pay the loan. On February 24. when petitioners are not indebted for the total amount of P20. 1998 is void because respondent violated Article 2089 of the Civil Code on the indivisibility of the mortgaged In the meantime.15 On September 30. Bonuan.14 About two months before the expiration of the redemption period. 99-03169-D and raffled to Branch 44 (RTC Branch 44). 99-03169-D in RTC Branch 44 is a prejudicial issue to Spec. 2000. No. petitioners filed a Motion for Reconsideration.437. the sale was registered with the Registry of Deeds of Dagupan City. respondent emerged as the highest bidder.9 On October 1. 1998. docketed as Civil Case No. 1998. a Certificate of Sale was issued in favor of respondent. RTC Branch 43 denied petitioners’ Motion to Dismiss and to Strike Out Testimony of Rodante Manuel.56.031.17 On November 14. 2000. Proc.2012 as of March 31. No. 99-10-05-0. 3135 and disregarded the rule against multiplicity of suits in filing Civil Case No. the present Petition for Review on Certiorari. 99-00988-D moot and academic. 1998. No.21 Anent the first issue. As to the second issue. with respect to the first issue. No. 3135 expressly provides that extra-judicial foreclosure may only be made in the province or municipality where the property is situated. the issuance of a writ of possession in favor of respondent becomes a ministerial duty of the trial court. Proc. the resolution of which will render the issues in Spec. 99-03169-D is deemed not filed for being contrary to Section 8 of Act No. 99-03169-D in RTC Branch 44 despite full knowledge of the pendency of Spec. Whether or not the pendency of a prejudicial issue renders the issues in Special Proceedings No. 99-00988-D because: (a) the special proceeding is already fait accompli. 2001.874. and (d) legally speaking what seems to exist is litis pendentia and not prejudicial question. the mortgaged properties in Dagupan City and Quezon City cannot be separately foreclosed.petitioners violated Section 8 of Act No. Proc. petitioners contend that since a real estate mortgage is indivisible.015. (c) the filing of Civil Case No. the filing of two separate foreclosure proceedings did not violate Article 2089 of the Civil Code on the indivisibility of a real estate mortgage since Section 2 of Act No. that since the one-year period of redemption has already lapsed. Petitioners pose two issues for resolution.18 Petitioners filed a Motion for Reconsideration19 but it was denied by the CA on April 26. petitioners posit that the pendency of Civil Case No.2022 each as of March 31. 99-03169-D are not prejudicial questions to Spec. 3135. 99-00988-D as [sic] moot and academic. No. 99-03169-D is a prejudicial issue. .20 Hence. 2001. Respondent further submits that the filing of separate applications for extra-judicial foreclosure of mortgage involving several properties in different locations is allowed by A. the Procedure on Extra-Judicial Foreclosure of Mortgage. B. that the issues in Civil Case No. Petitioners further point out that two notices of extra-judicial sale indicated that petitioners’ obligation is P10.23 yet their own computation yields only P9. Whether or not a real estate mortgage over several properties located in different locality [sic] can be separately foreclosed in different places.030. Respondent contends24 that. to wit: A. 3135 in filing a separate case to annul the certificate of sale since the use of the word "may" in said provision indicates that they have the option to seek relief of filing a petition to annul the certificate of sale in the proceeding involving the application for a writ of possession or in a separate proceeding.957. Proc.508. Petitioners further aver that they did not violate Section 8 of Act No. (b) Civil Case No.437. 1998 or a total ofP20. 99-03169-D is an afterthought and dilatory in nature. 99-00988D in RTC Branch 43.90 as of February 27.M. as further amended on August 7.40. Hence. Proc. the debtor’s heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as the debt is not completely satisfied. notwithstanding the fact that there has been partial fulfillment of the obligation. 99-00988-D since the pendency of a civil action questioning the validity of the mortgage and the extra-judicial foreclosure thereof does not bar the issuance of a writ of possession. This also means that the debtor cannot ask for the release of any portion of the mortgaged property or of one or some of the several lots mortgaged unless and until the loan thus secured has been fully paid. From these provisions is excepted the case in which. Proc. Neither can the creditor’s heir who received his share of the debt return the pledge or cancel the mortgage. No.As to the second issue. 99-00988-D. before foreclosure proceedings. the writ of possession must still be issued because issuance of the writ in favor of the purchaser is a ministerial act of the trial court and the one-year period of redemption has already lapsed. Respondent also insists that petitioners should have filed their Petition to Annul the Certificate of Sale in the same case where possession is being sought. 2089. No. No. that is. respondent maintains that there is no prejudicial question between Civil Case No. and not in a separate proceeding (Civil Case No. what the law proscribes is the foreclosure of only a portion of the property or a number of the several properties mortgaged corresponding to the unpaid portion of the debt where. each one of them guarantees only a determinate portion of the credit. there being several things given in mortgage or pledge. Therefore. 99-00988-D. The rule on indivisibility of a real estate mortgage is provided for in Article 2089 of the Civil Code. 3135 refers to the filing of the petition or action itself and not to the venue. the Court finds that petitioners have a mistaken notion that the indivisibility of a real estate mortgage relates to the venue of extra-judicial foreclosure proceedings. it is provided that the debtor who has paid a part of the debt cannot ask for the proportionate . Furthermore. Anent the first issue. The debtor. Proc. This rule presupposes several heirs of the debtor or creditor25 and therefore not applicable to the present case. A pledge or mortgage is indivisible. in this case. to the prejudice of the other heirs who have not been paid. 99-01369-D) because the venue of the action to question the validity of the foreclosure is not discretionary since the use of the word "may" in Section 8 of Act No. partial payment was made by the debtor on his total outstanding loan or obligation. Respondent further argues that even if petitioners filed the Petition to Annul the Certificate of Sale in Spec. in Spec. shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is specially answerable is satisfied. even though the debt may be divided among the successors in interest of the debtor or of the creditor. 9903169-D and Spec. which provides: Art. the venue of the extra-judicial foreclosure proceedings is the place where each of the mortgaged property is located. 99-10-05-0. as prescribed by Section 2 of Act No. It provides that the venue of the extra-judicial foreclosure proceedings is the place where each of the mortgaged property is located.27 that is.33 the Court said: A prejudicial question is one that arises in a case the resolution of which is a logical antecedent of the issue involved therein.28 On the other hand. No. and the cognizance of which pertains to another tribunal. in fact. (Emphasis supplied) The indivisibility of the real estate mortgage is not violated by conducting two separate foreclosure proceedings on mortgaged properties located in different provinces as long as each parcel of land is answerable for the entire debt. is therefore flawed.extinguishment of the mortgage as long as the debt is not completely satisfied. the real estates and/or chattels mortgaged and their respective locations. In Pahang v. the mortgages sought to be foreclosed. Petitioners’ assumption that their total obligation is P20. the mortgaged properties in Dagupan City and Quezon City are made to answer for the entire debt of P10.030. whether a civil case for annulment of a certificate of sale is a prejudicial question to a petition for issuance of a writ of possession. that is.015.26 In essence.32 As to the second issue. It generally comes into play in a situation where a civil action and a criminal action are both pending and there exists in the former an issue . issue a certificate of payment indicating the amount of indebtedness.29. such sale shall be made in said place or in the municipal building of the municipality in which the property or part thereof is situated. each and every parcel under mortgage answers for the totality of the debt. The collecting Clerk of Court shall.437.2031 each. Said sale cannot be made legally outside of the province in which the property sold is situated. Considering the indivisibility of a real estate mortgage.40 because the two notices of extra-judicial sale indicated that petitioners’ obligation is P10. apart from the official receipt of the fees. the filing fees collected. 3135. lays down the guidelines for extra-judicial foreclosure proceedings on mortgaged properties located in different provinces.30 the Procedure on Extra-Judicial Foreclosure of Mortgage. Relevant portion thereof provides: Where the application concerns the extrajudicial foreclosure of mortgages of real estates and/or chattels in different locations covering one indebtedness. which certificate shall serve the purpose of having the application docketed with the Clerks of Court of the places where the other properties are located and of allowing the extrajudicial foreclosures to proceed thereat. not without precedence.874. and in case the place within said province in which the sale is to be made is subject to stipulation. Vestil.29 to wit: SECTION 2.M.015.437. indivisibility means that the mortgage obligation cannot be divided among the different lots. A. this issue is far from novel and. only one filing fee corresponding to such indebtedness shall be collected. 3-A. Court of Appeals. specifying the damages suffered by him. Setting aside of sale and writ of possession. 1avvph!l. The two cases. in the proceedings in which possession was requested. No. and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred and twelve of Act Numbered Four hundred and . Proc. 9011. 99-00988-D is whether the respondent is entitled to a writ of possession of the foreclosed properties. because the mortgage was not violated or the sale was not made in accordance with the provisions hereof.net In the present case. Psd-07-021410. TCT No. No. is entitled to a writ of possession after the statutory period for redemption has expired. 3135 provides: Sec. because howsoever the issue raised in the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal case. as the purchaser in the extrajudicial foreclosure proceedings. may be compelled to have the property repurchased or resold to a mortgagor’s successor-in-interest (petitioner). – The debtor may. 99-01369-D is whether the extrajudicial foreclosure of the real estate mortgage executed by the petitioners in favor of the respondent and the sale of their properties at public auction are null and void. 44668 is but an incident in the land registration case and. there is a need to correct the CA’s view that petitioners violated Section 8 of Act No. Clearly. The two cases can proceed separately and take their own direction independently of each other. no prejudicial question can arise from the existence of the two actions. the issue in Spec. as the purchaser in the extrajudicial foreclosure proceedings. 3135 and disregarded the proscription on multiplicity of suits by instituting a separate civil suit for annulment of the certificate of sale while there is a pending petition for issuance of the writ of possession in a special proceeding. whereas. Proc. while that in the latter is merely whether the respondent. Civil Case No. The issue in Civil Case No. 99-00988-D are both civil in nature. The basic issue in the former is whether the respondent. assuming both are pending. Section 8 of Act No. Block 1. where we held that: At any rate.that must be preemptively resolved before the criminal action may proceed. no prejudicial question can arise from the existence of the two actions. the complaint of the petitioners for Annulment of Extrajudicial Sale is a civil action and the respondent’s petition for the issuance of a writ of possession of Lot No. can proceed separately and take their own direction independent of each other. petition that the sale be set aside and the writ of possession cancelled. it taxes our imagination why the questions raised in Case No. The rationale behind the principle of prejudicial question is to avoid two conflicting decisions. 8. 99-01369-D and Spec. A similar issue was raised in Manalo v. Nevertheless. therefore.34 In the present case. 98-0868 must be considered determinative of Case No. but not later than thirty days after the purchaser was given possession. it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. If the trial court later finds merit in the petition to set aside the writ of possession. and adequate remedy in opposing the issuance of a writ of possession. In Sps. either party may appeal from the order of the judge in accordance with Section 14 of Act 496. Similarly.35 Thus. the Court rejects the CA’s application of the principle of litis pendentia to Civil Case No. Hence. decree or judgment of a Court of First Instance (RTC) might be reviewed. the concurrence of the following requisites is necessary: (a) identity of parties or at least such as represent the same interest in both actions. decision. the mortgagor may file a petition to set aside the sale and for the cancellation of a writ of possession with the trial court which issued the writ of possession within 30 days after the purchaser mortgagee was given possession. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four hundred and ninety-six. Section 8 of Act No. a separate case . amount to res judicata in the other. decision. For litis pendentia to be invoked. this provision presupposes that the trial court already issued a writ of possession. Thereafter. It provides the plain. 3135 is not applicable to the present case since at the time of the filing of the separate civil suit for annulment of the certificate of sale in RTC Branch 44. Court of Appeals.37 Accordingly. and. speedy. (b) identity of rights asserted and reliefs prayed for. 99-00988-D. (c) the identity in the two cases should be such that the judgment that may be rendered in one would. Ong v. (Emphasis supplied) Under the provision above cited. 99-03169-D in relation to Spec. the reliefs being founded on the same facts. No.36 the Court elucidated: The law is clear that the purchaser must first be placed in possession of the mortgaged property pending proceedings assailing the issuance of the writ of possession. and decree of the Court of Land Registration may be reviewed…in the same manner as an order. no writ of possession was yet issued by RTC Branch 43. Proc. andsummary in nature. it cannot be said to be a judgment on the merits. which provides that "every order. regardless of which party is successful. Litis pendentia refers to that situation wherein another action is pending between the same parties for the same cause of actions and that the second action becomes unnecessary and vexatious. and if it finds the complaint of the debtor justified. but simply an incident in the transfer of title. The issuance of the writ of possession being a ministerial function. it shall dispose in favor of the mortgagor the bond furnished by the purchaser. litis pendentia does not obtain in this case because of the absence of the second and third requisites.38 Applying the foregoing criteria in the instant case. but the order of possession shall continue in effect during the pendency of the appeal. such possession being founded on his right of ownership.ninety-six." The rationale for the mandate is to allow the purchaser to have possession of the foreclosed property without delay. respondent is entitled to a writ of possession.41 Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for refusing the issuance of a writ of possession. Jr..39 Thus. the Court holds that the rule on indivisibility of the real estate mortgage cannot be equated with the venue of foreclosure proceedings on mortgaged properties located in different provinces since these are two unrelated concepts. since the one-year period to redeem the foreclosed properties lapsed on October 1.40 The issuance of a writ of possession over the properties by the trial court is merely a ministerial function. no prejudicial question can arise from the existence of a civil case for annulment of a certificate of sale and a petition for the issuance of a writ of possession in a special proceeding since the two cases are both civil in nature which can proceed separately and take their own direction independently of each other. the petition is DENIED. ESCAÑO and MARIO M. as contended by respondent and the lower courts. Inc. Proc.for annulment of mortgage and foreclosure sale cannot be barred by litis pendentia or res judicata. George A. No. DECISION TINGA. 99-00988-D and Civil Case No. As such. title to the foreclosed properties had already been consolidated under the name of the respondent. petitioner. vs. RAFAEL ORTIGAS. three stockholders-officers of Falcon. 1999. 151953 June 29. (Falcon) whereby PDCP agreed to make available and lend to Falcon the amount of US$320. Private Development Corporation of the Philippines (PDCP)1 entered into a loan agreement with Falcon Minerals. without prejudice of course to the eventual outcome of said case. a claim that can be easily debunked. No. 2007 SALVADOR P. insofar as Spec. The more perplexing question is whether this obligation to repay is solidary. or merely joint as argued by petitioners.2 On the same day. JR. for specific purposes and subject to certain terms and conditions. SILOS. there is no litis pendentia.R.00. G. respondent is entitled to its possession as a matter of right. (Ortigas). On 28 April 1980. To sum up. Furthermore. As the owner of the properties. the trial court neither exercises its official discretion nor judgment. J.42 Regardless of the pending suit for annulment of the certificate of sale. respondent. Also.: The main contention raised in this petition is that petitioners are not under obligation to reimburse respondent. Scholey and . namely: respondent Rafael Ortigas.43 WHEREFORE. 99-03169-D pending before different branches of RTC Dagupan City are concerned.000. Matti (Matti).7 namely: with Escaño. Silos and Joseph M. However. Silos and Matti identified in the document as "SURETIES. After PDCP ." on the other. their said guarantees[sic]. acting in their personal and individual capacities. Falcon subsequently defaulted in its payments. Silos and Matti.George T. and c. Rodriguez (Rodriguez). two separate guaranties were executed to guarantee the payment of the same loan by other stockholders and officers of Falcon. and Ortigas. Inductivo and the Scholeys as "OBLIGORS. subrogation or other relief in respect to any of the claims of PDCP and/or PAIC. without prejudice to any and/or all of OBLIGORS impleading SURETIES therein for contribution. OBLIGORS hereby waive in favor of SURETIES any and all fees which may be due from FALCON arising out of. an agreement developed to cede control of Falcon to Escaño. That whether or not SURETIES are able to immediately cause PDCP and PAIC to release OBLIGORS from their said guarantees [sic]. an Undertaking dated 11 June 1982 was executed by the concerned parties. 4. SURETIES agree to defend OBLIGORS at their own expense. Thus. Scholey executed an Assumption of Solidary Liability whereby they agreed "to assume in [their] individual capacity. to relieve themselves of all liability arising from their previous joint and several undertakings with Falcon. solidary liability with [Falcon] for the due and punctual payment" of the loan contracted by Falcon with PDCP. Two years later.3 In the meantime. Ricardo C. while the other5 by petitioner Mario M. Should suit be impleaded by PDCP and/or PAIC against any and/or all of OBLIGORS for collection of said loans and/or credit facilities. contracts were executed whereby Ortigas. Thus. including those related to the loan with PDCP. indemnity. In the event that any of [the] OBLIGORS is for any reason made to pay any amount to PDCP and/or PAIC. Silverio (Silverio).655..6 Part of the consideration that induced the sale of stock was a desire by Ortigas. The Undertaking reads in part: 3. Silos (Silos). It would also execute a Deed of Chattel Mortgage over its personal properties to further secure the loan.8 Falcon eventually availed of the sum of US$178. Upon receipt by any of [the] OBLIGORS of any demand from PDCP and/or PAIC for the payment of FALCON’s obligations with it. any of [the] OBLIGORS shall immediately inform SURETIES thereof so that the latter can timely take appropriate measures. Inductivo and the heirs of then already deceased George T. SURETIES hereby irrevocably agree and undertake to assume all of OBLIGORs’ said guarantees [sic] to PDCP and PAIC under the following terms and conditions: a." on one hand. or in connection with. Scholey. Scholey assigned their shares of stock in Falcon to Escaño. b. One Guaranty4 was executed by petitioner Salvador Escaño (Escaño). Inductivo (Inductivo) and Joaquin J. SURETIES shall reimburse OBLIGORS for said amount/s within seven (7) calendar days from such payment. George A. Carlos L. et al.59 from the credit line extended by PDCP. which Falcon did not satisfy despite demand. even if such facts were raised in the pleadings.15 In the meantime. Escaño. Silos and Matti to pay Ortigas.00.000. Ortigas entered into his own compromise agreement13 with PDCP. Escaño and Silos.004.9 On 28 April 1989. Silverio and Inductivo.000.00 in exchange for PDCP’s waiver of its claims against him. In 1995. Escaño.19 .300. PDCP waived or assigned in favor of Escaño one-third (1/3) of its entire claim in the complaint against all of the other defendants in the case. on the basis of the 1982 Undertaking.10 The cross-claim lodged against Escaño and Silos was predicated on the 1982 Undertaking.000. in order to recover the indebtedness. Silos. allegedly without the knowledge of Escaño. unaccompanied by any substantial fact which would be admissible in evidence at a hearing. PDCP filed a complaint for sum of money with the Regional Trial Court of Makati (RTC) against Falcon.031. The first to come to terms with PDCP was Escaño. jointly and severally.07.00 in attorney’s fees. Ortigas pursued his claims against Escaño."14 in exchange for PDCP’s release of Ortigas from any liability or claim arising from the Falcon loan agreement. 89-5128. the trial court denied the motion for reconsideration of the Summary Judgment and awarded Ortigas legal interest of 12% per annum to be computed from 28 February 1994. are not sufficient to raise genuine issues of fact necessary to defeat a motion for summary judgment. and a renunciation of its claims against Ortigas. In exchange. He initiated a thirdparty complaint against Matti and Silos. after having settled with PDCP. For his part.000.00. Ortigas. Silos and Matti. Ortigas agreed to pay PDCP P1. as well as P20. the RTC issued the Summary Judgment. In 1995.16 while he maintained his cross-claim against Escaño. entered into a compromise agreement whereby he agreed to pay the bankP1.11 The compromise agreement was approved by the RTC in a Judgment12 dated 6 January 1994.000. Silos and Matti. On 5 October 1995. Ortigas filed a motion for Summary Judgment in his favor against Escaño. Ortigas and Silos each sought to seek a settlement with PDCP.17 The trial court ratiocinated that none of the third-party defendants disputed the 1982 Undertaking. The case was docketed as Civil Case No. and also manifested his intent to file a third-party complaint against the Scholeys and Matti. wherein they agreed to assume the liabilities of Ortigas with respect to the PDCP loan. ordering Escaño. the amount of P1.000.foreclosed on the chattel mortgage.300. Then on 24 February 1994. Ortigas filed together with his answer a cross-claim against his co-defendants Falcon."18 In an Order dated 7 March 1996. and that "the mere denials of defendants with respect to non-compliance of Ortigas of the terms and conditions of the Undertaking. Thereby.00 as "full satisfaction of the PDCP’s claim against Ortigas. Silos and PDCP entered into a Partial Compromise Agreement whereby he agreed to pay P500. there remained a subsisting deficiency of P5. who in December of 1993. Matti and Silos. First. An examination of the document reveals several clauses that make it clear that the agreement was brought forth by the desire of Ortigas. summary judgment may avail if the pleadings. recourse was had by way of appeal to the Court of Appeals. The special defenses that were raised. the Court of Appeals dismissed the appeals and affirmed the Summary Judgment. there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. The whereas clauses manifest that Ortigas had bound himself with Falcon for the payment of the loan with PDCP. it was concluded that there was no genuine issue that would still require the rigors of trial. The appellate court found that the RTC did not err in rendering the summary judgment since the three appellants did not effectively deny their execution of the 1982 Undertaking. and not solidarily. we affirm with ease the common rulings of the lower courts that summary judgment is an appropriate recourse in this case. the present petition for review filed by Escaño and Silos."23 Most crucial is the clause in Paragraph 3 of the Undertaking wherein petitioners "irrevocably agree and undertake to assume all of ." were characterized by the Court of Appeals as "appear[ing] to be merely sham in the light of the pleadings and supporting documents and affidavits. petitioners also submit that they are not liable for interest and if at all. a document which they do not disavow and have in fact annexed to their petition. Hence. whether in their petition or their memorandum before the Court. Second. Further assuming that they are liable. the appropriateness of the summary judgment as a relief favorable to Ortigas.22 Two main issues are raised. "payment and excussion. the proper interest rate is 6% and not 12%. Thus. Interestingly. petitioners do not challenge. Petitioner have not attempted to demonstrate before us that there existed a genuine issue as to any material fact that would preclude summary judgment. In a Decision20 dated 23 January 2002. part of the consideration for the assignment of their shares in Falcon to petitioners and Matti. on the assumption that they are liable to Ortigas under the 1982 Undertaking. supporting affidavits. petitioners argue that they are jointly liable only. Escaño and Silos appealed jointly while Matti appealed by his lonesome. Rule 35 of the 1997 Rules of Civil Procedure. petitioners dispute that they are liable to Ortigas on the basis of the 1982 Undertaking. Inductivo and the Scholeys to be released from their liability under the loan agreement which release was. and that the appealed judgment was decided on the bases of the undisputed and established facts of the case. in turn.From the Summary Judgment. The vital issue actually raised before us is whether petitioners were correctly held liable to Ortigas on the basis of the 1982 Undertaking in this Summary Judgment. depositions and admissions on file show that. except as to the amount of damages. and that "amongst the consideration for OBLIGORS and/or their principals aforesaid selling is SURETIES’ relieving OBLIGORS of any and all liability arising from their said joint and several undertakings with FALCON."21Thus. Under Section 3. indemnity. Paragraph 1 of the Undertaking enjoins petitioners to "exert all efforts to cause PDCP x x x to within a reasonable time release all the OBLIGORS x x x from their guarantees [sic] to PDCP x x x"28 In the event that Ortigas and his fellow "OBLIGORS" could not be released from their guaranties. the clear intent of the Undertaking was for petitioners and Matti to relieve the burden on Ortigas and his fellow "OBLIGORS" as soon as possible. paragraph 2 commits petitioners and Matti to cause the Board of Directors of Falcon to make a call on its stockholders for the payment of their unpaid subscriptions and to pledge or assign such payments to Ortigas. from themselves negotiating with PDCP x x x for the release of their said guarantees [sic]. paragraph 1 also makes clear that nothing in the Undertaking "shall prevent OBLIGORS."26 Petitioners claim that. However."29 .3 Million as an amicable settlement of the claims posed by the bank against him. On the contrary. as it is indeed obvious that the phrase was incorporated in the clause to render the eventual payment adverted to therein unlimited and unqualified. Third. upon receipt by "any of OBLIGORS" of any demand from PDCP for the payment of Falcon’s obligations with it."24 At the same time. SURETIES [were to] reimburse OBLIGORS for said amount/s within seven (7) calendar days from such payment. or any one of them. First. without prejudice to any and/or all of OBLIGORS impleading SURETIES therein for contribution. Second. In addition. and not only after Ortigas had been subjected to a final and executory adverse judgment. if any of the "OBLIGORS is for any reason made to pay any amount to [PDCP]. "any of OBLIGORS" was to immediately inform "SURETIES" thereof so that the latter can timely take appropriate measures. "SURETIES agree[d] to defend OBLIGORS at their own expense. subrogation or other relief"25 in respect to any of the claims of PDCP. Ortigas was not "made to pay" PDCP the amount now sought to be reimbursed. should "any and/or all of OBLIGORS" be impleaded by PDCP in a suit for collection of its loan. et al. as Ortigas voluntarily paid PDCP the amount of P1. it is clear that the assumption by petitioners of Ortigas’s "guarantees" [sic] to PDCP is governed by stipulated terms and conditions as set forth in sub-paragraphs (a) to (c) of Paragraph 3.. contrary to paragraph 3(c) of the Undertaking.OBLIGORs’ said guarantees [sic] to PDCP x x x under the following terms and conditions. the subject clause in paragraph 3(c) actually reads "[i]n the event that any of OBLIGORS is for any reason made to pay any amount to PDCP x x x"27 As pointed out by Ortigas. as security for whatever amounts the latter may be held liable under their guaranties. the phrase "for any reason" reasonably includes any extra-judicial settlement of obligation such as what Ortigas had undertaken to pay to PDCP. The interpretation posed by petitioners would have held water had the Undertaking made clear that the right of Ortigas to seek reimbursement accrued only after he had delivered payment to PDCP as a consequence of a final and executory judgment. 30 Likewise applicable is the provision that if some stipulation of any contract should admit of several meanings. was obliged under the 1982 Undertaking to notify them before settling with PDCP. and to terminate and dismiss the said case as against Ortigas solely.There is no argument to support petitioners’ position on the import of the phrase "made to pay" in the Undertaking.3 Million. denied any liability to PDCP and had alleged that he signed the Assumption of Solidary Liability not in his personal capacity. Following the general assertion in the petition that Ortigas violated the terms of the Undertaking. such position. the various stipulations of a contract shall be interpreted together. but that requirement is reasoned "so that the [SURETIES] can timely take appropriate measures"33 presumably to settle the obligation without having to burden the "OBLIGORS."34 Petitioners profess it is "unthinkable" for Ortigas to have voluntarily paid PDCP without admitting his liability. in his answer. Even as we entertain this argument at depth. its premises are still erroneous. The other arguments petitioners have offered to escape liability to Ortigas are similarly weak. not that of petitioners.35 yet such contention based on assumption cannot supersede the literal terms of the Partial Compromise Agreement. The Partial Compromise Agreement between PDCP and Ortigas expressly stipulated that Ortigas’s offer to pay PDCP was conditioned "without [Ortigas’s] admitting liability to plaintiff PDCP Bank’s complaint.3 million without petitioners ESCANO and SILOS’s knowledge and consent."32 Paragraph 3(a) of the Undertaking does impose a requirement that any of the "OBLIGORS" shall immediately inform "SURETIES" if they received any demand for payment of FALCON’s obligations to PDCP. it is his interpretation. Petitioners further observe that Ortigas made the payment to PDCP after he had already assigned his . Neither do petitioners impress us of the non-fulfillment of any of the other conditions set in paragraph 3. petitioners add that Ortigas "paid PDCP BANK the amount of P1. They note that Ortigas had. as they claim. but as an officer of Falcon. amounted to estoppel on the part of Ortigas." This notice requirement in paragraph 3(a) is markedly way off from the suggestion of petitioners that Ortigas. Such circumstances. other than an unduly literalist reading that is clearly inconsistent with the thrust of the document. However. could not be justified since Ortigas later voluntarily paid PDCP the amount of P1. after already having been impleaded as a defendant in the collection suit. it shall be understood as bearing that import which is most adequate to render it effectual. according to petitioners. that holds sway with this Court. attributing to the doubtful ones that sense which may result from all of them taken jointly. Petitioners impugn Ortigas for having settled with PDCP in the first place. Under the Civil Code.31 As a means to effect the general intent of the document to relieve Ortigas from liability to PDCP. according to petitioners. and in the absence of express and indubitable terms characterizing ."39 We now turn to the set of arguments posed by petitioners." Ortigas in turn argues that petitioners. liable to Ortigas. PDCP was not precluded by a contract from pursuing its claim against Ortigas based on the original Assumption of Solidary Liability. They cite Article 1207 of the New Civil Code. claiming that the Undertaking did not provide for express solidarity. "[t]here is a solidary liability only when the obligation expressly so states. part that "[t]here is a solidary liability only when the obligation expressly so states. from themselves negotiating with PDCP x x x for the release of their said guarantees [sic]. or when the law or the nature of the obligation requires solidarity. Ortigas points out that the Undertaking uses the word "SURETIES" although the document."36 Simply put. the Undertaking did not preclude Ortigas from relieving his distress through a settlement with the creditor bank. are jointly and severally liable for the Undertaking. on the assumption that they are indeed liable. the Undertaking did not bar Ortigas from pursuing his own settlement with PDCP. or any one of them. Article 1207 of the Civil Code states that among them. or when the law or the nature of the obligation requires solidarity. as well as Matti. In case. which states in These Civil Code provisions establish that in case of concurrence of two or more creditors or of two or more debtors in one and the same obligation.obligation to petitioners through the 1982 Undertaking. in the alternative." Petitioners submit that they could only be held jointly. in describing the parties. Neither did the Undertaking bar Ortigas from recovering from petitioners whatever amount he may have paid PDCP through his own settlement. It is further contended that the principal objective of the parties in executing the Undertaking cannot be attained unless petitioners are solidarily liable "because the total loan obligation can not be paid or settled to free or release the OBLIGORS if one or any of the SURETIES default from their obligation in the Undertaking. paragraph 1 of the Undertaking expressly states that "nothing herein shall prevent OBLIGORS." Article 1210 supplies further caution against the broad interpretation of solidarity by providing: "The indivisibility of an obligation does not necessarily give rise to solidarity. as the language used in the agreement "clearly shows that it is a surety agreement"38 between the obligors (Ortigas group) and the sureties (Escaño group). not solidarily. At the same time. there is a concurrence of two or more creditors or of two or more debtors in one and the same obligation. The stipulation that if Ortigas was "for any reason made to pay any amount to PDCP[.] x x x SURETIES shall reimburse OBLIGORS for said amount/s within seven (7) calendar days from such payment"37makes it clear that petitioners remain liable to reimburse Ortigas for the sums he paid PDCP. Nor does solidarity of itself imply indivisibility. that is. Indeed. Not being a party to such Undertaking. Yet the fact is PDCP did pursue a judicial claim against Ortigas notwithstanding the Undertaking he executed with petitioners. The Undertaking does not contain any express stipulation that the petitioners agreed "to bind themselves jointly and severally" in their obligations to the Ortigas group. We rule and so hold that he failed to discharge such burden. as the party alleging that the obligation is in fact solidary. Ortigas places primary reliance on the fact that the petitioners and Matti identified themselves in the Undertaking as "SURETIES". however. In tandem with the nomenclature "SURETIES" accorded to petitioners and Matti in the Undertaking. bears the burden to overcome the presumption of jointness of obligations. binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. In such case the contract is called a suretyship. It thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a preponderance of evidence. the provisions of Section 4.41 At the same time.the obligation as solidary. The moment the surety fully answers to the creditor for the obligation created by the principal . 2047. as indicated by Article 2047. there is also a legal tie created between the surety and the principal debtor to which the creditor is not privy or party to. a suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary obligation of segregate identity from the obligation between the principal debtor and the creditor. The suretyship does bind the surety to the creditor. [Emphasis supplied]40 As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily with the principal debtor. Hence. notwithstanding the use of the nomenclature "SURETIES" in the Undertaking. By guaranty a person. If a person binds himself solidarily with the principal debtor. Ortigas. That clearly is not the case here. The term "surety" has a specific meaning under our Civil Code. inasmuch as the latter is vested with the right to proceed against the former to collect the credit in lieu of proceeding against the principal debtor for the same obligation. or any such terms to that effect. thus: Art. such obligation established in the Undertaking is presumed only to be joint. Title I of this Book shall be observed. It appears that Ortigas’s argument rests solely on the solidary nature of the obligation of the surety under Article 2047. Article 2047 provides the statutory definition of a surety agreement. a surety agreement is an ancillary contract as it presupposes the existence of a principal contract. Chapter 3. Again. called the guarantor. Thus. a term repeated no less than thirteen (13) times in the document. the presumption is that the obligation is only joint. this argument can only be viable if the obligations established in the Undertaking do partake of the nature of a suretyship as defined under Article 2047 in the first place. Ortigas claims that such manner of identification sufficiently establishes that the obligation of petitioners to him was joint and solidary in nature. e. which assures that "[t]he guarantor who pays for a debtor must be indemnified by the latter.46 In the case of joint and several debtors. the surety may seek reimbursement from the principal debtor for the amount paid. Title I. a significant distinction still lies between a joint and several debtor. Solidarity signifies that the creditor can compel any one of the joint and several debtors or the surety alone to answer for the entirety of the principal debt.42 At the same time. There is a difference between a solidary co-debtor and a fiador in solidum (surety). in case of suretyship) in favor of the one who paid (i. with the interest for the payment already made.. such obligation is extinguished. What is the source of this right to full reimbursement by the surety? We find the right under Article 2066 of the Civil Code. for the surety does in fact "become subrogated to all the rights and remedies of the creditor. The second paragraph of [Article 2047] is practically equivalent to the contract of suretyship. actions and benefits which pertain to him by reason of the fiansa. outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted. while a solidary co-debtor has no other rights than those bestowed upon him in Section 4. Dr. nearly synonymous with the common law guaranty. and not as to the particular proportional share of the solidary debtor who already paid. Tolentino explains the differences between a solidary co-debtor and a surety: A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. The latter. the surety who does pay the creditor has the right to recover the full amount paid. and a surety on the other. actions and benefits which pertain to the surety by reason of the subsidiary obligation assumed by the surety. because the right to recovery extends only to the proportional share of the other co-debtors. Book IV of the Civil Code." . In contrast. The civil law suretyship is. even as the surety is solidarily bound with the principal debtor to the creditor. from the principal debtor or debtors."43 Note that Article 2047 itself specifically calls for the application of the provisions on joint and solidary obligations to suretyship contracts. Chapter 3. Article 1217 makes plain that the solidary debtor who effected the payment to the creditor "may claim from his co-debtors only the share which corresponds to each. recognizing the right of reimbursement from a co-debtor (the principal debtor. on one hand. and the civil law relationship existing between the co-debtors liable in solidum is similar to the common law suretyship. Such right to full reimbursement falls within the other rights. the surety).44 Article 1217 of the Civil Code thus comes into play. accordingly. The difference lies in the respective faculties of the joint and several debtor and the surety to seek reimbursement for the sums they paid out to the creditor.debtor." Such solidary debtor will not be able to recover from the co-debtors the full amount already paid to the creditor. and not just any proportional share.45However. retains all the other rights. especially in light of the qualifier in Article 2047 that the provisions on joint and several obligations should apply to sureties. there would have been. We reject that argument. there was an agreement whereby in the event that Ortigas were to seek reimbursement from them per the terms of the Undertaking. and one might argue that the provisions should not extend to sureties. for both classes of obligors would be governed by exactly the same rules and limitations.such indemnity comprising of. If the Court were to give full fruition to the use of the term "sureties" as conclusive indication of the existence of a surety agreement that in turn gives rise to a solidary obligation to pay Ortigas. one of them was to act as surety and to pay Ortigas in full. Chapter 3. a surety agreement which evinces a solidary obligation in favor of Ortigas. Article 2067 of the Civil Code likewise establishes that "[t]he guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor. there would be no material difference between the surety as defined under Article 2047 and the joint and several debtors. Title I. the very document that creates the conditional obligation . the Court would have to be satisfied that among the petitioners and Matti. on solidary or several obligations. and instead adopt Dr. In order for the conclusion espoused by Ortigas to hold. the rights to indemnification and subrogation as established and granted to the guarantor by Articles 2066 and 2067 extend as well to sureties as defined under Article 2047. and certainly the Undertaking is not revelatory of such intention. among others. in fact. Silos and Matti. "the total amount of the debt. does not mean that suretyship is withdrawn from the applicable provisions governing guaranty. there is one or some of them who stand as the principal debtor to Ortigas and another as surety who has the right to full reimbursement from the principal debtor or debtors. No suggestion is made by the parties that such is the case." It is for this reason that the Court cannot accord the conclusion that because petitioners are identified in the Undertaking as "SURETIES. subject to his right to full reimbursement from the other two obligors. in light of the general presumption favoring joint liability. More consequentially. Book IV. Yet if there was indeed such an agreement. Tolentino’s observation that "[t]he reference in the second paragraph of [Article 2047] to the provisions of Section 4. it does not appear on the record. It is not impossible that as between Escaño."49 For if that were not the implication. however. no such intention is reflected in the Undertaking itself. These rights granted to the surety who pays materially differ from those granted under Article 1217 to the solidary debtor who pays. since the "indemnification" that pertains to the latter extends "only [to] the share which corresponds to each [co-debtor]."47 Further. Accordingly." they are consequently joint and severally liable to Ortigas. the necessary implication would be to lay down a corresponding set of rights and obligations as between the "SURETIES" which petitioners and Matti did not clearly intend."48 Articles 2066 and 2067 explicitly pertain to guarantors. In such case. that petitioners and Matti reimburse Ortigas should he be made to pay PDCP. The mere utilization of the term "SURETIES" could not work to such effect, especially as it does not appear who exactly is the principal debtor whose obligation is "assured" or "guaranteed" by the surety. Ortigas further argues that the nature of the Undertaking requires "solidary obligation of the Sureties," since the Undertaking expressly seeks to "reliev[e] obligors of any and all liability arising from their said joint and several undertaking with [F]alcon," and for the "sureties" to "irrevocably agree and undertake to assume all of obligors said guarantees to PDCP."50 We do not doubt that a finding of solidary liability among the petitioners works to the benefit of Ortigas in the facilitation of these goals, yet the Undertaking itself contains no stipulation or clause that establishes petitioners’ obligation to Ortigas as solidary. Moreover, the aims adverted to by Ortigas do not by themselves establish that the nature of the obligation requires solidarity. Even if the liability of petitioners and Matti were adjudged as merely joint, the full relief and reimbursement of Ortigas arising from his payment to PDCP would still be accomplished through the complete execution of such a judgment. Petitioners further claim that they are not liable for attorney’s fees since the Undertaking contained no such stipulation for attorney’s fees, and that the situation did not fall under the instances under Article 2208 of the Civil Code where attorney’s fees are recoverable in the absence of stipulation. We disagree. As Ortigas points out, the acts or omissions of the petitioners led to his being impleaded in the suit filed by PDCP. The Undertaking was precisely executed as a means to obtain the release of Ortigas and the Scholeys from their previous obligations as sureties of Falcon, especially considering that they were already divesting their shares in the corporation. Specific provisions in the Undertaking obligate petitioners to work for the release of Ortigas from his surety agreements with Falcon. Specific provisions likewise mandate the immediate repayment of Ortigas should he still be made to pay PDCP by reason of the guaranty agreements from which he was ostensibly to be released through the efforts of petitioners. None of these provisions were complied with by petitioners, and Article 2208(2) precisely allows for the recovery of attorney’s fees "[w]hen the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest." Finally, petitioners claim that they should not be liable for interest since the Undertaking does not contain any stipulation for interest, and assuming that they are liable, that the rate of interest should not be 12% per annum, as adjudged by the RTC. The seminal ruling in Eastern Shipping Lines, Inc. v. Court of Appeals51 set forth the rules with respect to the manner of computing legal interest: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.52 Since what was the constituted in the Undertaking consisted of a payment in a sum of money, the rate of interest thereon shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand. The interest rate imposed by the RTC is thus proper. However, the computation should be reckoned from judicial or extrajudicial demand. Per records, there is no indication that Ortigas made any extrajudicial demand to petitioners and Matti after he paid PDCP, but on 14 March 1994, Ortigas made a judicial demand when he filed a Third-Party Complaint praying that petitioners and Matti be made to reimburse him for the payments made to PDCP. It is the filing of this Third Party Complaint on 14 March 1994 that should be considered as the date of judicial demand from which the computation of interest should be reckoned.53 Since the RTC held that interest should be computed from 28 February 1994, the appropriate redefinition should be made. WHEREFORE, the Petition is GRANTED in PART. The Order of the Regional Trial Court dated 5 October 1995 is modified by declaring that petitioners and Joseph M. Matti are only jointly liable, not jointly and severally, to respondent Rafael Ortigas, Jr. in the amount of P1,300,000.00. The Order of the Regional Trial Court dated 7 March 1996 is MODIFIED in that the legal interest of 12% per annum on the amount of P1,300,000.00 is to be computed from 14 March 1994, the date of judicial demand, and not from 28 February 1994 as directed in the Order of the lower court. The assailed rulings are affirmed in all other respects. Costs against petitioners. HEIRS OF SERVANDO FRANCO, Petitioners, G.R. No. 159709 Present: Respondents. June 27, 2012 x----------------------------------------------------------------------------------------x DECISION BERSAMIN, J.: There is novation when there is an irreconcilable incompatibility between the old and the new obligations. There is no novation in case of only slight modifications; hence, the old obligation prevails. The petitioners challenge the decision promulgated on March 19, 2003,[1] whereby the Court of Appeals (CA) upheld the issuance of a writ of execution by the Regional Trial Court (RTC), Branch 16, in Malolos, Bulacan. LEONARDO-DE CASTRO, Acting Chairperson, - versus - BERSAMIN, DEL CASTILLO, VILLARAMA, JR, and PERLAS-BERNABE, JJ. Promulgated: SPOUSES VERONICA AND DANILO GONZALES, Antecedents The Court adopts the following summary of the antecedents rendered by the Court in Medel v. Court of Appeals,[2] the case from which this case originated, to wit: On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the name Gonzales Credit Enterprises, in the amount of P50,000.00, payable in two months. Veronica gave only the amount ofP47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one month at 6% per month. Servado and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986. On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on January 19, 1986. They received only P84,000.00, out of the proceeds of the loan. On maturity of the two promissory notes, the borrowers failed to pay the indebtedness. over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275,000.00, was given to them out of the proceeds of the loan. Like the previous loans, Servando and Medel failed to pay the third loan on maturity. On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. They executed a promissory note, reading as follows: Baliwag, Bulacan July 23, 1986 Maturity Date August 23, 1986 On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of P300,000.00, maturing in one month, secured by a real estate mortgage P500,000.00 FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES doing business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........ FIVE HUNDRED THOUSAND ..... (P500,000.00) Philippine Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2% service charge per annum from d ate hereofuntil fully paid according to the amortization schedule contained herein. (Underscoring supplied) Payment will be made in full at the maturity date. Should I/WE fail to pay any amorti zation or portion hereof when due, all the other installments together with all interest accrued shall immediately be due and payable and I/WE hereby agree to pay an additional amount equivalent to o ne per cent (1%) per month of the a mount due and demandable as penal ty charges in the formof liquidated d amages until fully paid; and the further sum of TWENTY FIVE PER CE NT (25%) thereof in full, without deductions as Attorney's Fee whethe r actually incurred or not, of the total amount due and demandable, exclusive of costs and judicial or extra judicial expenses. (Underscoring supplied) I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of the Philippines, the holder shall have the option to apply and collect the increased interest charges without notice although the original interest have already been collected wholly or partially unless the contrary is required by law. It is also a special condition of this contract that the parties herein agree that the amount of pesoobligation under this agreement is based on the present value of peso, and if there be any change in the value thereof, due to extraordinary inflation or deflation, or any other cause or reason, then the pesoobligation herein contracted shall be adjusted in accordance with the value of the peso then prevailing at the time of the complete fulfillment of obligation. Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note or extension of payments, reserving rights against each and all indorsers and all parties to this note. IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under the provisions of Section 12, Rule 39, of the Revised Rules of Court. On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by the above-quoted promissory note. On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including interests and other charges. In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually received the amount and benefited therefrom; that the loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that he (Servando Franco) signed the promissory note only as a witness. In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of 25% of the amount due is unconscionable, illegal and excessive, and that substantial payments made were applied to interest, penalties and other charges. After due trial, the lower court declared that the due execution and genuineness of the four promissory notes had been duly proved, and ruled that although the Usury Law had been repealed, the interest charged by the plaintiffs on the loans was unconscionable and "revolting to the conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that 416 of the Central Bank prescribing the rate of interest for loans or forbearance of money. the dispositive portion of which reads as follows: WHEREFORE. With costs defendants.000. which consolidated all the unpaid loans of the defendants.00 with 12% interest per annum and 1% per cent per month as penalty from November 19. goods or credit is 12% per annum. until the entire amount is paid in full. the trial court rendered judgment." Accordingly. is the law that governs the parties. until the whole amount is fully paid. Medel to plaintiffs. jointly and severally. 1985 and 1% per month as penalty. Ordering the defendants to pay plaintiffs. judgment is rendered. against In due time.000. jointly and severally the amount of P84.00 as attorney's fees. 3. All counterclaims are hereby dismissed. plaintiffs-appellants argued that the promissory note. both defendants appealed to Appeals.000. Ordering the defendants Servando Franco and Leticia Y. 2. as follows: hereby 1. applies only in the absence of a stipulation . 5. 1986.000. the amount of P285.00 plus 12% interest per annum from November 7. on December 9.the "legal rate of interest for loan or forbearance of money.00 plus 12% interest per annum and 1% per month as penalty from July 11. jointly and severally.1985 until the whole amount is fully paid. Ordering the defendants Servando Franco and Leticia Medel. They further argued that Circular No. Ordering the defendants to pay the plaintiffs. goods or credit at 12% per annum. to pay plaintiffs the amount of P47. premises considered. jointly and severally. 1991. the amount of P50. the plaintiffs and the Court of In their appeal. 4. [3] On review.000. SO ORDERED. the Court of Appeals promulgated it decision reversing that of the Regional Trial Court. 1997. Bulacan. Accordingly.000. The award to the plaintiffs of P50. and revived the judgment of the RTC rendered on December 9. plus 1% per month of the total amount due and demandable as penalty charges effective August 24. Instead. viz: WHEREFORE. in Civil Case No. on March 21. the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21. And so is the imposition of costs against the defendants.on interest rate. 905. Branch 16. By resolution dated November 25. 1997. Malolos. the Court of Appeals denied the motion. Court of Appeals struck down as void the stipulation on the interest for being iniquitous or unconscionable. of the Regional Trial Court of Bulacan. It ruled that the Usury Law having become legally inexistent with the promulgation by the Central Bank in 1982 of Circular No. but not when the parties agreed thereon. 1997. we render judgment REVIVING and AFFIRMING the decision dated December 9. 1997. defendantsappellants filed a motion for reconsideration of the said decision. the lender and borrower could agree on any interest that may be charged on the loan. 1991. The Court of Appeals further held that "the imposition of an additional amount equivalent to 1% per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid was allowed by law. 1986. 1991. until the entire amount is fully paid. the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum of P500. plus 5. involving the same parties. and its resolution dated November 25. 1986.00 as attorney's fees is affirmed. the Court in Medel v. 1997. The Court of Appeals sustained the plaintiffs-appellants' contention. . disposing as follows: WHEREFORE. On April 15.00. 134-M-90.5% per month interest and 2% service charge per annum effective July 23. 1 of Rule 39 of the 1997 Rules of Civil Procedure.00 and promised to pay the balance of P375. thus: There is no doubt that the decision dated December 9. the new defense raised by defendant Franco is unavailing. Accordingly. execution shall issue as a matter of right. 1986 promissory note. 247 SCRA 599). The RTC granted the motion for execution over Servandos opposition. the decision deserves to be respected. superseded the July 23.000.[9] .000.No pronouncement as to costs in this instance. let a writ of execution be issued for implementation by the Deputy Sheriff of this Court. SO ORDERED.000. In this respect. WHEREFORE. the liability of the defendants thereunder is solidary.A. the Court hereby grants the Motion for Execution of Judgment. in the light of all the foregoing. The argument about the modification of the contract or non-participation of defendant Servando Franco in the proceedings on appeal on the alleged belief that the payment he made had already absolved him from liability is of no moment. Primarily.00 on February 29. which was allegedly embodied in a receipt dated February 5. Thus. Ltd. the respondents moved for execution..[8] whereby he made an initial payment of P400.[6] claiming that he and the respondents had agreed to fix the entire obligation at P775. the decision was for him and Leticia Medel to pay the plaintiffs jointly and severally the amounts stated in the Decision. It has likewise been ruled that a judgment which has acquired finality becomes immutable and unalterable and hence may no longer be modified at any respect except only to correct clerical errors or mistakes (Korean Airlines Co. 1992.[4] Upon the finality of the decision in Medel v. in accordance with Sec.[7] According to Servando. Court of Appeals. [5] Servando Franco opposed.00. 1992. C. vs. SO ORDERED. Based on this aspect alone. their agreement. 1991 had already been affirmed and had already become final and executory. In other words. Moreover. When the terms of the compromise judgment is violated. Private respondents on their part did not disregard the payments made by the petitioner. Petitioner cannot deny the fact that there was no full compliance with the tenor of the compromise agreement. However. has the right to move for the issuance of a writ of execution of the final judgment subject of the compromise agreement. They even offered that whatever payments made by petitioner. premises considered. such as the private respondents. the CA affirmed the RTC through its assailed decision.[12] On March 19. SO ORDERED. modify or revoke the decision of the Supreme Court in the instant case. 2003. the aggrieved party. ruling that the execution was proper because of Servandos failure to comply with the terms of the compromise agreement. private respondents posit that the payments made cannot alter. the instant petition is hereby DENIED DUE COURSE and consequently DISMISSED for lack of merit. Court of Appeals. the Supreme Court ruled that: WHEREFORE. the RTC issued the writ of execution. it can be deducted from the principal obligation including interest. petitioner does not stand to suffer any harm or prejudice for the simple reason that what has been asked by private respondents to be the subject of a writ of execution is only the balance of petitioners obligation after deducting the payments made on the basis of the compromise agreement. under the circumstances of this case. [10] Servando moved for reconsideration. not its invalidation.On March 8. It is clear from the aforementioned jurisprudence that even if there is a compromise agreement and the terms have been violated. In the case of Prudence Realty and Development Corporation vs. . 2001.[11] but the RTC denied his motion. stating:[13] the aggrieved party must move for its execution. [15] Issue The petitioners submit that the CA erred in ruling that: I been impliedly novated when the principal obligation of P500. on account of his intervening death. In contrast. He was eventually substituted by his heirs. that the promissory note had between the promissory note and the receipt . that Servandos previous payment would be deducted from the total liability of the debtors based on the RTCs decision. modify or revoke the final and executory decision of the Court.00. 2005. BULACAN WAS NOT NOVATED BY THE COMPROMISE AGREEMENT BETWEEN THE PARTIES ON 5 FEBRUARY 1992.000. I Novation did not transpire because no irreconcilable incompatibility existed The petitioners insist that the RTC could not validly enforce a judgment based on a promissory note that had been already novated. Was there a novation of the August 23. now the petitioners herein.00 had been fixed at P750. Issue The petition lacks merits. [14] Servando appealed. 1992 receipt? II Ruling THE LIABILITY OF THE PETITIONER TO RESPONDENTS SHOULD BE BASED ON THE DECEMBER 1991 DECISION OF BRANCH 16 OF THE REGIONAL TRIAL COURT OF MALOLOS. and the maturity date had been extended from August 23. 1986 promissory note when respondent Veronica Gonzales issued the February 5. the respondents aver that the petitioners seek to alter. BULACAN AND NOT ON THE COMPROMISE AGREEMENT EXECUTED IN 1992.000. The substitution was pursuant to the resolution dated June 15.His motion for reconsideration having been denied. 1992. THE 9 DECEMBER 1991 DECISION OF BRANCH 16 OF THE REGIONAL TRIAL COURT OF MALOLOS. that novation did not take place because there was no complete incompatibility between the promissory note and the memorandum receipt. 1986 to February 29. (c) an extinguishment of the old contract.000. In the absence of the express agreement. excerpted below. A compromise of a final judgment operates as a novation of the judgment obligation upon compliance with either of these two conditions.000. therefore: (a) a previous valid obligation.[18] The receipt dated February 5. viz: Received from SERVANDO FRANCO BPI Managers Check No. This means that the parties to a contract should expressly agree to abrogate the old contract in favor of a new one. (b) an agreement of the parties to make a new contract.00 as partial payment of loan. Inc. did not create a new obligation incompatible with the old one under the promissory note.[17] In short.00. and all that is prescribed by law . 1992. Balance of P375. the petitioners rely on the receipt issued on February 5. Inc. They insist that even the maturity date was extended until February 29. 1992. 1992 To buttress their claim of novation.:[21] The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly. or by substituting the person of the debtor. State Investment House. the old and the new obligations must be incompatible on every point. or by subrogating a third person in the rights of the creditor. Gonzalez[19] To be clear.[16] For a valid novation to take place. The term expressly means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. there must be. Upon the other hand. Such changes. or the old and the new obligations are incompatible on every point. 1992. (Sgd) V. In case of default an interest will be charged as stipulated in the promissory note subject of this case. A novation arises when there is a substitution of an obligation by a subsequent one that extinguishes the first. The petitioners assertion is wrong. and (d) a valid new contract.00. 1992 by respondent Veronica whereby Servandos obligation was fixed atP750. [20] According to California Bus Lines. novation is not presumed.00 to be paid on or before FEBRUARY 29. 001700 in the amount of P400. either by changing the object or the principal conditions. the new obligation extinguishes the prior agreement only when the substitution is unequivocally declared. they assert. v. were incompatible with those of the original agreement under the promissory note. no specific form is required for an implied novation.February 5. In a solidary obligation. There is incompatibility when the two obligations cannot stand together. Advertence to the interest stipulated in the promissory note indicated that the contract still subsisted. as the petitioners claim. The loan mentioned in the receipt was still the same loan involving the P500. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation. [27] The choice to determine against whom the collection is enforced belongs to the creditor until the obligation is fully satisfied. would be an irreconcilable incompatibility between the old and the new obligations. the substitution must be clear and express. the change is merely modificatory in nature and insufficient to extinguish the original obligation. in order to escape liability. The incompatibility must affect any of the essential elements of the obligation.000. cause or principal conditions thereof. It did not establish the novation of his agreement with the respondents. acknowledgment or ratification of the old contract with slight modifications or alterations as to the cause or object or principal conditions can stand together with the former one. however. Indeed.[30] Yet. such as its object. or changes only the terms of payment. In case of change in the person of the debtor. each one having its independent existence. or the new contract merely supplements the old one. not replaced and extinguished. Lastly. the latter obligation novates the first. who. the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. Instead. [29] and made with the consent of the creditor.[28] Thus.[26] Worth noting is that Servandos liability was joint and solidary with his co-debtors. The receipt dated February 5.[24] A new contract that is a mere reiteration.[25] Moreover. the obligation was being enforced against Servando. It is . these circumstances did not obtain herein. should have presented evidence to prove that his obligation had already been cancelled by the new obligation or that another debtor had assumed his place. proving precisely that Servando remained a solidary debtor against whom the entire or part of the obligation might be enforced.000. otherwise.would be an incompatibility between the two contracts.[22] Changes that breed incompatibility must be essential in nature and not merely accidental. the Court has ruled that an obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old.00 extended to Servando. the respondents only thereby recognized the original obligation by stating in the receipt that the P400. a creditors acceptance of payment after demand does not operate as a modification of the original contract. or adds other obligations not incompatible with the old ones. the extension of the maturity date did not constitute a novation of the previous agreement.00 was partial payment of loan and by referring to the promissory note subject of the case in imposing the interest. the issuance of the receipt created no new obligation.[23] In light of the foregoing. and there can be no incompatibility between them. If the two obligations cannot stand together. 1992 was only the proof of Servandos payment of his obligation as confirmed by the decision of the RTC. the touchstone for contrariety. 2003. and DIRECTS the petitioners to pay the costs of suit.: The petitioners cannot be upheld. CRYSTAL. G. Bulacan to proceed with the execution based on its decision rendered on December 9.000. DECISION TINGA. the balance was not yet due because the respondents did not yet make a demand for payment.00 already paid by the late Servando Franco. Accordingly. petitioners. remained to be that decreed in the December 9. or on 29 March 1979. the Court AFFIRMS the decision of the Court of Appeals promulgated on March 19. CRYSTAL. CRYSTAL. LAMBERTO C. However. vs. of Cebu City. On 28 March 1978. ORDERS the Regional Trial Court. Servandos obligation. The balance of P375.000.000. SOLANTE.00. CRYSTAL and DESAMPARADOS C.00 was premised on the taking place of a novation. CV No. being solidary. as culled from the records. Branch 16. the balance indicated in the February 5. less the amount of P400. 1992 receipt. BANK OF THE PHILIPPINE ISLANDS. Before us is a Petition for Review1 of the Decision2 and Resolution3 of the Court of Appeals dated 24 October 2005 and 31 March 2006. MAGLASANG. (CCCC) from the Bank of the Philippine Islands-Butuan branch (BPI-Butuan). Thereafter. as Heirs of Deceased SPOUSES RAYMUNDO I. follow. deducting the amount of P400.000. 1991.00 The petitioners argue that Servandos remaining liability amounted to only P375. The loan was secured by a chattel mortgage on heavy equipment and machinery of CCCC. On the same date.[31] II Total liability to be reduced by P400. which affirmed the 8 June 2001 decision of the Regional Trial Court.settled that an extension of the term or period of the maturity date does not result in novation. Branch 5.00 loan in behalf of the Cebu Contractors Consortium Co.R.R.000. as found now.00. 72886. No. WHEREFORE. 2008 HERMAN C. novation did not take place. in Malolos. J.00 that was meanwhile paid by him.4 The facts. Accordingly. respectively.000. respondent. and DORIS C. 172428 November 28. 1991 decision of the RTC. inclusive of interests. Raymundo Crystal executed a promissory .000. ANN GEORGIA C. spouses Raymundo and Desamparados Crystal obtained a P300. in CA G. the spouses executed in favor of BPIButuan a Continuing Suretyship5 where they bound themselves as surety of CCCC in the aggregate principal sum of not exceeding P300. 10 CCCC failed to pay its loans to both BPI-Butuan and BPICebu City when they became due.16 additionally alleging that CCCC had opened and maintained a foreign currency savings account (FCSA-197) with bpi. Cebu City branch (BPI-Cebu City). CCCC renewed a previous loan. BPI . offered to buy the lot subject of the two (2) real estate mortgages and to pay directly the spouses’ indebtedness in exchange for the release of the mortgages.000. following BPI’s compliance with the necessary requisites of extrajudicial foreclosure.00 applied to the loan from BPIButuan which had then reached P707.000. Thus. Insular Bank of Asia and America (IBAA). Sometime in August 1979.12Meanwhile. signed by the spouses in their personal capacities and as managing partners of CCCC.9 On 3 October 1977.393. to secure an additional loan of P20. The trial court ruled in favor of BPI.15 The spouses claimed that the foreclosure of the real estate mortgages is illegal because BPI should have exhausted CCCC’s properties first.90. through its Vice-President for Legal and Corporate Affairs. this time from BPI. With A Prayer For A Restraining Order and/ or Writ of Preliminary Injunction. and thereafter the spouses demanded the return of the FCSA passbook. TheP450. as well as the spouses. the foreclosure sale on the chattel mortgage was consummated on 28 February 1988. on 7 July 1981. They also prayed that they be awarded moral and exemplary damages.000. The promissory note states that the spouses are jointly and severally liable with CCCC. the spouses executed a real estate mortgage8 over their own real property on 22 September 1977. The renewal was evidenced by a promissory note7 dated 13 August 1979.11 However. and that said FCSA was used as security for a P450. hence. the spouses filed an action for Injunction With Damages. they executed another real estate mortgage over the same lot in favor of BPI-Cebu City.14 On 10 April 1985.00 loan was allegedly paid. Makati branch (BPI-Makati). the spouses filed an amended complaint.00. Subsequently. seeking to recover the deficiency of the loan of CCCC and the spouses with BPIButuan. CCCC had no real property to offer as security for the loan. However. BPI-Cebu City required CCCC to put up a security. BPI rejected IBAA’s offer to pay.000. The foreclosure sale on the chattel mortgage was initially stalled with the issuance of a restraining order against BPI. with the proceeds amounting to P240. It appears that before the original loan could be granted. also in favor of BPI-Butuan. stressing that they are mere guarantors of the renewed loans. Pursuant to the decision.note6 for the amount of P300. attorney’s fees. CCCC.00 of CCCC.00 loan also extended by BPI-Makati.13 BPI filed a complaint for sum of money against CCCC and the spouses before the Regional Trial Court of Butuan City (RTC Butuan). BPI instituted extrajudicial foreclosure of the spouses’ mortgaged property. failed to pay their obligations despite demands. BPI resorted to the foreclosure of the chattel mortgage and the real estate mortgage.000. litigation expenses and cost of suit. thus. Under the promissory note.20 BPI’s refusal to agree to such payment scheme cannot extinguish the spouses’ loan obligation. BPI can validly foreclose the two real estate mortgages. the spouses were unable to withdraw from the said account to pay for their other obligations to BPI.000.00 loan from BPI-Makati. The contention has no merit. they are solidarily liable for the loans. 197 because it was already closed. petitioners who are the heirs of the spouses argue that the failure of the spouses to pay the BPI-Cebu City loan of P120. take effect only between the parties. Moreover. the present petition. We see no stipulation in the promissory note which states that a third person may fulfill the spouses’ obligation. after all. the creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation.000. at the request of Desamparados Crystal. being guarantors-mortgagors. Contracts. the trial court found that CCCC originally had FCDU SA No. FCDU SA 76/0035 was thus closed. to the BANK OF THE PHILIPPINE ISLANDS. 1980 on demand.rejected the demand. hence. unless there is a stipulation to the contrary. in view of BPI’s unjust refusal to accept payment of the BPI-Cebu City loan. under Art. but the Court of Appeals also denied their motion for reconsideration. but their appeal was dismissed. In the first place.000. petitioners contend. 197 with BPI. the promissory note is the controlling repository of the obligation of the spouses. heirs and assigns.21 Besides. Petitioners rely on IBAA’s offer to purchase the mortgaged lot from them and to directly pay BPI out of the proceeds thereof to settle the loan. which was transferred to BPI-Makati as FCDU SA 76/0035. CCCC was no longer allowed to withdraw from FCDU SA No. for value received. jointly and severally.19 Hence. The transferred FCSA in BPI-Makati was the one used as security for CCCC’s P450. but Desamparados Crystal failed to surrender the passbook because it was lost.00 was due to BPI’s illegal refusal to accept payment for the loan unless the P300. Consequently.17 It ruled that since the spouses agreed to bind themselves jointly and severally. at its office in the city of Cebu . Before the Court. their successors in interest. the spouses defined the parameters of their obligation as follows: On or before June 29. The spouses appealed the decision of the trial court to the Court of Appeals. In any event. the spouses are not entitled to the benefit of exhaustion. IBAA is not privy to the loan agreement or the promissory note between the spouses and BPI. 1236 of the Civil Code. it is clear that the spouses alone bear responsibility for the same. Dewey Boulevard branch. the loan obligation of the spouses was extinguished. The trial court dismissed the spouses’ complaint and ordered them to pay moral and exemplary damages and attorney’s fees to BPI.18 The spouses moved for the reconsideration of the decision.00 loan from BPI-Butuan would also be paid. I/we promise to pay. Thus. Anent the FCSA. 000. Moral damages are meant to compensate the claimant for any physical suffering. in other words. moral shock." the spouses agreed to be sought out and be demanded payment from. the surety’s liability to the creditor or promisee of the principal is said to be direct. it means that the obligation is solidary. wounded feelings."24 Thus. when the law so provides or when the nature of the obligation so requires. Thus we held in one case that if solidary liability was instituted to "guarantee" a principal obligation. considering that they suffered moral damages in view of the unjust refusal of BPI to accept the payment scheme proposed by IBAA and the allegedly unjust and illegal foreclosure of the real estate mortgages on their property. besmirched reputation.29 We do not agree. attorney’s fees and expenses of litigation. when the obligor undertakes to be "jointly and severally" liable.00 quarterly amortization starting September 28.25 such as in this case. 23 A liability is solidary "only when the obligation expressly so states. 1979. fright. the law deems the contract to be one of suretyship.30 Such damages. social humiliation and similar injuries unjustly caused. partakes the nature of a suretyship and therefore is an additional security for the loan. by BPI. there is no lawful basis for award of damages in favor of the spouses.26 And while a contract of a surety is in essence secondary only to a valid principal obligation. the promissory note. Philippine Currency. mental anguish. to the BANK OF THE PHILIPPINE ISLANDS. as well as exemplary damages.00). jointly and severally. BPI did demand payment from them. the sum of ONE HUNDRED TWENTY THOUSAND PESOS (P120.Philippines. and each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors.0000. and absolute. More importantly. the surety is directly and equally bound with the principal. must be the proximate result of a wrongful act or omission the factual basis for which is satisfactorily established by the aggrieved party. which is a corporation. The surety therefore becomes liable for the debt or duty of another even if he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.27 Petitioners contend that the Court of Appeals erred in not granting their counterclaims. A juridical person is generally not entitled to moral damages .31 There being no wrongful or unjust act on the part of BPI in demanding payment from them and in seeking the foreclosure of the chattel and real estate mortgages.28 Conversely. serious anxiety. Neither is BPI entitled to moral damages. but they failed to comply with their obligation. to be recoverable. primary. By stating "I/we promise to pay. they argue that the Court of Appeals erred in awarding moral damages to BPI. prompting BPI’s valid resort to the foreclosure of the chattel mortgage and the real estate mortgages. x x x 22 A solidary obligation is one in which each of the debtors is liable for the entire obligation. wherein the spouses undertook to be solidarily liable for the principal loan. subject to periodic installments on the principal as follows: P30. 39 The spouses’ complaint against BPI proved to be unfounded. serious anxiety. The rationale for the rule is that the law could not have meant to impose a penalty on the right to litigate. This is so because moral damages. Although the institution of a clearly unfounded civil suit can at times be a legal justification for an award of attorney's fees.34 wherein the Court ruled that "[i]t is only when a juridical person has a good reputation that is debased. resulting in social humiliation. however. x x x (Emphasis supplied) Nevertheless. are proper.40 BPI may have been inconvenienced by the suit.37 and Filipinas Broadcasting Network. mental anguish. moral damages must every time be awarded in favor of the prevailing defendant against an unsuccessful plaintiff. that moral damages may be awarded. Indeed. in the more recent cases of ABS-CBN Corp. A corporation may have good reputation which. The awards of exemplary damages and attorney’s fees. however. A statement similar to that made by the Court in Manerocan be found in the case of Mambulao Lumber Co. v. PNB. the Court of Appeals relied on the case of People v. but it does not automatically entitle BPI to moral damages. v. an artificial person like herein appellant corporation cannot experience physical sufferings. Otherwise. though incapable of pecuniary estimation.. on the other hand. Manero. moral shock or social humiliation which are basis of moral damages. has almost invariably been held not to be a ground for an award of moral damages. Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM). v.38 the Court held that the statements in Manero and Mambulao were mere obiter dicta. fright. it cannot experience physical suffering or such sentiments as wounded feelings. the award of moral damages should be deleted.36 thus: x x x Obviously. if besmirched may also be a ground for the award of moral damages. but we do not see how it could have possibly suffered besmirched reputation on account of the single suit alone. et al.32 The Court of Appeals found BPI as "being famous and having gained its familiarity and respect not only in the Philippines but also in the whole world because of its good will and good reputation must protect and defend the same against any unwarranted suit such as the case at bench. unlike a natural person. are in the category of an award designed to compensate the claimant for actual injurysuffered and not to impose a penalty on the wrongdoer. it is not automatically granted. Hence. while the Court may allow the grant of moral damages to corporations. mental anguish or moral shock. Inc. Court of Appeals. serious anxiety."33 In holding that BPI is entitled to moral damages. such filing. implying that the award of moral damages to corporations is not a hard and fast rule.. wounded feelings. Exemplary damages. there must still be proof of the existence of the factual basis of the damage and its causal relation to the defendant’s acts. et al.because."35 We do not agree with the Court of Appeals. are imposed by way of example or correction for . petitioner. as well as the cross claim.the public good. 1 which disposed of Civil Case No. The Decision and Resolution of the Court of Appeals dated 24 October 2005 and 31 March 2006. BPI is entitled to the awards of exemplary damages and attorney’s fees. 1983. Naybe and Gregorio D. Consequently. respectively. vs. Pantanosas on February 3. defendant BALDOMERO L. respondents.R. fraudulent. the amount of FIFTY THOUSAND PESOS (P50. ROMERO. plus 10% of the total amount due for expenses of litigation and attorney's fees. with interest thereon from May 5. 1983 at 16% per annum until fully paid.41 The spouses instituted their complaint against BPI notwithstanding the fact that they were the ones who failed to pay their obligations. when the party to a contract acts in a wanton. are hereby AFFIRMED. as liquidated damages or penalty from May 5. BPI was forced to litigate and defend its interest. 10507 for collection of a sum of money and damages. Cagayan de Oro City branch. The promissory note was due on May 5. Cagayan de Oro City. 1983. G. WHEREFORE.00). JR..:p SO ORDERED. is adjudged solidarily liable and ordered to pay to the plaintiff Philippine Bank of Communications. and to pay the costs.00 which he signed with Rene C.000. oppressive or malevolent manner. INCIONG. This is a petition for review on certiorari of the decision of the Court of Appeals affirming that of the Regional Trial Court of Misamis Oriental. . COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS. 1983 until fully paid. holding themselves jointly and severally liable to private respondent Philippine Bank of Communications. are dismissed for lack of merit. 1996 BALDOMERO INCIONG. as follows: WHEREFORE. For these reasons. No. while attorney’s fees are allowed when exemplary damages are awarded and when the party to a suit is compelled to incur expenses to protect his interest. JR. Branch 18. The counterclaim. J. the petition is DENIED. Costs against the petitioners. and 6% per annum on the total amount due. 96405 June 26. with the MODIFICATION that the award of moral damages to Bank of the Philippine Islands is DELETED.000. Petitioner's liability resulted from the promissory note in the amount of P50. the lower court dismissed the case against defendant Pantanosas as prayed for by the private respondent herein. he was approached by his friend. However. the same would have been merely collateral between him and Naybe and. Consequently. his supposed obligation in the amount of P5. 1986 a complaint for collection of the sum of P50. 1986. the lower court held that. it noted that the typewritten figure "-. 1987. it was by trickery.000. 1984. the branch manager of private respondent in Cagayan de Oro City. even granting that said limited amount had actually been agreed upon.00 only. not binding upon the private respondent as creditor-bank. Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by Campos at his office. on January 9. Campos then persuaded petitioner to act as a "co-maker" in the said loan.00. private respondent filed on January 24.000. Pio Tio denied having participated in the alleged business venture although he . 5 (q) of Rule 131. the complaint was dismissed for failure of the plaintiff to prosecute the case. private respondent sent petitioner telegrams demanding payment thereof.00 against the three obligors. 1984 private respondent also sent by registered mail a final letter of demand to Rene C. Naybe. Naybe was interested in the business and would contribute a chainsaw to the venture. On November 25.Said due date expired without the promissors having paid their obligation. 1983 and on June 8. of the promissory note. who told him that he was a partner of Pio Tio. Since both obligors did not respond to the demands made.00. petitioner alleged that sometime in January 1983.00. Thus.000. The lower court added that it was "rather odd" for petitioner to have indicated in a copy and not in the original.000. In the aforementioned decision of the lower court. The lower court also noted that petitioner was a holder of a Bachelor of Laws degree and a labor consultant who was supposed to take due care of his concerns. Campos also intimated to him that Rene C. Petitioner allegedly acceded but with the understanding that he would only be a co-maker for the loan of P50. and that. Finally. 2 On December 11. He added that. Pio Tio had assured Naybe of the approval of a loan he would make with private respondent. On January 27. 1987. under Sec. therefore. fraud and misrepresentation that he was made liable for the amount of P50.000 --" clearly appears directly below the admitted signature of the petitioner in the promissory note. on November 14. 3 Hence. he indicated that he bound himself only for the amount of P5. on the witness stand. in the falcata logs operation business. Meanwhile. the latter's uncorroborated testimony on his limited liability cannot prevail over the presumed regularity and fairness of the transaction.000. Rudy Campos.50. although Naybe had no money to buy the equipment. He affixed his signature thereto but in one copy. the lower court reconsidered the dismissal order and required the sheriff to serve the summonses. only the summons addressed to petitioner was served as the sheriff learned that defendant Naybe had gone to Saudi Arabia. In his answer. Thus.000. petitioner filed a motion for leave to file a second motion for reconsideration which. 1991.000. the Court denied the petition for failure of petitioner to comply with the Rules of Court and paragraph 2 of Circular No. the Court granted his prayer that his petition be given due course and reinstated the same. he asserted that he had attached Registry Receipt No.000. by Gregorio Pantanosas. In the latter motion.00. 1991. he filed the instant petition for review on certiorari.00. we find the petition unmeritorious. The affidavit is clearly intended to buttress petitioner's contention in the instant petition that the Court of Appeals should have declared the promissory note null and void on the following grounds: (a) the promissory note was signed in the office of Judge Pantanosas.000. Petitioner is to be reminded of the basic rule that this Court is not a trier of facts. On February 6. his consent was vitiated by fraud as. adding that it was Campos who caused the amount of the loan to be increased to P50. affirmed that of the lower court.knew for a fact that the falcata logs operation was encouraged by the bank for its export potential. on August 7. 7 Nonetheless.00. as it exceeded P5. 8 Finally. in the Resolution of May 27. contrary to their agreement that the loan was only for the amount of P5.000.00. It supports petitioner's allegation that they were induced to sign the promissory note on the belief that it was only for P5. 4 His motion for the reconsideration of the denial of his petition was likewise denied with finality in the Resolution of April 24. in its decision of August 31.00. Jr. (c) even a new chainsaw would cost only P27. an MTCC judge and petitioner's co-maker in the promissory note. (d) the loan was not approved by the board or credit committee which was the practice. the Court denied. The above-stated points are clearly factual. or after the rendition of the decision of the lower court. Annexed to the petition is a copy of an affidavit executed on May 3. (b) the loan was incurred for the purpose of buying a second-hand chainsaw which cost only P5. 5 Thereafter. Petitioner appealed the said decision to the Court of Appeals which. 1991. the promissory note stated the amount of P50. petitioner filed a notion for leave to file a motion for clarification. (f) petitioner and Judge Pantanosas were not present at the time the loan was released in contravention of the bank practice. petitioner contends that in signing the promissory note.500. 1-88. the Court ordered the entry of judgment in this case. (e) the loan had no collateral. 1-88. outside the premises of the bank.00. and to sufficiently show that respondent court had committed any reversible error in its questioned decision. His motion for reconsideration of the said decision having been denied.. 1991.000. Having lost the chance to fully ventilate . In the same Resolution. 1990. 1988. and (g) notices of default are sent simultaneously and separately but no notice was validly sent to him. 6 Unfazed.00. 3268 to page 14 of the petition in compliance with Circular No. where a parol contemporaneous agreement was the inducing and moving cause of the written contract. a mere commercial paper which does not bear the signature of .his factual claims below. bills. self-serving testimony. Petitioner also argues that the dismissal of the complaint against Naybe. notes and other instruments of a similar nature are not subject to be varied or contradicted by parol or extrinsic evidence. . and against Pantanosas. to admit weaker evidence to control and vary the stronger and to show that the parties intended a different contract from that expressed in the writing signed by them. fraud must be established by clear and convincing evidence." 11 Thus. 14 petitioner was actually in the right direction towards proving that he and his co-makers agreed to a loan of P5. 12 As a general rule. What is required is that the agreement be in writing as the rule is in fact founded on "long experience that written evidence is so much more certain and accurate than that which rests in fleeting memory only. especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. . 9 The first paragraph of the parol evidence rule 10states: When the terms of an agreement have been reduced to writing. when parties have expressed the terms of their contract in writing. Clearly. expectedly. attesting witnesses.000. between the parties and their successors in interest. it would have strengthened his claim that the promissory note did not reflect the correct amount of the loan. or be signed by both parties. the principal debtor. Nor is there merit in petitioner's assertion that since the promissory note "is not a public deed with the formalities prescribed by law but . Had he presented Judge Pantanosas affidavit before the lower court. they ." parol evidence may "overcome" the contents of the promissory note. fail as it was evidenced only by his own uncorroborated and. 13 By alleging fraud in his answer. 16 Petitioner's attempt to prove fraud must. that it would be unsafe. Article 2080 of the Civil Code which provides that: The guarantors. not even being adequate. even though they be solidary. 15 However. .00 only considering that. his co-maker. He cites as basis for his argument. for the parol evidence rule to apply. mere preponderance of evidence. it is considered as containing all the terms agreed upon and there can be. . it may be shown by parol evidence. a written contract need not be in any particular form. no evidence of such terms other than the contents of the written agreement. the rule does not specify that the written agreement be a public document. constituted a release of his obligation. are released from their obligation whenever by some act of the creditor. therefore. petitioner may no longer be accorded the same opportunity in the absence of grave abuse of discretion on the part of the court below. (Emphasis supplied. Tolentino explains: A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted. Philippine Currency.cannot be subrogated to the rights. A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation. . Book IV of the Civil Code. retains all the other rights. Chapter 3. Philippines the sum of FIFTY THOUSAND ONLY (P50. when there are two or more debtors in one and the same obligation. Under Art. at the rate of SIXTEEN (16) per cent per annum until fully paid. The latter. Chapter 3. when the law so provides or when the nature of the obligation so requires. mortgages. 1207 thereof. If a person binds himself solidarily with the principal debtor. however. together with interest . It is to be noted. Thus. Book IV of the Civil Code states the law on joint and several obligations. There is a difference between a solidary co-debtor and a fiador in solidum (surety). This is patent even from the first sentence of the promissory note which states as follows: Ninety one (91) days after date.000. any one. There is a solidary liability only when the obligation expressly so states.) While a guarantor may bind himself solidarily with the principal debtor. while a solidary codebtor has no other rights than those bestowed upon him in Section 4. called the guarantor. Title I of this Book shall be observed. Title I. the provisions of Section 4. .00) Pesos. the presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. for value received. that petitioner signed the promissory note as a solidary co-maker and not as a guarantor. In such a case the contract is called a suretyship. the liability of a guarantor is different from that of a solidary debtor. 19 Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable. Article 2047 of the Civil Code states: By guaranty a person. actions and benefits which pertain to him by reason of the fiansa. Title I. binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro. and each creditor is entitled to demand the whole obligation. 18 Section 4. Chapter 3. and preferences of the latter. some or all of . 17 on the other hand. I/we. WHEREFORE. [G. VII in Cebu City against Filipinas Carbon Mining Corporation. 21 Consequently. 1991 issued by the National Labor Relations Commission in RAB-VII-0711-84 on the alleged ground that it committed a grave abuse of discretion amounting to lack of jurisdiction in upholding the Alias Writ of Execution issued by the Labor Arbiter which deviated from the dispositive portion of the Decision dated March 10. No. Virginia Bacus. TITA BACUSMO. DARIO GO. S-jcj The factual antecedents are undisputed: Supr-eme In September 1984.R. Sc-jj In a Decision dated March 10. SOCORRO MAHINAY. therefore. when their liability should merely be joint. as provided by law. for payment of separation pay and unpaid wages. vs. ROBERTO NEMENZO. J. Chiu Chin Gin. Gerardo Sicat.: This is a petition for certiorari assailing the Resolution dated September 4. petitioner. Esmeraldo Pegarido. Socorro Mahinay. Tita Bacusmo. GINO NIERE. thereby holding that the liability of the six respondents in the case below is solidary despite the absence of the word "solidary" in the dispositive portion of the Decision. 1987. Dariogo. Regional Arbitration Branch No. Roberto Nemenzo. (Fourth Division) Cebu City. NATIONAL LABOR RELATIONS COMMISSION. As regards Naybe. VIRGINIA BACUS. private respondent Enrique Sulit. the dismissal of the case against Judge Pontanosas may not be deemed as having discharged petitioner from liability as well. suffice it to say that the court never acquired jurisdiction over him. and Roberto Alegarbes filed a complaint with the Department of Labor and Employment. Gino Niere. to all the foregoing. May 11. may only have recourse against his co-makers. the instant petition for review on certiorari is hereby DENIED and the questioned decision of the Court of Appeals is AFFIRMED. and petitioner Industrial Management Development Corporation (INIMACO).them may be proceeded against for the entire obligation. 101723. Tumamak held that: "RESPONSIVE. DECISION BUENA. ordering respondents Filipinas Carbon and Mining Corp. Gerardo Sicat. Petitioner. and ENRIQUE SULIT. Labor Arbiter Bonifacio B. 2000] INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP. Costs against petitioner. 20 The choice is left to the solidary creditor to determine against whom he will enforce collection. judgment is hereby entered. ESMERALDO PEGARIDO. Lo Kuan Chin. Antonio Gonzales. and ROBERTO ALEGARBES. respondents. (INIMACO). 1987. Antonio Gonzales/Industrial . "Cebu City.Management Development Corp. by virtue of the powers vested in me by law. and collect the aggregate award of ONE HUNDRED THIRTYEIGHT THOUSAND FIVE HUNDRED EIGHTYEIGHT PESOS AND THIRTY ONE CENTAVOS (P138.31) to be deposited with this Commission within ten (10) days from receipt of this Decision for appropriate disposition. the Labor Arbiter issued a writ of execution but it was returned unsatisfied.71. You are to return this writ sixty (6) (sic) days from your receipt hereof.60 and DARIO GO the total award of P6. you are hereby commanded to proceed to the premises of respondents Antonio Gonzales/Industrial Management Development Corporation (INIMACO) situated at Barangay Lahug."[2] On September 3. the above Decision became final and executory. the total award of P82. Makati Metro Manila and at Philippine National Bank. Legaspi Village.31) and thereafter turn over said amount to complainants ENRIQUE SULIT. All other claims are hereby Dismiss (sic) for lack of merit. or the total aggregate award of ONE HUNDRED THIRTYEIGHT THOUSAND FIVE HUNDRED EIGHTYEIGHT PESOS AND 31/100 (P138. you are hereby authorized to cause the satisfaction of the same on the movable or immovable property(s) of respondents not exempt from execution. Should you fail to collect the said sum in cash.00.565. ESMERALDO PEGARIDO the full award of P19."0[1] No appeal was filed within the reglementary period thus. Philippines. "SO ORDERED. 1987. 106 Paseo de Roxas.800. 1987. the Labor Arbiter issued an Alias Writ of Execution which ordered thus: Ed-pm-is "NOW THEREFORE.599. 1987. "10 March 1987. On June 16. in front of La Curacha Restaurant. "You may collect your legal expenses from the respondents as provided for by law. Cebu City. Chiu Chin Gin and Lo Kuan Chin.588.623. and/or to Filipinas Carbon and Mining corporation and Gerardo Sicat at 4th Floor Universal RE-Bldg. ROBERTO NEMENZO AND DARIO GO or to this Office for appropriate disposition.00.588. Escolta. On August 26."[3] alleging among others that the alias writ of execution altered and changed the tenor of the decision by changing the liability of therein respondents from . Manila respectively. together with your corresponding report. petitioner filed a "Motion to Quash Alias Writ of Execution and Set Aside Decision. ESMERALDO PEGARIDO. (INIMACO). Roberto Nemenzo the total sum of P29. Jjsc "SO ORDERED. to pay complainants Enrique Sulit. " Ed-psc Petitioner appealed the above Order of the Labor Arbiter but this was again dismissed by the respondent NLRC in its Resolution[8] dated September 4. Considering the factual circumstances in this case.198.joint to solidary. Further. We hold that the Writ of Execution be given due course in all respects. there is no reason why complainants prayer should not be granted. The Sheriff of this Office is order (sic) to accept INIMACOs tender payment (sic) of the sum of P23. "SO ORDERED." Ed-p On July 31. the Labor Arbiter denied the motion ruling thus: "WHEREFORE. there is no doubt in our mind that the respondents herein are called upon to pay. 1991 which held that: "The arguments of respondent on the finality of the dispositive portion of the decision in this case is beside the point. 1989. 1988. Mis-edp The respondent NLRC dismissed the appeal in a Decision[5] dated August 31. we have always adopted the liberal approach which favors the exercise of labor rights and which is beneficial to labor as a means to give full meaning and import to the constitutional mandate to afford protection to labor. defect or irregularity whether in substance or in form in a proceeding before Us. in an order dated September 14. 1987 to the respondent NLRC. for the full and final satisfaction of the monetary award granted in the instant case.198. in line with the powers granted to the Commission under Article 218 (c) of the Labor code. as partial satisfaction of the judgment and to proceed with the enforcement of the Alias Writ of Execution of the levied properties. by the insertion of the words "AND/OR" between "Antonio Gonzales/Industrial Management Development Corporation and Filipinas Carbon and Mining Corporation.05.05 Representing One Sixth Pro Rata Share of Respondent INIMACO As Full and Final Satisfaction of Judgment As to Said Respondent. In an Order[7] dated August 15. now issued by this Office." However. et al. responsive to the foregoing respondent INIMACOs Motions are hereby DENIED. 1987. 1989. the claims of the complainants as was the latters prayers. petitioner filed a "Motion To Compel Sheriff To Accept Payment Of P23. Mis-oedp On October 2."[6] The private respondents opposed the motion. jointly and severally. . to waive any error. petitioner appealed[4] the Labor Arbiters Order dated September 14. 1987. the Labor Arbiter denied the motion. the pertinent portions of which read: "In matters affecting labor rights and labor justice. Inasmuch as respondents herein never controverted the claims of the complainants below. INIMACO would now reopen the issue which was already resolved against it. Antonio Gonzales. Moreover. this appeal is DISMISSED and the Order appealed from is hereby AFFIRMED. Sce-dp "With double costs against appellant. is solidary or not. 1989. when it is not provided in a judgment . which declared the liability of petitioner to be solidary. The said fallo expressly states the following respondents therein as liable. alleging that the respondent NLRC committed grave abuse of discretion in affirming the Order of the Labor Arbiter dated August 15. Industrial Management Development Corporation (petitioner INIMACO).[10] Well-entrenched is the rule that solidary obligation cannot lightly be inferred. Gerardo Sicat. the word "solidary" does not appear. By sheer technicality and unfounded assertions. At most. The only issue in this petition is whether petitioners liability pursuant to the Decision of the Labor Arbiter dated March 10.[9] In a joint obligation each obligor answers only for a part of the whole liability and to each obligee belongs only a part of the correlative rights. It is not really correct to say that said Writ of Execution varied the terms of the judgment. it is already a well-settled doctrine in this jurisdiction that. Nor can it be inferred therefrom that the liability of the six (6) respondents in the case below is solidary. thus their liability should merely be joint. Calrs-pped Upon careful examination of the pleadings filed by the parties. an ambiguity in said dispositive portion which was subsequently clarified by the Labor Arbiter and the Commission in the incidents which were initiated by INIMACO itself. A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation.[12] In the dispositive portion of the Labor Arbiter. namely: Filipinas Carbon and Mining Corporation. "WHEREFORE. Chiu Chin Gin.What is important is that the Commission has ruled that the Writ of Execution issued by the Labor Arbiter in this case is proper." Dissatisfied with the foregoing. and Lo Kuan Chin. considering the nature of labor proceedings there was. and each creditor is entitled to demand the whole obligation. the Court finds that petitioner INIMACOs liability is not solidary but merely joint and that the respondent NLRC acted with grave abuse of discretion in upholding the Labor Arbiters Alias Writ of Execution and subsequent Orders to the effect that petitioners liability is solidary. petitioner filed the instant case. 1987. in view of all the foregoing. It is not in keeping with the established rules of practice and procedure to allow this attempt of INIMACO to delay the final disposition of this case.[11] There is a solidary liability only when the obligation expressly so states. when the law so provides or when the nature of the obligation so requires. Abeto and Mabanag[13] this Court held: "It is of no consequence that. G. and Gerardo Sicat. hence the same became final and executory. without prejudice to the enforcement of the award. the Alias Writ of Execution is null and void because it varied the tenor of the judgment in that it sought to enforce the final judgment against "Antonio Gonzales/Industrial Management Development Corp. 1991 of the respondent National Labor Relations is hereby declared NULL and VOID. the petition is hereby GRANTED." which makes the liability solidary. vs. which superseded the action for the enforcement of said contract. and the same cannot be executed otherwise. under the contract of suretyship executed by the parties. The final judgment.[16] It thereby becomes immutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is null and void for lack of jurisdiction.that the defendants are liable to pay jointly and severally a certain sum of money. none of them may be compelled to satisfy in full said judgment. as it is hereby. (INIMACO) and/or Filipinas Carbon and Mining Corp. considered joint and petitioners payment which has been accepted considered as full satisfaction of its liability.R. Also. including the entire proceedings held for that purpose. against the other five (5) respondents in the said case. No."[14] Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive portion that the liability of respondents therein is solidary.[18] None of the parties in the case before the Labor Arbiter appealed the Decision dated March 10. the obligation contracted by the sureties was joint and several in character. Ca-lrsc WHEREFORE. the proceedings held for the purpose of amending or altering the dispositive portion of the said decision are null and void for lack of jurisdiction. Thus.[15] Once a decision or order becomes final and executory. 80645 August 3. It was. removed from the jurisdiction of the Labor Arbiter or the NLRC to further alter or amend it. Scc-alr It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties. the correction -.which is substantial -. therefore. 1987. 1993 . 1987 should be. declared the obligation to be merely joint. it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. The liability of the respondents in RAB-VII-0711-84 pursuant to the Decision of the Labor Arbiter dated March 10.[17] An order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity.can no longer be allowed in this case because the judgment has already become final and executory. The Resolution dated September 4. In Oriental Commercial Co. 795. and MA. 1976. The dispositive portion of the assailed decision reads as follows: WHEREFORE. our title thereto being evidenced by TCT No. Amparo. Corazon. T-3603 of Tagaytay City Register of Deeds. RAMON R. and Maria Luisa. The agreement was embodied in a Deed of Sale which stated the following: I. RAMON R.: This is a petition for review on certiorari of the decision 1 of the Court of Appeals affirming in toto the judgment rendered by the then Court of First Instance in Civil Case No. of which we are the absolute owners. hereby SELL. Corazon. spouses and residents of 72 4th St. for petitioners. GUADALUPE GALANG. R-82-7186 (107585). all surnamed Buenaventura. Ramon R. Manila. New Manila. On July 16. ANGELES BUENAVENTURA. TRANSFER AND CONVEY UNTO MARCELINO GALANG and GUADALUPE GALANG.MARCELINO GALANG. for and in consideration of the sum of One Hundred Ninety Two Thousand Seven Hundred Ninety Five (P192. respondents. Jr.00) Pesos. Filipino. all surnamed Buenaventura as per the special powers of attorney already registered and annotated at the back of the certificate of title. of legal age. Malate. married. Buenaventura for private-respondents. CORAZON BUENAVENTURA. Amparo and Maria Luisa. ROMERO. and residing at 2111 M. more particularly desccribed as follows: xxx xxx xxx Under the following terms: (a) 25% of the purchase price upon signing of this instrument. Philippine Currency. the same is herebyAFFIRMED IN TOTO without any pronouncement as to costs at this instance. COURT OF APPEALS. vs. BUENAVENTURA. Quezon City those parcels of land situated at Tagaytay City.. in his own behalf and as attorney in fact of Angeles. Ampl. 2 From the records. Filipino. petitioners. sold to Guadalupe Galang and Marcelino Galang two (2) parcels of land situated in Tagaytay City. we find the following facts. Ramon Buenaventura on his own behalf and as attorney-in-fact of Angeles. finding no reversible error in the judgment appealed from. BUENAVENTURA. of legal age. LUISA BUENAVENTURA. Adriatico. Mariano V. inherited by us from our parents and our exclusive paraphernal property. . J. Upon the "encargado's" motion. or upon removal of the "encargado" from the premises. Furthermore. herein petitioners ppaid to the sellers the first 25% of the purchase ppprice as stated in the deed.000.00 as attorney fees and the costs. the demands notwithstanding. 1977 a complaint for specific performance with damages where they alleged among others. 5 In rendering the decision. that: 5. the Court hereby orders the defendants to pay jointly and severally. denied the allegations and stated that the contract did not state the true intention of the parties and that it was not their fault that the "encargado" refused to leave. they allegedly demanded from private respondents failed to do so despite the willingness of petitioners to pay the second 25% of the purchase price. the complaint was dismissed on the ground that it did not state a cause of action for the ejectment of the tenant — the "encargado. 3 Marcelino and Guadalupe Galang. with the delivery of the owner's duplicate certificate of title. the plaintiffs demanded from the defendants." After trial. the removal of the latter's There is no question that.000. 1978. the lower court rendered a decision. On several occasions.000. Consequently. (c) 50% balance within one (1) year from date hereof upon which the title will be transferred to the buyers but 12% interest per annum will be charged after said one year in the event full payment is not made.00 by way of nominal damages. and P3. Marcelino and Guadalupe Galang filed on March 18. they filed on July 21. the plaintiffs P50. 4 Defendants. The period fixed within the defendants should remove the "encargado' from the premises and to deliver the owner's duplicate certificate of title had lapsed without the defendants complying with their obligations thus preventing the plaintiffs from taking ppossession of the property sold and from developing and improving the same. P5. a third-party complaint against the "encargado" for subrogation and reimbursement in case of an adverse judgment against third-party plaintiff.00 with interest at 12% per annum from July 16. because the defendants had not complied with their . "encargado" from the premises sold and for them to deliver the owner's duplicate certificate of title to the plaintiffs but said defendants failed and refused and still fail and refuse to do so. herein private respondents. 1976. the dispositive portion of which is hereby quoted.(b) 25% within three months. both orally and in writing. Thereafter. the trial court reasoned that: 6. to wit: PREMISES CONSIDERED. in accordance and (sic) Article 1191 of the Civil Code." (Section 31 and 36. . Hence. the Court of Appeals affirmed the decision. not only by the "encargado" but also by his deceased parents. . The Agricultural Land Reform Code. among other plants. public policy and the law. may choose between the fulfillment of the contract of sale and its rescission. which cannot be done because it is against good custom. The law prohibits. fine and imprisonment. as injured parties. the sale is a nullity. this petition. (Article 1183. Civil Code). not one of which is shown to exist in respect defendants' "encargado. The lands sold to the plaintiff are agricultural. the rescission instead of specific performance of the contract of sale on the ground that the ejectment of the "encargado" -tenant was a legally impossible condition that prevented the fulfillment of the contract. private respondents would deliver the owner's duplicate certificate of title. the amount would still be due and private respondents would still have to deliver the duplicate title. whether or not the "encargado" was removed.obligation to remove the "encargado. Impossible conditions. Marcelino and Guadalupe Galang argued that respondent Court erred in ordering. We are now confronted with the question: Was the removal of the "encargado" a condition precedent to the fulfillment of the contract of sale such that finding that it was a legally impossible condition would entitle the buyers to the rescission of the contract? We answer in the negative." the plaintiffs. planted to coffee. Thus. Since the consummation of the sale between the parties is dependent upon the ouster of an agricultural lessee. those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. and landlord from dispossessing his agricultural tenant without the court's approval and on grounds fixed by the law. In their petition. . . petitioners averred that the removal of the "encargado" was not a condition precedent to the fulfillment of the contract as paragraph two (2) thereof provides for an alternative period within which petitioners would have to pay the second 25% of the purchase price and concomitantly. Contrary to the reason advanced by the Court of Appeals and the trial court. however is legally impossible. They chose enforcement of the contract which. under pain of damages. 6 Agreeing that the "encargado" was an agricultural tenant who could not be ejected without cause. RA 3844 as amended). Assuming that the removal of the "encargado" could not be brought about. . In this case. could have nonetheless demanded the delivery of the owner's duplicate certificate of title by paying the second 25% of the sale price within three months. those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. on the part of the seller.e. to pay. We disagree with the conclusion arrived at by the respondent court. by the Court of Appeals. we find no other condition which would affect the obligations of the parties. the failure of such condition would prevent such perfection. Apart from full payment of the purchase price. 1183 of the Civil Code which provides. upon the perfection of the contract. Both courts overlooked the obvious fact that only the time for paying the second 25% of the purchase price was qualified and that the entire paragraph reads: "25% within three months or upon removal of the "encargado" from the premises . normally the payment of the purchase price in the manner agreed upon. Impossible conditions. being legally impossible. petitioners herein. Both courts declared the "encargado" a tenant. there being already "a meeting of the minds upon the thing which is the object of the contract and upon the price. 10 What we have here is a contract to sell for it is the transfer of ownership. could not be met." The case before us could have been resolved by the lower courts without ruling on whether the "encargado" ." and not simply 25% upon removal of the "encargado.. 9 Where the condition is imposed. the filing of the complaint for specific performance of the seller's obligation was the root of the errors committed first. thus: Art. as provided by Presidential Decree No. Since the Galangs. But contracts of sale may either be absolute or conditional. it follows that he may not be removed from the subject land without just cause. . i. then plaintiffs demanded the removal of the "encargado" which. by the trial court and later. the buyers." was simply an alternative period for payment of the second 25% of the purchase price given by the seller to the buyer. Reviewing the terms of the Deed of Sale quoted earlier." where ownership or title is retained until the fulfillment of a positive condition. The breach of that condition can prevent the obligation to convey title from acquiring a binding force. on the part of the buyer and to convey ownership." 7 and on the basis of which both parties had the personal right to reciprocally demand from the other the fulfillment of their respective obligations. . . not the perfection of the contract that was subjected to a condition. 8 One form of conditional sales. it is clear that the parties had reached the stage of perfection of the contract of sale. instead. 1183. the removal of the "encargado. The alleged condition precedent. This being the case. Ownership was not to vest in the buyers until full payment of the purchase price and the transfer of the title to the buyers. 1038.The trial court and the Court of Appeals based their decision on Art. the contract of sale was rescinded by the courts. . is what is now popularly termed as a "Contract to Sell. The bases of this ineluctable conclusion are not hard to see. xxx xxx xxx Also. he would not have been given the attention and importance as to be brought before the court a quo twice.was a tenant or not. Equally supportive of the foregoing opinion are the following ratiocinations in Cruz v. if the "encargado's" parents were not tenants or agricultural lessees. . by way of evading the provisions of tenancy laws. and subject agricultural land is planted to coffee and other plants not only by the "encargado" but also his deceased parents. May 15. just for a possible amicable settlement. Granting that it was necessary to rule on the legal status of the "encargado. if the said "encargado" did not have the status of a tenant or agricultural lessee entitled to protection under the agrarian reform laws." Then. L-50350. The conclusion of the Court of Appeals regarding this matter rested on surmises. considering that one of the landowners. the present "encargado" could not have continued occupying and working thereon." we find that the courts had been quite precipitate in holding that the "encargado" was a tenant. without facing ejectment proceedings. the "encargado" is staying in his own existing house thereon. it is also undisputed that respondent lives on a hut erected on the landholding. defendants-appellees filed a thirdparty complaint against the "encargado" but they did not pursue such a course of action because they did not have a clearance from the then Ministry. . There was no sufficient evidence to support that conclusion apart from the affidavits of the "encargado" and his neighbor. too. to have their tenants sign contracts or agreements . As succinctly pointed out by the court a quo. is a lawyer himself. 1984. This fully supports the appellate court's conclusion. to proceed against such "encargado. since only tenants are entitled to a homelot where he can build his house thereon as an incident to this right as a tenant. 129 SCRA 222: . as can be gleaned from the decision under scrutiny. Indeed. the Court is aware of the practice of landowners. now the Department of Agrarian Reform. It held: We discern no reversible error in the finding and conclusion of the trial court that the unnamed "encargado" on the lands in question is actually a tenant or agricultural lessee. In fact. Court of Appeals. and he would not have had the firmness to reject an offer for him to continue working half the area under controversy. defendantsappellees here. 12 WHEREFORE." the lower courts were rash in holding that the "encargado" was a tenant of the land in question. with interest upon default. we hold that there was no basis for rescinding the contract because the removal of the "encargado" was not a condition precedent to the contract of sale. G. Corazon Buenaventura and Maria Luisa Buenaventura are hereby ordered to transfer the title to petitioners upon full payment of the purchase price. Under the Civil Code. the 12% interest per annum that was stipulated in paragraph 3 of the contract of sale should not be assessed against petitioners. In view of the foregoing circumstances. private respondents Ramon Buenaventura. even granting that it was indeed a condition precedent rendering necessary the determination of the legal status of the "encargado. 11 To summarize. However.795. Secondly.00 is in order. 75% of the purchase price. Private respondents Ramon Buenaventura. we are convinced that specific performance by the parties of their respective obligations is proper. Considering. Corazon Buenaventura. however.25) within thirty (30) days from notice. in view of the foregoing. private respondents are liable for damages to the injured party. Petitioners Marcelino and Guadalupe Galang are hereby ordered to pay the full 75% balance of the purchase price (P144. private respondents are no longer entitled to the interest payments which would have been due from petitioners. We cannot help but conclude here that the "encargado" on the landholding deeded out in the deed of sale (Exhibit "A") is a tenant or agricultural lessees within the purview and under the mantle of protection of the Code of Agrarian Reforms. the time that has lapsed since the parties entered into the contract. and considering the fact that private respondents were in possession of the land during the entire period that this case was pending. it was one of the alternative periods for the payment of the second installment given by the seller himself to the buyers. On the other hand. the petition is hereby GRANTED and the decision of the Court of Appeals is REVERSED and SET ASIDE. All things duly considered.intended to camouflage the real import of their relationship. payment of the full balance. let alone the better rule that all doubts vis-a-vis the status of a tiller of the soil should be resolved in favor of tenancy relationship. However. Accordingly. that is. 107112 February 24. 1994 . Angeles Buenaventura. in lieu of actual payment of damages. No. petitioners Marcelino and Guadalupe Galang are ordered to pay private respondents the second 25% of the purchase price.596. the petitioners in this case. Rather.R. P192. and Maria Luisa Buenaventura are obliged to deliver the owner's duplicate certificate of title and to transfer the title to the land in question upon payment of the purchase price by petitioners. NAGA TELEPHONE CO. the court should be authorized to release the obligor in whole or in part. by the law. petitioners. as narrated by respondent Court of Appeals are. Caltex (Philippines). Ernesto P. Inc. namely.respondents.. 1 enunciated the doctrine that where a person by his contract charges himself with an obligation possible to be performed. INC. The antecedent facts. it is submitted that when the service has become so difficult as to be manifestly beyond the contemplation of the parties. INC. Naga Telephone Co. the former insists that the complaint should have been dismissed for failure to state a cause of action. as follows: Petitioner Naga Telephone Co. Jr. However. unless its performance is rendered impossible by the act of God. in whole or in part. for private respondent. Inc. (NATELCO) AND LUCIANO M. Luis General. J.. In the report of the Code Commission. it would be doing violence to that intention to hold the obligor still responsible. Article 1267 which provides: When the service has become so difficult as to be manifestly beyond the contemplation of the parties. remonstrates mainly against the application by the Court of Appeals of Article 1267 in favor of Camarines Sur II Electric Cooperative. it is his duty to provide the basis therefor in his contract. vs. it being the rule that in case the party desires to be excused from performance in the event of contingencies arising thereto. the rationale behind this innovation was explained. thus: The general rule is that impossibility of performance releases the obligor. THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE. Stated differently. Inc. 2 In other words. MAGGAY. in the case before us. The intention of the parties should govern and if it appears that the service turns out to be so difficult as to have been beyond their contemplation. fair and square consideration underscores the legal precept therein. (CASURECO II). (NATELCO) is a telephone company rendering local as well as long distance telephone service in Naga City while private . a new provision was included therein. it would be doing violence to that intention to hold their contemplation.: The case of Reyes v. With the enactment of the New Civil Code. the obligor may also be released therefrom. Pangalangan for petitioners. he must perform it.. Inc. NOCON. or by the other party. petitioners agreed to install. that it is not in conformity with the guidelines of the National Electrification Administration (NEA) which direct that the reasonable compensation for the use of the posts is P10.00. the telephone cables strung by them thereon have become much heavier with the increase in the volume of their subscribers. (d) 1 Unit — The Residence of (private respondent's) President. 1977. (CASURECO II) is a private corporation established for the purpose of operating an electric power service in the same city. & (f) 2 Units — To be determined by the General Manager. ten (10) telephone connections for the use by private respondent in the following places: (a) 3 units — The Main Office of (private respondent). "A") for the use by petitioners in the operation of its telephone service the electric light posts of private respondent in Naga City. 28) C. then a member of the Board of Directors of private respondent and at the same time the legal counsel of petitioner. On November 1. (e) 1 Unit — The Residence of (private respondent's) Acting General Manager. private respondent filed on January 2. that after eleven (11) years of petitioners' use of the posts. After the contract had been enforced for over ten (10) years. 891642 against petitioners for reformation of the contract with damages.C. the party of the second part is forced to stop. that a post now costs as much as P2. (b) 2 Units — The Warehouse of (private respondent). In consideration therefor.respondent Camarines Sur II Electric Cooperative. the parties entered into a contract (Exh.630.00 per post. No. 1989 with the Regional Trial Court of Naga City (Br. Atty. free of charge. Luciano M. worsened by the fact that their linemen bore holes through the posts at which points those posts were broken during typhoons. on the ground that it is too one-sided in favor of petitioners. abandoned [sic] its operation as a public service and it becomes necessary to remove the electric lightpost. Maggay. 3 Said contract also provided: (a) That the term or period of this contract shall be as long as the party of the first part has need for the electric light posts of the party of the second part it being understood that this contract shall terminate when for any reason whatsoever. (sic) 4 It was prepared by or with the assistance of the other petitioner. Inc. (c) 1 Unit — The Sub-Station of (private respondent) at Concepcion Pequeña. so that justice and . per month. it was suffered by them. that private respondent agreed to allow petitioners to use its posts in Naga City because there were many subscribers therein who could not be served by them because of lack of facilities. private respondent alleged that starting with the year 1981. that the understanding between private respondent and petitioners was that the latter would only use the posts in Naga City because at that time. the use of the posts. and (3) it is barred by estoppel. Regarding the second cause of action. the same having been filed more than ten (10) years after the execution of the contract. Canaman.equity demand that the contract be reformed to abolish the inequities thereon. private respondent presented the following witnesses: (1) Dioscoro Ragragio. and that while the . private respondent complained about the poor servicing by petitioners of the ten (10) telephone units which had caused it great inconvenience and damages to the tune of not less than P100. and that the value of their expenses for the ten (10) telephone lines long enjoyed by private respondent free of charge are far in excess of the amounts claimed by the latter for And with respect to the third cause of action. so that if there was any inequity. petitioners' capability was very limited and they had no expectation of expansion because of legal squabbles within the company. Camarines Sur. and that petitioners had refused to pay private respondent said amount despite demands. Magarao and Milaor." During the trial. petitioners should pay private respondent for the use thereof the total amount of P267. petitioners claimed that private respondent had asked for telephone lines in areas outside Naga City for which its posts were used by them. As second cause of action. since private respondent seeks to enforce the contract in the same action.00 In petitioners' answer to the first cause of action. (2) it is barred by prescription. all outside Naga City. that at the rate of P10. one of the two officials who signed the contract in its behalf. without any contract with it. Petitioners further alleged that their utilization of private respondent's posts could not have caused their deterioration because they have already been in use for eleven (11) years. declared that it was petitioner Maggay who prepared the contract. that their telephone service had been categorized by the National Telecommunication Corporation (NTC) as "very high" and of "superior quality.000. it was probably because what is due to them from private respondent is more than its claim against them.00 per post.00 from 1981 up to the filing of its complaint. And as third cause of action. and that if petitioners had refused to comply with private respondent's demands for payment for the use of the posts outside Naga City.960. petitioners have used 319 posts in the towns of Pili. petitioners claimed. inter alia. they averred that it should be dismissed because (1) it does not sufficiently state a cause of action for reformation of contract. On the other hand. like the telephone in their Complaints Section which was usually out of order such that they could not respond to the calls of their customers. their costs in 1989 went up from P1. declared that according to NEA guidelines in 1985 (Exh. Department Head of the Office of Services of private respondent. for the use by private telephone systems of electric cooperatives' posts.00 per post.000. Chief of private respondent's Line Operation and Maintenance Department. said posts have become heavily loaded in 1989. Antonio Borja. and Magarao. Project Supervisor and Acting General Manager of private respondent and Manager of Region V of NEA. because of the low clearance of the cables. all outside Naga City (Exhs. which is what petitioners should pay for the use of the posts. that some lines that were strung to the posts did not follow the minimum vertical clearance required by the National Building Code. the former general managers of private respondent wanted to adopt a soft approach with petitioners about the matter until the term of General Manager Henry Pascual who. 192 of which were in the towns of Pili. passing trucks would accidentally touch said cables causing the posts to fall and resulting in brown-outs until the electric lines were repaired. electric cooperatives have been charging from P10. depending on the size. In case of disruption of their telephone lines. finally agreed for him to file the present action for reformation of contract.. (2) Engr. petitioner Maggay testified to the following effect: (1) It is true that he was a member of the Board of Directors of private respondent and at the same time . testified on the poor service rendered by petitioner's telephone lines. almost 100 posts were destroyed by typhoon Sisang: around 20 posts were located between Naga City and the town of Pili while the posts in barangay Concepcion. so that there were cases in 1988 where. (5) Finally. and considering the escalation of prices since 1985. 1989. that in 1987. Luis General. "B" and "B-1").00. private respondent's counsel.500. testified that the Board of Directors asked him to study the contract sometime during the latter part of 1982 or in 1983.000. declared that the posts being used by petitioners totalled 1.00 to P1.00 to P2. (4) Engineer Antonio Macandog.00 to P15. Jr. 1977. Atty.00. Canaman. it would take two to three hours for petitioners to reactivate them notwithstanding their calls on the emergency line. Naga City were broken at the middle which had been bored by petitioner's linemen to enable them to string bigger telephone lines. (3) Dario Bernardez. after failing to settle the matter amicably with petitioners.telephone lines strung to the posts were very light in 1977. Notwithstanding his recommendation for the filing of a court action to reform the contract. as it had appeared very disadvantageous to private respondent. "C").403 as of April 17.00 per post. that while the cost per post in 1977 was only from P700. they should pay a minimum monthly rental of P4. that petitioners' cables strung to the posts in 1989 are much bigger than those in November. (2) With regard to the first cause of action: (a) Private respondent has the right under the contract to use ten (10) telephone units of petitioners for as long as it wishes without paying anything therefor except for long distance calls through PLDT out of which the latter get only 10% of the charges. Petitioners have not been charging private respondent for the installation. The accidents mentioned by private respondent involved trucks that were either overloaded or had loads that protruded upwards. which posts have remained erect up to the present. who was also a member of the Board of Directors of private respondent. (3) Concerning the second cause of action. it can. transfers and re-connections of said telephones so that naturally. in fact. that while the contract appeared to be fair to both parties when it was entered into by them during the first year of private respondent's operation and when its Board of Directors did not yet have any experience in that business. said court ruled that the contract should be reformed by ordering . was the one who saw to it that the contract was fair to both parties. they use the posts for those telephone lines. for reasons of justice and equity. the trial court found. causing them to hit the cables. (4) With respect to the third cause of action. the NTC has found petitioners' cable installations to be in accordance with engineering standards and practice and comparable to the best in the country. (b) In most cases. Thus. had asked for telephone connections outside Naga City for its officers and employees residing there in addition to the ten (10) telephone units mentioned in the contract. Gaudioso Tena. (c) Petitioner's linemen have strung only small messenger wires to many of the posts and they need only small holes to pass through. but Atty. the intention of the parties when they entered into the contract was that the coverage thereof would include the whole area serviced by petitioners because at that time. and (d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga City are according to standard and comparable to those of PLDT. order that the contract be reformed to abolish the inequities therein. it had become disadvantageous and unfair to private respondent because of subsequent events and conditions. as regards private respondent's first cause of action. particularly the increase in the volume of the subscribers of petitioners for more than ten (10) years without the corresponding increase in the number of telephone connections to private respondent free of charge.the lawyer of petitioner when the contract was executed. The trial court concluded that while in an action for reformation of contract. however. Private respondent. only drop wires and not telephone cables have been strung to the posts. On the basis of the foregoing countervailing evidence of the parties. they already had subscribers outside Naga City. it cannot make another contract for the parties. And taking into consideration the guidelines of the NEA on the rental of posts by telephone companies and the increase in the costs of such posts. the trial court opined that a monthly rental of P10. the trial court held that for reason of equity. 1992. and private respondent should also pay petitioners the monthly dues on its telephone connections located outside Naga City beginning January. Therefore. per month beginning January. A). Luis General. in view of all the foregoing. Jesus Opiana and Atty. Engr. Engr. Without pronouncement as to costs. Magarao and Pili.00 for each post of private respondent used by petitioners is reasonable. while private respondent should also be ordered to pay the monthly bills for the use of the telephones also in Naga City. Thus.00) PESOS per plaintiff's pole. In the decision dated May 28. petitioners appealed to respondent Court of Appeals. Antonio Macandog. Antonio Borja. Disagreeing with the foregoing judgment. And in like manner. decision is hereby rendered ordering the reformation of the agreement (Exh. 1989. which rental it should pay from the filing of the complaint in this case on January 2. or on January 2. respondent court affirmed the decision of the trial court. private respondent should pay petitioners from the same date its monthly bills for the use and transfers of its telephones in Naga City at the same rate that the public are paying. 1990: WHEREFORE. On private respondent's second cause of action. Plaintiff's claim for attorney's fees and expenses of litigation and defendants' counterclaim are both hereby ordered dismissed. namely. petitioners should pay a monthly rental of P10. the trial court found that the contract does not mention anything about the use by petitioners of private respondent's posts outside Naga City. the payment to start on the date this case was filed.petitioners to pay private respondent compensation for the use of their posts in Naga City. Canaman. Engr. the contract should be reformed by including therein the provision that for the use of private respondent's posts outside Naga City. Joventino Cruz. the following decretal portion of the trial court's decision dated July 20. And with respect to private respondent's third cause of action. 5 but based on different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the contract was subject to a potestative condition which rendered said condition . ordering the defendants to pay plaintiff's electric poles in Naga City and in the towns of Milaor. Jr.00 per post. beginning January. Camarines Sur and in other places where defendant NATELCO uses plaintiff's electric poles. Mr. 1989. the trial court found the claim not sufficiently proved. 1989. 1989 and ordering also the plaintiff to pay defendant NATELCO the monthly dues of all its telephones including those installed at the residence of its officers. 1989. the sum of TEN (P10. Jabson. 7 which interpreted the article. v. the ruling in the case of Occeña. Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily because the contract does not involve the rendition of service or a personal prestation and it is not for future service with future unusual change. respondent court rationalized: We agree with appellant that in order that an action for reformation of contract would lie and may prosper. etc. The rationale of the doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the parties. Instead. said article was never raised by the parties in their pleadings and was never the subject of trial and evidence.. The courts by the reformation do not attempt to make a new contract for the parties. The motion for reconsideration was denied in the resolution dated September 10. 6Hence. there must be sufficient allegations as well as proof that the contract in question failed to express the true intention of the parties due to error or mistake. Petitioners assign the following pertinent errors committed by respondent court: 1) in making a contract for the parties by invoking Article 1267 of the New Civil Code.void.. Indeed. the Code Commission gave its reasons as follows: Equity dictates the reformation of an instrument in order that the true intention of the contracting parties may be expressed. 2) in ruling that prescription of the action for reformation of the contract in this case commenced from the time it became disadvantageous to private respondent. or fraud. 1992. should be followed in resolving this case. et al. accident. in embodying the equitable remedy of reformation of instruments in the New Civil Code. The rigor of the legalistic rule that a written instrument should be the final and inflexible criterion and measure of the rights and obligations of the contracting parties is thus tempered to . the present petition. et al. In applying Article 1267. and 3) in ruling that the contract was subject to a potestative condition in favor of petitioners. but to make the instrument express their real agreement. Besides. Vice President and General manager of appellant at the time who signed the agreement Exh. both parties complied with said contract "from the very beginning" (p. 5. "A" as consideration for its use of the latter's electric posts in Naga City. there were no complaints on the part of both sides at the time of and after the execution of said contract. Rather. said agreement failed to express their true intention. (pp. 1361. appear. 1363 and 1364 of the New Civil Code provide in essence that where through mistake or accident on the part of either or both of the parties or mistake or fraud on the part of the clerk or typist who prepared the instrument. "A". nor does its evidence prove. fraud. that there was a mistake on its part or mutual mistake on the part of both parties when they entered into the agreement Exh. Maggay must have considered the same fair and equitable to both sides. and according to 73-year old Justino de Jesus. so that as legal counsel for both companies and presumably with the interests of both companies in mind when he prepared the That the aforesaid contract has become inequitous or unfavorable or disadvantageous to the plaintiff with the expansion of the business of appellant and the increase in the volume of its subscribers in Naga City and environs through the years. then a member of plaintiff's Board of Directors and its legal counsel at that time. and this was affirmed by the lower court when it found said contract to have been fair to both parties at the time of its execution. Atty. aforesaid agreement. 1989). Luciano Maggay. necessitating the stringing of more and bigger telephone cable wires by appellant to plaintiff's electric posts without a corresponding increase in the ten (10) telephone connections given by appellant to plaintiff free of charge in the agreement Exh. 1362. plaintiff-appellee did not allege in its complaint. plaintiff's evidence shows that said agreement was prepared by Atty. who was also the legal counsel for defendant-appellant. and that because of this mistake. tsn. April 17.forestall the effects of mistake. Articles 1359. the true intention of the parties is not expressed therein. In fact. Here. inequitable conduct. or by the injured party if only he was mistaken. however. 55-56. or accident. undisputed from the totality of the evidence on record and the lower court so . then the instrument may be reformed at the instance of either party if there was mutual mistake on their part. Report of Code Commission) Thus. "A" in its behalf and who was one of the witnesses for the plaintiff (sic). already agreed for Atty. to study said agreement which they believed had become disadvantageous to their company and to make the proper recommendation. (p. during the term of General Manager Henry Pascual. Luis General who had become their legal counsel in 1982. for we believe that the allegations of its complaint herein and the evidence it has presented sufficiently make out a cause of action under Art. give plaintiff a cause of action for reformation of said contract. until. tsn April 3. after failing to settle the problem with Atty. he already recommended to the Board the filing of a court action to reform said contract. General's recommendation because the former general managers of plaintiff wanted to adopt a soft approach in discussing the matter with appellant. General's filing of the present action. were described by Dioscoro Ragragio. for the reasons already pointed out earlier. the latter. 8. as follows: Our understanding at that time is that we will allow NATELCO to utilize the posts of CASURECO II only in the City of Naga because at that time the capability of NATELCO was very limited. General did. however. the President of plaintiff in 1977 and one of its two officials who signed said agreement in its behalf. even at that time there were so many subscribers in Naga City that cannot be served by the NATELCO. "A" on November 1. so as a mater of public service we allowed them to sue (sic) our posts within the Naga City.found. 1977 and the prevailing circumstances and conditions at the time. as a matter of fact we do [sic] not expect to be able to expand because of the legal squabbles going on in the NATELCO. 1989) . The fact that said contract has become inequitous or disadvantageous to plaintiff as the years went by did not. 1267 of the New Civil Code for its release from the agreement in question. and thereafter. But this does not mean that plaintiff is completely without a remedy. So. plaintiff's Board of Directors already asked Atty. but no action was taken on Atty. And it was for this reason that in the later (sic) part of 1982 or 1983 (or five or six years after the subject agreement was entered into by the parties). xxx xxx xxx The understanding of the parties when they entered into the Agreement Exh. which study Atty. Luciano Maggay who had become the president and general manager of appellant. "A" has already become too one-sided in favor of appellant to the great disadvantage of plaintiff. Civil Code of the Philippines. In truth. there has been no corresponding increase in the ten (10) telephone units connected by appellant free of charge to plaintiff's offices and other places chosen by plaintiff's general manager which was the only consideration provided for in said agreement for appellant's use of plaintiffs electric posts. "A" of the parties has been in effect. and the conclusion is indeed ineluctable that the agreement Exh. As stated by Tolentino in his commentaries on the Civil Code citing foreign civilist Ruggiero. while very few of plaintiff's electric posts were being used by appellant in 1977 and they were all in the City of Naga... . the number of plaintiff's electric posts that appellant was using in 1989 had jumped to 1. Not only that. We therefore. and the escalation of the costs of electric poles from 1977 to 1989. despite the increase in the volume of appellant's subscribers and the corresponding increase in the telephone cables and wires strung by it to plaintiff's electric posts in Naga City for the more 10 years that the agreement Exh. pp. "A" as it extended and expanded its telephone services to towns outside said city. and does not permit the unlimited impoverishment of one party for the benefit of the other by the excessive rigidity of the principle of the obligatory force of contracts (IV Tolentino. Hence. as also correctly found by the lower court. "B"). so much so that it should now be released therefrom under Art. appellant even started using plaintiff's electric posts outside Naga City although this was not provided for in the agreement Exh. id. Add to this the destruction of some of plaintiff's poles during typhoons like the strong typhoon Sisang in 1987 because of the heavy telephone cables attached thereto.).Ragragio also declared that while the telephone wires strung to the electric posts of plaintiff were very light and that very few telephone lines were attached to the posts of CASURECO II in 1977. 247-248). although based on a different and wrong premise (i. in short. "equity demands a certain economic equilibrium between the prestation and the counter-prestation.403. 1267 of the New Civil Code to avoid appellant's unjust enrichment at its (plaintiff's) expense. the continued enforcement of said contract has manifestly gone far beyond the contemplation of plaintiff. find nothing wrong with the ruling of the trial court. 1986 ed. said posts have become "heavily loaded" in 1989 (tsn.192 of which are outside Naga City (Exh.e. said arrangement to continue only until such time as said parties can renegotiate another agreement over the same subject-matter covered by the agreement Exh. We ordered the dismissal of the complaint therein for failure to state a sufficient cause of action. . private respondent in the Occeña case filed a complaint against petitioner before the trial court praying for modification of the terms and conditions of the contract that they entered into by fixing the proper shares that should pertain to them out of the gross proceeds from the sales of subdivided lots. . which is the service contemplated in said article. According to Senator Arturo M. by fixing the proper shares that shouldpertain to the herein parties out of the gross proceeds from the sales of . 9 the term "service" should be understood as referring to the "performance" of the obligation. "A". 8 Article 1267 speaks of "service" which has become so difficult. . under this theory. Considering practical needs and the demands of equity and good faith.. while plaintiff should pay appellant for the telephones in the same City that it was formerly using free of charge under the terms of the agreement Exh. the aforesaid ruling of the lower court and affirmed by us shall cease to exist and shall be substituted and superseded by their new agreement. we are not making a new contract for the parties herein. .reformation of contract).00 per post. the parties stipulate in the light of certain prevailing conditions. but we find it necessary to do so in order not to disrupt the basic and essential services being rendered by both parties herein to the public and to avoid unjust enrichment by appellant at the expense of plaintiff. . respondent's complaint seeks not release from the subdivision contract but that the court "render judgment modifying the terms and conditions of the contract . We rationalized that the Court of Appeals misapplied Article 1267 because: . 10 Article 1267 states in our law the doctrine of unforseen events. that from the date of the filing of this case. In a nutshell. Tolentino. appellant must pay for the use of plaintiff's electric posts in Naga City at the reasonable monthly rental of P10. In the present case. the disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced. This is said to be based on the discredited theory of rebus sic stantibus in public international law. . Furthermore. and once these conditions cease to exist the contract also ceases to exist. . Once said agreement is reached and executed by the parties. In affirming said ruling. Taking into consideration the rationale behind this provision. "A" at the same rate being paid by the general public. the obligation of private respondent consists in allowing petitioners to use its posts in Naga City. a bare reading of this article reveals that it is not a requirement thereunder that the contract be for future service with future unusual change. the courts cannot even in equity grant the relief sought. in consonance with the contract 12 will return all the telephone units to petitioners. therefore. We shall not allow such eventuality. while private respondent. . we have changed its theory and decided the same on an issue not invoked by plaintiff in the lower . . which we hereunder quote as our own: First. We. 1989. resulting in disruption of their service to the public. the sum of ten (P10. The peculiar circumstances of the present case. so as to substitute its own terms for those covenanted by the parties themselves. The cited article (Article 1267) does not grant the courts (the) authority to remake. 13 By way of emphasis. our disposition of the present controversy does not end here. and 2) private respondent to pay petitioner the monthly dues of all its telephones at the same rate being paid by the public beginning January. beginning January. 11 The ruling in the Occeña case is not applicable because we agree with respondent court that the allegations in private respondent's complaint and the evidence it has presented sufficiently made out a cause of action under Article 1267. but we find it necessary to do so in order not to disrupt the basic and essential services being rendered by both parties herein to the public and to avoid unjust enrichment by appellant at the expense of plaintiff . we are not making a new contract for the parties herein. . as distinguished further from the Occeña case. 1989. necessitates exercise of our equity jurisdiction. 1267 of the New Civil Code to this case. Rather. However. release the parties from their correlative obligations under the contract.14 Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was never the subject of trial and evidence has been passed upon by respondent court in its well reasoned resolution. . causing prejudice to its business.00) pesos per post. as ordered by the trial court: 1) petitioners to pay private respondent for the use of its posts in Naga City and in the towns of Milaor. . modify or revise the contract or to fix the division of shares between the parties as contractually stipulated with the force of law between the parties. we require. In affirming said ruling.subdivided lots of subject subdivision". Magarao and Pili. Canaman. Camarines Sur and in other places where petitioners use private respondent's posts. we reiterate the rationalization of respondent court that: . we do not agree with defendantappellant that in applying Art. per month. Respondent's complaint for modification of contract manifestly has no basis in law and therefore states no cause of action. We have to take into account the possible consequences of merely releasing the parties therefrom: petitioners will remove the telephone wires/cables in the posts of private respondent. Under the particular allegations of respondent's complaint and the circumstances therein averred. Lim. Cabigao v. Reyes and Ordoveza. 25 Phil. this does not mean that plaintiff is absolutely without a remedy in order to relieve itself from a contract that has gone far beyond its contemplation and has become so highly inequitous and disadvantageous to it through the years because of the expansion of defendantappellant's business and the increase in the volume of its subscribers. 18 SCRA 467). 844. Jao Yan. through the years (since 1977). and PNB. the appellate court has the discretion to consider an unassigned error that is closely related to an error properly assigned (Paterno v. Phil. even if they are not assigned as errors in the appeal. if it is found that their consideration is necessary in arriving at a just decision of the case (Saura Import & Export Co. Relativo v. and the plaintiff is entitled to as much relief as the facts warrant although that relief is not specifically prayed for in the complaint (Rosales v. constraining the latter to go to court. v. 40 Phil. For it is the material allegations of fact in the complaint. not the legal conclusion made therein or the prayer. 495. correctly invoke reformation of contract as a proper remedy (there having been no showing of a mistake or error in said contract on the part of any of the parties so as to result in its failure to express their true intent). It is settled that when the trial court decides a case in favor of a party on a certain ground. Carillo v. Tuazon. 1 SCRA 631. so that a solution must be found to relieve plaintiff from the continued operation of said agreement and to prevent defendantappellant from further unjustly enriching itself at plaintiff's expense. Inc. Furthermore. 8 SCRA 143). International Surety Co. "A" between the parties has. 76 Phil. For basically. And as it is the duty of the Court to administer justice. Andal. become too inequitous or disadvantageous to the plaintiff and too one-sided in favor of defendant-appellant. it must do so in this case in the best way and manner it can in the light of the proven facts and the law or laws applicable thereto. the appellant court may uphold the decision below upon some other point which was ignored or erroneously decided by the trial court (Garcia Valdez v. 78 Phil.court. 563. It has also been held that the Supreme Court (and this Court as well) has the authority to review matters.. It is indeed unfortunate that defendant had turned deaf ears to plaintiffs requests for renegotiation. that determines the relief to which the plaintiff is entitled. Castro. 196). Baguioro . 943. Hernandez v. Salak de Paz. 50 Phil. as we have held. the main and pivotal issue in this case is whether the continued enforcement of the contract Exh. But although plaintiff cannot. although not raised before the trial court." (Alzua v. unfair. v IAC. Cabral. Defendant-appellant stresses that the applicability of said provision is a question of fact. and the mere fact that they themselves misconstrue the legal effect of the facts thus alleged and proven will not prevent the court from placing the just construction thereon and adjudicating the issues accordingly. "A" has now become too one-sided in its favor and too inequitous. 123 SCRA 532). L-36789. Barrios. To quote an old but very illuminating decision of our Supreme Court through the pen of American jurist Adam C. and that it should have been given the opportunity to present evidence on said question. 1983. the Honorable Supreme Court also held: We rule that the respondent court did not commit any error in taking cognizance of the aforesaid issues. . 21 Phil. Johnson. . July 25. But defendantappellant cannot honestly and truthfully claim that it (did) not (have) the opportunity to present evidence on the issue of whether the continued operation of the contract Exh. except questions on jurisdiction. 1267 of the New Civil Code to this case: xxx xxx xxx 15 . As held in our decision. We believe that the above authorities suffice to show that this Court did not err in applying Art. 120). no question will be entertained on appeal unless it has been raised in the court below and it is within the issues made by the parties in their pleadings (Cordero v.v. 1267 of the New Civil Code to this case.. Inc. Carson: "Under our system of pleading it is the duty of the courts to grant the relief to which the parties are shown to be entitled by the allegations in their pleadings and the facts proven at the trial. and disadvantageous to plaintiff. The presence of strong consideration of substantial justice has led this Court to relax the wellentrenched rule that. 176 SCRA 741. 77 Phil. 308) And in the fairly recent case of Caltex Phil. . the abundant and copious evidence presented by both parties in this case and summarized in said decision established the following essential and vital facts which led us to apply Art. . cannot be an element in the determination of the period for prescription of the action to reform. . inter alia. tsn. respondent court cited another legal remedy available to private respondent under the allegations of its complaint and the preponderant evidence presented by it: . (Emphasis supplied) is invalid for being purely potestative on the part of appellant as it leaves the continued . neither is private respondent's permission for free use of its posts dependent purely on its will. abandoned [sic] its operation as a public service and it becomes necessary to remove the electric light post [sic]"." 16 is erroneous. It follows that whether the contract is disadvantageous or not is irrelevant to reformation and therefore." 17 Regarding the last issue. Apart from applying Article 1267. As correctly ruled by respondent court.On the issue of prescription of private respondent's action for reformation of contract. the party of the second part is forced to stop. the ten (10) year period is to be reckoned from the time the right of action accrues which is not necessarily the date of execution of the contract. . and from 1982 to January 2. what is reformed is not the contract itself.. . Jr. 31. Luis General. In reformation of contracts. . but the instrument embodying the contract. (Private respondent's) cause of action to ask for reformation of said contract should thus be considered to have arisen only in 1982 or 1983. ten (10) years had not yet elapsed. May 8. 1989 when the complaint in this case was filed. petitioners allege that respondent court's ruling that the right of action "arose only after said contract had already become disadvantageous and unfair to it due to subsequent events and conditions. we believe that the provision in said agreement — (a) That the term or period of this contract shall be as long as the party of the first part[herein appellant] has need for the electric light posts of the party of the second part [herein plaintiff] it being understood that this contract shall terminate when for any reason whatsoever. . which must be sometime during the latter part of 1982 or in 1983 . Clearly. petitioners allege that there is nothing purely potestative about the prestations of either party because petitioner's permission for free use of telephones is not made to depend purely on their will. he was asked by (private respondent's) Board of Directors to study said contract as it already appeared disadvantageous to (private respondent) (p. 1989). that an action upon a written contract must be brought within ten (10) years from the time the right of action accrues. . Article 1144 of the New Civil Code provides. private respondent's right of action arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Mutuality does not obtain in such a contract of lease of no equality exists between the lessor and the lessee since the life of the contract is dictated solely by the lessee.A. Baldomar. "A" between the parties in this case. A potestative condition is a condition. . C. And this is precisely why. The above can also be said of the agreement Exh." Further held the High Court in the Lim case: The continuance. 19 Based on this definition. 77 Phil. 470. . as well as the bad and inefficient service of said telephones to the prejudice and inconvenience of plaintiff and its customers. . the conditional obligation is void. completely depriving the owner of any say in the matter. it could do nothing to be released from or terminate said agreement notwithstanding that its continued effectivity has become very disadvantageous and inequitous to it due to the expansion and increase of appellant's telephone services within Naga City and even outside the same. There is no mutuality and equality between them under the afore-quoted provision thereof since the life and continuity of said agreement is made to depend as long as appellant needs plaintiff's electric posts. to wit: . effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or not. 191 SCRA 150. as invalid for being "a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. respondent court's finding that the provision in the contract. A similar provision in a contract of lease wherein the parties agreed that the lessee could stay on the leased premises "for as long as the defendant needed the premises and can meet and pay said increases" was recently held by the Supreme Court in Lim v.. since 1977 when said agreement was executed and up to 1989 when this case was finally filed by plaintiff. in which case. without a corresponding increase in the ten (10) telephone units being used by plaintiff free of charge. 18 Petitioners' allegations must be upheld in this regard. the fulfillment of which depends upon the sole will of the debtor.effectivity of the aforesaid agreement to the latter's sole and exclusive will as long as plaintiff is in operation. citing the much earlier case of Encarnacion v. .. SPORTS December 14. Petitioner. The decision of the Court of Appeals dated May 28.. Promulgated: DING VELAYO CENTER.. JJ..: . the party of the second part (private respondent) is forced to stop. DEL CASTILLO. x. or the will of a third person... hazard. it being understood that this contract shall terminate when for any reason whatsoever.... LEONARDO-DE CASTR ... the petition is hereby DENIED.. However.... INC...... the contract is subject to mixed conditions. JR. 161718 CORONA.. abandoned (sic) its operation as a public service and it becomes necessary to remove the electric light post (sic)...(a) That the term or period of this contract shall be as long as the party of the first part (petitioner) has need for the electric light posts of the party of the second part (private respondent) ...versus - BERSAMIN.-x DECISION LEONARDO-DE CASTRO.. Present: is a potestative condition. J... C. MANILA INTERNATIONAL AIRPORT AUTHORITY. which do not invalidate the aforementioned provision. WHEREFORE. ....R... and VILLARAMA. 2011 Respondent.. No.... ..... 1992 and its resolution dated September 10. it must have overlooked the other conditions in the same provision. is correct...J. there is no reason to set aside the questioned decision and resolution of respondent court. 20 In sum.... hazard or the will of a third person. 21 Nevertheless.. G. in view of our discussions under the first and second issues raised by petitioners.. 1992 are AFFIRMED. they depend partly on the will of the debtor and partly on chance.. Chairperson.. . to wit: .. which are casual conditions since they depend on chance. . that is. 6735 in the name of the Republic (Lot 2-A). WHEREAS. a corporation engaged in hostelry and other allied business. and essentially compelled petitioner to renew the lease of respondent over a parcel of land within the airport premises. is ready.R. xxxx WHEREAS. the LESSEE. with an area of 76. which granted the Complaint for Injunction. CV No. in accordance with its general plan to improve and beautify the airport premises. and registered under Transfer Certificate of Title (TCT) No. laundry shops. Below are the facts as culled from the records of the case: On February 15. postal stations.Before Us is a Petition for Review under Rule 45 of the Rules of Court of the Decision[1] dated January 8. tourist agencies. Inc. convenience and relaxation of transients. WHEREAS. travel bureaus. 8847. this particular portion of land is presently an eyesore to the airport premises due to the fact that a major portion of it consists of swampy and talahib infested silt and abandoned fishponds and occupied by squatters and some [petitioners] employees with ungainly makeshift dwellings. 1967. is interested in developing this particular area by providing such facilities and conveniences as may be necessary for the comfort. facilities for banks. 1999 of Branch 111 of the Regional Trial Court (RTC) of Pasay City in Civil Case No. willing and able to cooperate with the LESSOR in the implementation of this general development plan for the airport premises. against petitioner Manila International Airport Authority (MIAA). including recreation halls. petitioner (then still called the Civil Aeronautics Administration or CAA) and Salem Investment Corporation (Salem) entered into a Contract of Lease whereby petitioner leased in favor of Salem a parcel of land known as Lot 2-A. the LESSOR. 2004 of the Court Appeals in CA-G. tourists and the general public. the LESSEEs main interest is to have a sufficient land area within which to construct a modern hotel with such facilities as would ordinarily go with modern hostelry. and Damages with prayer for a Temporary Restraining Order filed by respondent Ding Velayo Sports Center. affirming the Decision[2] dated October 29. located in front of the Manila International Airport (MIA) in Pasay City. Petitioner andSalem entered into said Contract of Lease for the following reasons: WHEREAS.328 square meters. curio and . 68787. Consignation. the LESSEE shall pay as rental.000. however that.[4] Subsequently. its leasehold rights over a portion of Lot 2-A.050. accessories and other articles as would ordinarily be classified as movable property under pertinent provisions of law. petitioner and Velayo Export executed a Contract of Lease dated November 26. and for this purpose. . that after the first 25 years lease. the LESSEE shall deliver the peaceful possession of all the building and other permanent improvements herein above referred to. in a Transfer of Lease Rights and Existing Improvements dated September 30. an amount equivalent to One percent (1%) of the appraised value of the hotel building and permanent improvements at the time of expiration of Twenty-Five (25) years lease period. without cost.00. furnitures. under the same terms and conditions herein stipulated.534 square meters. all the buildings and permanent improvements introduced by the LESSEE on the leased premises including those introduced on the Golf Driving Range shall automatically vest in the LESSOR. renewable for another Twenty-Five (25) years. commencing from the date of receipt of approval of this Contract by the Secretary of Public Works and Communications. That the renewal of this lease contract shall be for another period of Twenty-Five (25) years. and at the option of the LESSEE. and full title to.native shops and other allied business calculated to make the hotel and its facilities comfortable.010) square meters would be first utilized. Upon the termination of the lease or should the LESSEE not exercise this option for renewal. measuring about 15. 4. with the understanding that the LESSEE shall have the right to remove from the premises such equipment. the ownership of. 1974pertaining to the aforementioned leased portion of Lot 2-A. payable annually. provided. consisting of an unfinished cinema-theater. for the consideration of P1. Salem conveyed in favor of Ding Velayo Export Corporation (Velayo Export). convenient and attractive. since the ownership of the hotel building and permanent improvement have passed on the LESSOR. Accordingly. an initial land area of some Thirty[-]Five Thousand Ten (35. with the improvements thereon. It is understood. in addition to the rentals herein agreed upon.[3] The term of the lease and renewal thereof as stipulated upon by petitioner and Salem are as follows: 3. 1974. That the term of the lease shall be for a period of Twenty-Five (25) years. However. The LESSEE agrees and binds himself to complete the physical improvements or contemplated structures within the leased premises for a period of one (1) year. no improvements may be commenced without prior approval of the plans by the LESSOR and. 1976 by which it conveyed to respondent. 1976 covering the subject property. As a result. 3. 9. Physical improvements on building spaces and areas subject of this agreement may be undertaken by and at the expenses of the LESSEE. for the consideration of P500.00.000.[7] The lease rental shall be computed as follows: 5. 10. That the LESSEE shall utilize the premises as the site for the construction of a Sports Complex facilities and shopping centers in line with the Presidential Decree for Sports Development and Physical Fitness. The Contract of Lease dated May 14. its leasehold rights over an 8. Velayo Export executed a Transfer of Lease Rights dated April 27. P0.45 per square meter for the first 300 square meters.Failure on the part of the LESSEE to do so within said period shall automatically revoke the Contract of Lease without necessity of judicial process. whenever deemed necessary a cash deposit shall be made in favor of the LESSOR which shall be equivalent to the cost of restoration of any portion affected by such alteration or improvements. including the beautification of the premises and providing cemented parking areas.[6] Pursuant to the aforequoted respondent agreed to the following: objectives. That the LESSEE shall pay to the LESSOR as monthly rentals for the leased premises the rate of P0. 1976 between petitioner (as lessor) and respondent (as lessee) specified how respondent shall develop and use the subject property: 2.481-square meter area (subject property) out of the 15.534-square meter portion it was leasing from petitioner.30 per square meter for the next 500 square . That the LESSEE shall construct at its expense on the leased premises a parking area parallel to and fronting the Domestic Airport Terminal to be open to the traveling public free of charge to ease the problem of parking congestion at the Domestic Airport.In turn. petitioner and respondent executed another Contract of Lease[5] dated May 14. That for the purpose of accurately determining the monthly gross income. the LESSOR shall deny the LESSEE of the further use of the leased premises and /or any of its facilities.[8] Nonpayment of lease rentals shall have the following consequence: 8.481 square meters herein leased shall amount to P2. or the LESSEE is relocated to another area.meters. Subsequent amendments to the Administrative Order which will affect an increase of the rates of fees. and charges are increased.25 per month. transfer or mortgage his rights under this agreement or sublet the whole or part of premises covered by it to a third party or parties nor engage in any other business outside of those mentioned in this . The LESSEE agrees not to assign. rentals. 4. and subletting the premises whether in whole or in part. and P0. The Contract of Lease prohibits respondent from transferring its leasehold rights. x x x. fees. Section 4 of Administrative Order No. Series of 1970. engaging in any other business outside those mentioned in said Contract. or a royalty equivalent to one percent (1%) of the monthly gross income of the LESSEE. rentals. during the lifetime of this agreement and upon approval by the LESSOR. sell.[9] xxxx 13. whichever is higher. and charges imposed shall be amended accordingly. the cost of relocation shall be shouldered by the LESSEE.25 per square meter for the remaining area pursuant to Part VIII. In the event of relocation of the LESSEE to other areas. charges. If. utilities and services. the leased area is increased or diminished. charges and rentals agreed upon in this contract shall automatically amend this contract to the extent that the rates of fees. rentals or the royalty of one percent (1%) within thirty (30) days after receipt of written demand. 6. which in the case of the 8.205. the LESSEE hereby gives its consent for the examination of the books by authorized representatives of the LESSOR or the Commission on Audit. Failure on the part of the LESSEE TO PAY ANY fees. thus: 16. the LESSEE agrees . should notify the LESSOR sixty (60) days prior to expiration of the period agreed upon for the renewal of the Contract of Lease. xxxx 17. Failure on the part of the LESSEE to comply with any of the provisions of this lease contract or any violation of any rule or regulations of the Airport shall give the LESSOR the right to revoke this contract effective thirty (30) days after notice of revocation without need of judicial demand. This contract of lease may be terminated by other party upon thirty (30) days notice in writing. the LESSEE shall deliver possession of the premises to the LESSOR in the same condition that they were received giving allowance to normal wear and tear and to damage or destruction caused by act of God. In the event that the LESSOR shall need the leased premises in its airport development program.contract. if desirous of continuing his lease. xxxx 18. The LESSEE. which the LESSEE might have constructed in the premises by virtue hereof shall upon the termination of this lease automatically become the absolute property of the LESSOR without cost. 1976 up to February 15.[11] The lease may be revoked/terminated under the following conditions: 15. Violation of this provision shall also be a ground for revocation of the lease contract without need of judicial process. That the period of this lease shall take effect from June 1. All permanent improvements. Upon termination or revocation of this contract of lease as herein provided. 19. 1992 which is equivalent to the unexpired portion of the lease contract executed between [petitioner] and Ding Velayo Export Corporation. however. the LESSEE shall remain liable and obligated to pay rentals and other fees and charges due and in arrears with interest at the rate of twelve percent (12%) per annum.[10] Period of the lease and renewal thereof are governed by paragraphs 4 and 17 of the Contract of Lease that read: 4. However. Furthermore. Respondent leased spaces in the building to various business proprietors. In a Letter[17] dated October 18. 1. fixing various rates for the lease rentals of its properties. as provided for in paragraph 13 of the Contract of Lease dated May 14. In a Letter[13] dated April 11. the language of B.25 per month as rental fee. Respondent then constructed a multi-million plaza with a three-storey building on said property. required respondent to pay a moratorium rental at the rate of P5. petitioner. AO No. which the latter obediently paid.405. 1979. 6-83. petitioner requested respondent for a copy of the latters Gross Income Statement from December 1977 to December 1978. 325 and Ministry Order No.P. Respondent also submitted to petitioner and the Commission on Audit (COA) its duly audited financial statements [15] for the years 1984 to 1988.205. Still. allegedly effected an increase in the lease rental of respondent for the subject property. No. respondent sent petitioner a [14] Letter dated May 31. [16] and AO No. 1979 and appended therewith the requested income statements which disclosed that the total gross income of respondent for the period in question amounted to P1.968. like the premises leased to DVSC. Acceding to this request. Petitioner eventually issued Administrative Order (AO) No. 6-83 authorizes the fixing or revision of fees and charges only for services and functions.25 as monthly rental fee. series of 1984. 1. although owned by MIAA is not covered by Batas Pambansa Blg. However.00 every month.972.205.00 per square meter rate per month or a total of P42. series of 1984. petitioner had continued billing respondent the amount of P2. and AO No.[12] Respondent began occupying the subject property and paying petitioner the amount of P2. for the purpose of computing the royalty equivalent to 1% of the monthly gross income of respondent. 1986. series of 1982. 4. Respondent wrote: We believe that an increase in rental of a property which does not form part of the Airport or its immediate premises. xxxx . All improvements not removed by the LESSEE within the thirty (30) day period shall become the property of the LESSOR without cost. 1986. through a letter dated September 23. said issuances were subjected to review for revision purposes and their implementation was suspended.to vacate the premises within thirty (30) days from receipt of notice. series of 1982.11. Meanwhile. 325 or Finance Ministry Order No. respondent opposed the implementation of any increase in its lease rental for the subject property. 4. 1976 between petitioner and respondent. duly certified by a certified public accountant. 173. The original cost of the buildings and other improvements on the land we have leased is P10. Eduardo O. 1992.0 million a year.75. Velayo (Velayo).25. on behalf of respondent. Such increase in rental is uncalled for considering that: Upon termination of the lease. Petitioner.00. 6-83. through its President. the latter. therefore. respectively. 1991 stating that respondent was interested in renewing the lease for another 25 years.000. The increase which is around 2.00. More than 60 days prior to the expiration of the lease between petitioner and respondent. No. In effect the Government would be collecting another P2. 6-83 prescribed only just and reasonable rates sufficient to cover administrative costs.671. the first as a response to our letter of 2 December 1991 where we informed you of our intention to renew our lease contract.000. declined to renew the lease. We. 325 and Ministry Order No. ordered respondent to vacate the subject property within five days.000 percent or 20 times above present rental rate is unreasonably high. Said improvements would now cost over P30. and the second wherein you asked us to vacate within five (5) days the leased premises. petitioner had kept on charging respondent the original monthly rental of P2. Carrascoso. Conrado M. 325 and Ministry Order No.600. 1992 that reads: This refers to your letters which we received on 26 February 1992 and 27 February 1992. replied to petitioner through a Letter[20] dated March 3.P. No.000. request that moratorium rate be not applied to us. in a Letter[19] dated February 24. all the improvements on the property shall belong to MIAA without costs. and demanded respondent to pay arrears in lease rentals as of January 1992 in the sum of P15.Assuming that the increase in rental of MIAA property is authorized by B. Your second letter surprised us inasmuch as we have been negotiating with .205. through its General Manager. sent the former a Letter[18] dated December 2. Both B.P. Velayo. the Following the foregoing exchange. such increase as ordered in your moratorium rental rate insofar as it is made applicable to DVSC is not valid. Alomesen. and we be given up to the end of March 1992 to peacefully turn-over to you the leased premises. copy of which is hereto attached. 1992 since these were purportedly sent by Velayo without authority from respondents Board of Directors. sent petitioner a Letter[22] dated March 25.821. revoking the aforementioned Letters dated March 3 and 10. For a smoother transition and for the mutual interest of the government. On March 30. replacing Velayo. and water consumptions should already be transferred to the account of petitioner in light of the expected turnover of the subject property and improvements thereon from respondent to petitioner. from collecting rental payments from sub-lessees. we deny any liability on rental increases. Philippine Long Distance Telephone Company. telephone. In addition. Consignation. the RTC issued a Temporary Restraining Order[24] preventing petitioner and all persons acting on its behalf from taking possession of the entire or any portion of the subject property. around the same time.[23] Respondent essentially prayed for the RTC to order the renewal of the Contract of Lease between the parties for another 25-year term counted from February 15. Respondent expressed its interest in continuing the lease of the subject property for another 25 years and tendered to petitioner a managers check in the amount of P8. from administering the said property.you for the renewal of our lease. On even date. and Manila Waterworks and Sewerage System. Petitioner entirely disregarded the claims of respondent and threatened to take-over the subject property. your sudden decision gave us no time to discuss your terms and conditions with our Board considering that the issues involved major decision. Samuel Alomesen (Alomesen) became the new President and General Manager of respondent. . respondent filed against petitioner before the RTC a Complaint for Injunction. and Damages with a Prayer for a Temporary Restraining Order. instructing the said utility companies that succeeding billings for electric. Velayo informed petitioner that he already sent individual letters to Manila Electric Company. In Letters[21] all dated March 10. However. 1992. 1992. acting on behalf of respondent. 1992. may we request for a reconsideration of your decision. This will enable you to create a committee that will take-over the leased property and its operations. the tenants and ourselves. 1992. consistent with our previous stand as communicated to you by our legal counsel.00 as payment for the lease rentals for the subject property from December 1991 until March 1992. Likewise. and from taking any action against respondent for the collection of alleged arrears in rental payments until further orders from the trial court. 1992. Petitioner averred that respondent committed the following violations: (1) respondent failed to fulfill the conditions set forth under paragraphs 2 and 3 of the Contract as it did not establish a shopping center on the subject property and did not help ease the problems of parking congestion at the Domestic Airport. Sr. Arlene Britanico. the RTC issued a Writ of Preliminary Injunction[26] against petitioner on April 30. 1992 upon the posting by respondent of a bond in the amount of P100. In an Order[27] dated June 11. i. in any event. [31] and Rosila Mabanag. Velayo. (2) respondent sub-leased the subject property in defiance of the prohibition under paragraph 16 of the Contract. the expiration date explicitly stated under paragraph 4 of the same Contract. 1996.e. The RTC terminated the pre-trial proceedings in an Order[28] dated October 23. and at the same time. petitioner demanded that respondent pay the total outstanding balance of its lease rentals for the subject property and turn-over lease rentals it had collected from sub-lessees beginning February 15. trial on the merits ensued. 1998.00. By way of counter-claim..000. Petitioner likewise invoked paragraph 15 of the Contract of Lease. and (3) respondent did not pay the lease rentals in accordance with paragraphs 5 and 13 of the Contract. the former President of respondent. presented the lone testimony of their accounting manager.75 as of February 1992. the RTC denied the Omnibus Motion of petitioner for the dissolution of the writ of injunction and appointment of a receiver for the fruits of the subject property.. Thereafter.[32] The RTC admitted all the documentary evidence of respondent in an Order[33] dated December 14. granted the motion of respondent for the consignment of their monthly lease rentals for the subject property with the RTC. Jr.[34] Among the numerous documents submitted by petitioner as evidence were its own issuances imposing various rates for the lease of its properties.. specifically.[30] Mariano Nocom. Petitioner. The renewal provision under paragraph 17 of the Contract was not automatic but merely directory and procedural and that. AO .671. 1997 for failure of the parties to amicably settle the dispute.[29] Gladioluz Segundo. already conceded to the non-renewal of the Contract.[25] petitioner contended that its Contract of Lease with respondent was already terminated on February 15. its right to revoke the said Contract in case of violation of any of the provisions thereof by respondent. 1992.173. Respondent presented the testimonies of Mariano Nocom. on the other hand. After the preliminary hearing. thus. which allegedly effected an increase in the lease rentals of respondent for the subject property. Petitioner was not bound to renew the Contract of Lease with respondent.In its Answer. incurring a total outstanding balance of P15. To pay [respondent] as and by way of attorneys fees the sum of P500. 2. .000. [42]All of the documentary evidence of petitioner were admitted by the RTC in an Order[43] dated May 28. In its Decision dated October 29. 1999. 4. and 5. Petitioner appealed the RTC judgment before the Court of Appeals and assigned these errors: I. To accept the rental payment consigned by the [respondent] to the court beginning December 1991 onward until and after a renewal has been duly executed by both parties.[35] AO No. series of 1993. series of 1982. 1. 1. series of 1998. [petitioner] is [44] hereby Grant renewal of the lease contract for the same term as stipulated in the old contract and the rental to be based on the applicable rate of the time or renewal. series of 1993. 4.[40] and Resolution No. [38] Resolution No. 1999.00. series of 1990. and AO No. Accordingly.No. 97-51.[36] AO No. series of 1984. suit. The trial court gravely erred in declaring that [respondent] is entitled to a renewal of the contract of lease.[39] Resolution No. judgment is hereby rendered in favor of [respondent] and against [petitioner]. 96-32. 94-74. II. To respect and maintain [respondents] peaceful possession of the premises. 1. To pay the cost of WHEREFORE. disposing thus: 3. the RTC ruled in favor of respondent.[41] all amending AO No. The trial court gravely erred in ordering the renewal of the contract of lease despite of the fact that it has no legal authority to do so. 1. 1. ordered to: 1.[37] AO No. The trial court gravely erred in not finding that [petitioner] is entitled to its counterclaim. the instant appeal is hereby DISMISSED. As we have already explained in Allied Banking Corporation v.[45] The Court of Appeals promulgated its Decision on January 8.III.[46] Hence. An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to statutory restrictions. and the assailed decision is hereby AFFIRMED. the instant Petition for Review. The ultimate purpose is to render void a contract containing a condition which makes its fulfillment dependent solely upon the uncontrolled will of one of the contracting parties. finding no reversible error committed by the trial court." This binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law between the contracting parties. IV. V. wherein petitioner basically attributed to the Court of Appeals the very same errors it assigned to the RTC. We do not agree. and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other free therefrom. Court of Appeals [47]: Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality of contracts. The trial court gravely erred in declaring that [petitioners] act of effecting the increase in the rental during the stipulated lifetime of the contract has no valid basis. valid and . 2004. Petitioner argues that the renewal of the Contract of Lease cannot be made to depend on the sole will of respondent for the same would then be void for being a potestative condition. It provides that "the contract must bind both the contracting parties. The trial court gravely erred in declaring that [respondent] did not violate the terms and conditions of the contract. finding no reversible error in the appealed judgment of the RTC and decreeing as follows: WHEREFORE. its validity or compliance cannot be left to the will of one of them. the only express requirement was for respondent to notify petitioner of its decision to renew the lease within 60 days prior to the expiration of the original lease term. Thus. It is a purely executory contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the right is made to depend. We cannot now allow petitioner to arbitrarily deny respondent of said right after having previously agreed to the grant of the same. as lessee.This option. [48] Paragraph 17 of the Contract of Lease dated May 14. both parties are thereafter bound by the new lease agreement. The lessee cannot thereafter escape liability even if he should subsequently decide to abandon the premises. 1976 merely provides a procedural basis for a negotiation for renewal of the lease and the terms thereof. the right of renewal constitutes a part of the interest of respondent. petitioner freely consented to giving respondent the exclusive right to choose whether or not to renew the lease. in the subject property. and forms a substantial and integral part of the lease agreement with petitioner. which is provided in the same lease agreement. And while the lessee has a right to elect whether to continue with the lease or not. the lessor is free to give or not to give the option to the lessee. and the lessee is entitled to retain possession of the property for the duration of the new lease. is fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the performance by the lessee. Equally unmeritorious is the assertion of petitioner that paragraph 17 of the Contract of Lease dated May 14. After all. Mutuality obtains in such a contract and equality exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment. As we stated in Allied Banking. The exercise by respondent of its option to . It has not been disputed that said Contract of Lease was willingly and knowingly entered into by petitioner and respondent. 1976 between petitioner and respondent solely granted to respondent the option of renewing the lease of the subject property. and the lessor may hold him liable for the rent therefor. once he exercises his option to continue and the lessor accepts. The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality.binding on the parties. Records show that respondent had duly complied with the only condition for renewal under Section 17 of the Contract of Lease by notifying petitioner 60 days prior to the expiration of said Contract that it chooses to renew the lease. The right of renewal constitutes a part of the lessee's interest in the land and forms a substantial and integral part of the agreement. Their rights and obligations become mutually fixed. a similar issue was resolved by this Court.[49] In case the lessee chooses to renew the lease but there are no specified terms and conditions for the new contract of lease. and that 'a stipulation to renew always relates to the contract in which it is found and the rights granted thereunder. the lessee demanded an extension under the same terms and conditions. then the option . insignificant or nugatory. For then. As in a statute. and does not permit the defendant upon the renewal of the contract in which the clause is found. but the contract failed to specify the terms and conditions that would govern the new contract. sentence. Javellana this Court was confronted with a similar problem. a construction which will render every word operative is to be preferred over that which would make some words idle and nugatory. Manila Hotel Company. provision or part of a contract shall be considered surplusage or superfluous. no word. this Court made the following pronouncement: x x x [i]n the case of Hicks v. as in the case at bar. In that case the lessee was given the sole option to renew the lease. It was held that 'such a clause relates to the very contract in which it is placed.renew the lease need no longer be subject to negotiations. to insist upon different terms than those embraced in the contract to be renewed'. meaningless. void.' . The lessor expressed conformity to the renewal of the contract but refused to accede to the claim of the lessee that the renewal should be under the same terms and conditions as the original contract. To this end. We reiterate the point we made in Allied Banking that: [I]f we were to adopt the contrary theory that the terms and conditions to be embodied in the renewed contract were still subject to mutual agreement by and between the parties. When the lease expired. clause.which is an integral part of the consideration for the contract would be rendered worthless. as the following survey of cases in Allied Banking would show: In Ledesma v. unless it expressly provides for variations in the terms of the contract to be renewed. the lessor could easily defeat the lessee's right of renewal by simply imposing unreasonable and onerous conditions to prevent the parties from reaching an agreement. In sustaining the lessee. the same terms and conditions as the original contract of lease shall continue to govern. if that can be reasonably avoided. The settled rule is that in case of uncertainty as to the meaning of a provision granting extension to a contract of lease. may be simply restated.e. having the power of stipulating in his own favor. see also 51 C. we find the following citations: 'The rule is well-established that a general covenant to renew or extend a lease which makes no provision as to the terms of a renewal or extension implies a renewal or extension upon the same terms as provided in the original lease.. It is to renewal provisions of lease contracts of the kind presently considered that the principles stated above squarely apply.'[50] (Emphases supplied. Between the two assertions. Jur. we sustain the interpretation of the RTC of paragraph 17 of the Contract of Lease dated May 14. 1976 between petitioner and respondent. 48. 2d. in construing provisions relating to renewals or extensions. because the latter. 1159. Sec. Sec. has neglected to do so. i. at p. 1162. if he wants to go on with his lease. 599). to wit: [Paragraph 17 of the Contract of Lease dated May 14. We do not agree with the contention of the appellants that if it was intended by the parties to renew the contract under the same terms and conditions stipulated in the contract of lease. the tenant is the one favored and not the landlord. and not the landlord.S. 45.J.. there is more logic in the latter. where there is any uncertainty. if desirous of continuing his lease.e. or even restated in another way if desirous of extending . The same argument could easily be interposed by the appellee who could likewise contend that if the intention was to renew the contract of lease under such new terms and conditions that the parties may agree upon.The same principle is upheld in American Law regarding the renewal of lease contracts. 1976] admits several meanings. considering the word `CONTINUE in its verb form ordinarily means to go on in present state.) Being consistent with the foregoing principles. p. there is no provision to indicate that the renewal will be subject to new terms and conditions that the parties may yet agree upon. In 50 Am. the tenant is favored.' In the lease contract under consideration. In simpler terms. 2d. i. the phrase. such should have expressly so stated in thecontract itself. 'As a general rule. and also upon the principle that every man's grant is to be taken most strongly against himself (50 Am Jur. the contract should have so specified. his lease, because the word `continue in its verb form also means extend uniformly. Thus, if we are to adopt the interpretation of [petitioner] that the stipulation merely established the procedural basis for a negotiation for renewal then the aforequoted phrase would be rendered a mere surplusage, meaningless and insignificant. But if we are to prod deeper to the very context of the entire stipulations setforth in the contract and from what is obvious with respect to the intentions of the contracting parties based on their contemporaneous and subsequent acts including but not limited to the historical antecedents of the agreement then an interpretation invariably different from that of [petitioner] becomes inevitable. Specifically, the extraneous source of the lease contract in question could be the original and renewed contract of lease by and between Salem Investment Corporation and CAA the predecessor-ininterest of [petitioner] executed on February 10, 1967 (Exh. M). Under the said lease contract between CAA and Salem, the term is for a period of twenty-five (25) years renewable for another 25 years at the option of the lessee Salem (Exh. Y-1). Later, with the approval of CAA, Salem transferred its leasehold rights over a portion of the land leased to Ding Velayo Export Corporation on September 30, 1974 (Exh. N) and in turn Velayo Export transferred its leasehold rights over a portion of the leased land transferred to it by Salem to Velayo Sports Complex, Inc. [respondent] herein on April 29, 1976 (Exh. O). Thus, on May 14, 1976, [respondent] and CAA, predecessor-ininterest of [petitioner], concluded the lease agreement in question with a term equivalent to the unexpired portion of the lease between Velayo Export and CAA. As culled from the transfers effected prior to the May 14, 1976 agreement of [respondent] and [petitioner]s predecessorin-interest, the renewal of the contract was clearly at the option of the lessee. Considering that there was no evidence positively showing that [respondent] and CAA expressly intended the removal of the option for the renewal of the lease contract from the lessee, it is but logical to conclude, although the stipulation setforth in paragraph 17 appears to have been worded or couched in somewhat uncertain terms, that the parties agreed that the option should remain with the lessee. This must be so because based on the context of their agreements and bolstered by the testimony of Mr. Mariano Nocom of Salem Investment and particularly Rosila Mabanag, one of the signatory witness to the contract and a retired employee of CAAs Legal Division the parties really intended a renewal for the same term as it was then the usual practice of CAA to have the term of leases on lands where substantial amount will be involved in the construction of the improvements to be undertaken by the lessee to give a renewal. In fact, it clearly appears that the right of renewal constitutes a part of the lessees interest in the land considering the multimillion investments it made relative to the construction of the building and facilities thereon and forms a substantial and integral part of the agreement.[51] (Emphases supplied.) In sum, the renewed contract of lease of the subject property between petitioner and respondent shall be based on the same terms and conditions as the original contract of lease. The original contract of lease does not pertain to the Contract of Lease dated May 14, 1976 between petitioner and respondent alone, but also to the Contract of Lease dated February 15, 1967 between petitioner (then still called CAA) and Salem, as well as the Contract of Lease dated November 26, 1974 between petitioner and Velayo Export all three contracts being inextricably connected. Since the Contract of Lease between petitioner and Salem was for a term of 25 years, then the renewed contract of lease of between petitioner and respondent shall be for another term of 25 years. This construction of the renewal clause under paragraph 17 of the Contract of Lease dated May 14, 1976 between petitioner and respondent is most consistent with the intent of the parties at the time of the execution of said Contract and most effectual in implementing the same. In addition to challenging the exclusive right of respondent to renew the Contract of Lease over the subject property, petitioner insists on its right to refuse the renewal because of purported violations of the said Contract by respondent, particularly: (1) subleasing of the premises; (2) failure to ease the problems of parking congestion at the Domestic Airport and to provide a shopping center and sports facilities, such as an oval track and a swimming pool; and (3) failure to pay monthly lease rentals in the form of royalties equivalent to 1% of the gross income of respondent or in accordance with the rates fixed in the administrative orders of petitioner. We find no violations by the respondent of the Contract of Lease dated May 14, 1976 as to justify the revocation or refusal to renew of said Contract by petitioner. The RTC is once again correct in its construal that paragraph 16 of the Contract of Lease, prohibiting the subleasing of the premises, refers only to the subject property. We stress that when the said Contract was executed on May 14, 1976, the premises leased by petitioner to respondent, and which respondent was not allowed to sublease, is the subject property, i.e., an idle piece of land with an area of 8,481 square meters. More importantly, being the builder of the improvements on the subject property, said improvements are owned by respondent until their turn-over to petitioner at the end of the 25-year lease in 1992. As respondent is not leasing the improvements from petitioner, then it is not subleasing the same to third parties. While the Contract of Lease expressly obligated respondent to build certain improvements, such as parking, shopping mall, and sports facilities, the belated insistence by petitioner on compliance with the same appears to be a mere afterthought. Article 1235 of the Civil Code states that [w]hen the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. As aptly observed by the RTC, paragraphs 9 and 10 of the Contract of Lease likewise expressly require respondent to submit, for prior approval by petitioner, all construction plans on the subject property; and to complete the contemplated improvements thereon within a year. The Contract of Lease was executed on May 14, 1976, and the one-year period expired on May 14, 1977. Yet, petitioner did not register any protest or objection to the alleged incompleteness of or irregularity in the performance by respondent of its obligation to build and develop improvements on the subject property. In fact, upon the expiration of the original 25-year lease period in February 1992, petitioner was already ready and willing to accept and appropriate as its own the improvements built on the subject property in 1992.Petitioner only raised the issue of the purported incompleteness/irregularity of the said improvements when it was brought to court by respondent for refusing to renew the lease. Just as the RTC adjudged, no fault could be attributed to respondent for deficient payment of lease rentals. Lease rentals were based on either the rates fixed by AO No. 4, series of 1970, or 1% of the monthly gross income of respondent, whichever is higher. At the very beginning of the lease, respondent had been paying monthly lease rentals based on the rates fixed by AO No. 4, series of 1970, which amounted to P2,205.25 per month. When requested, respondent submitted to petitioner its gross income statements, so petitioner could very well compute the 1% royalty. However, petitioner continued to charge respondent only P2,205.25 monthly lease rental, which the latter faithfully paid. Petitioner later demanded an increase in lease rentals based on subsequent administrative issuances raising the rates for the rental of its properties. But the RTC found that the adverted administrative orders were not published in full, thus, the same were legally invalid within the context of Article 2 of the Civil Code which provides that [l]aws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided. x x x InTaada v. Tuvera,[52] we enunciated that publication is indispensable in order that all statutes, including administrative rules that are intended to enforce or implement existing laws, attain binding force and effect, to wit: We hold therefore that all statutes, including those of local application and private laws, shall be published as a condition for their effectivity, which shall begin fifteen days after publication unless a different effectivity date is fixed by the legislature. Covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of legislative powers whenever the same are validly delegated by the legislature or, at present, directly conferred by the Constitution. Administrative rules and regulations must also be published if their purpose is to enforce or implement existing law pursuant also to a valid delegation.[53] There is no basis for the argument of petitioner that the validity of its administrative orders cannot be collaterally attacked. To the contrary, we have previously declared that a party may raise the unconstitutionality or invalidity of an administrative regulation on every occasion that said regulation is being enforced.[54] Since it is petitioner which first invoked its administrative orders to justify the increase in lease rentals of respondent, then respondent may raise before the court the invalidity of said administrative orders on the ground of non-publication thereof. Finally, petitioner cannot oppose the renewal of the lease because of estoppel. Our following disquisition in Kalalo v. Luz[55] is relevant herein: Under Article 1431 of the Civil Code, in order that estoppel may apply the person, to whom representations have been made and who claims the estoppel in his favor must have relied or acted on such representations. Said article provides: Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. An essential element of estoppel is that the person invoking it has been influenced and has relied on the representations or conduct of the person sought to be estopped, and this element is wanting in the instant case. In Cristobal vs. Gomez, this Court held that no estoppel based on a document can be invoked by one who has not been misled by the false statements contained therein. And in Republic of the Philippines vs. Garcia, et al., this Court ruled that there is no estoppel when the statement or action invoked as its basis did not mislead the adverse party. Estoppel has been characterized as harsh or odious, and not favored in law. When misapplied, estoppel becomes a most effective weapon to accomplish an injustice, inasmuch as it shuts a man's mouth from speaking the truth and debars the truth in a particular case. Estoppel cannot be sustained by mere argument or doubtful inference; it must be clearly proved in all its essential elements by clear, convincing and satisfactory evidence. No party should be precluded from making out his case according to its truth unless by force of some positive principle of law, and, consequently, estoppel in pais must be applied strictly and should not be enforced unless substantiated in every particular. The essential elements of estoppel in pais may be considered in relation to the party sought to be estopped, and in relation to the party invoking the estoppel in his favor. As related to the party to be estopped, the essential elements are: (1) conduct amounting to false representation or concealment of material facts; or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least expectation that his conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts. As related to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of the means of knowledge of the truth as the facts in questions; (2) reliance, in good faith, upon the conduct or statements of the party to be estopped; (3) action or inaction based thereon of such character as to change the position or status of the party claiming the estoppel, to his injury, detriment or prejudice.[56] (Emphases ours.) Indeed, Velayos Letters dated March 3 and 10, 1992 to petitioner may have already expressed acquiescence to the non-renewal of the lease and turnover of the improvements on the subject property to petitioner. But not long thereafter, Alomesen, the new President of respondent, already wrote another Letter dated March 25, 1992, which revoked Velayos earlier Letters for having been sent without authority of the Board of Directors of respondent, insisted on the renewal of the lease, and tendered payment of past due lease rentals. Respondent, through Alomesen, timely acted to correct Velayos mistakes. In the 15-day interval between Velayos Letter dated March 10, 1992 and Alomesens Letter dated March 25, 1992, there is no showing that petitioner, relying in good faith on Velayos Letters, acted or did not act as to have caused it injury, detriment, or prejudice. There is an utter lack of clear, convincing, and satisfactory evidence on the part of petitioner, as the party claiming estoppel, of the second and third elements for the application of said principle against respondent. WHEREFORE, the instant Petition is hereby DENIED for lack of merit. The Decision dated January 8, 2004 of the Court Appeals in CA-G.R. CV No. 68787, which affirmed the Decision dated October 29, 1999 of Branch 111 of the RTC of Pasay City in Civil Case No. 8847, is hereby AFFIRMED. G.R. No. 206806 June 25, 2014 ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners, vs. DAN T. LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS ENTERPRISES, Respondent. DECISION LEONEN, J.: Novation must be stated in clear and unequivocal terms to extinguish an obligation. It cannot be presumed and may be implied only if the old and new contracts are incompatible on every point. Before us is a petition for review on certiorari1 assailing the Court of Appeals’ decision2 in CA-G.R. CV No. 95709, which stemmed from a complaint3 filed in the Regional Trial Court of Valenzuela City, Branch 171, for collection of sum of money. The facts are as follows: Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials, under the name Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper mill business.4 From February 2007 to March 2007, he delivered scrap papers worth 7,220,968.31 to Arco Pulp and Paper Company, Inc. (Arco Pulp and Paper) through its Chief Executive Officer and President, Candida A. Santos.5 The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. Lim the value of the raw materials or deliver to him their finished products of equivalent value.6 Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated check dated April 18, 20077 in the amount of 1,487,766.68 as partial payment, with the assurance that the check would not bounce.8 When he deposited the check on April 18, 2007, it was dishonored for being drawn against a closed account.9 On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement10 where Arco Pulp and Paper bound themselves to deliver their finished products to Megapack Container Corporation, owned by Eric Sy, for his account. According to the memorandum, the raw materials would be supplied by Dan T. Lim, through his company, Quality Paper and Plastic Products. The memorandum of agreement reads as follows: Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and Mr. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM, full width 76 inches at the price of P18.50 On one hand. bring this petition for review on certiorari. P50. Dan T.. Lim to present his evidence ex parte..968. the Court of Appeals20 rendered a decision21 reversing and setting aside the judgment dated September 19. (price subject to change per advance notice). It has been agreed further that the Local OCC materials to be used for the production of the above Test Liners will be supplied by Quality Paper & Plastic Products Ent. Lim the amount ofP7. He argued that if his name was mentioned in the contract. Arco Pulp and Paper filed its answer15 but failed to have its representatives attend the pre-trial hearing. on May 28. Schedule of deliveries are as follows: .17 Dan T.000. Santos. Quantity of Local OCC delivery will be based on the quantity of Test Liner delivered to Megapack Container Corp..00 exemplary damages.220.per kg. Lim appealed18 the judgment with the Court of Appeals.. the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint. 2007. where his conformity through a separate contract was indispensable. According to him. holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement.22 The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an alternative obligation.968. Hence.13 Dan T.000. Lim was entitled to damages and attorney’s fees due to the bad faith exhibited by Arco Pulp and Paper in not honoring its undertaking.220.19 On January 11.16 On September 19. novation did not take place since the memorandum of agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private agreement between them.50 per kg.00 moral damages. petitioners argue that the execution of the memorandum of agreement constituted a novation of the original obligation since Eric Sy became the new .000. it was only for supplying the parties their required scrap papers. Lim filed a complaint14 for collection of sum of money with prayer for attachment with the Regional Trial Court. to Megapack Container for Mr.31. and P50. which extinguished Arco Pulp and Paper’s obligation to Dan T.Lim sent a letter12 to Arco Pulp and Paper demanding payment of the amount of 7. 2008. but no payment was made to him.24 Its motion for reconsideration25 having been denied.11 On May 5. total of 600 Metric Tons at P6. 2008 and ordering Arco Pulp and Paper to jointly and severally pay Dan T. Branch 171. novation took place. Lim. Candida A. Valenzuela City.26 Arco Pulp and Paper and its President and Chief Executive Officer. 2013. the trial court allowed Dan T. 2007.31 with interest at 12% per annum from the time of demand.23 It also ruled that Dan T. P50. based on the above production schedule. Eric Sy’s account.00 attorney’s fees. Whether Candida A.31 with damages since the debt of petitioners remains unpaid. and attorney’s fees can be awarded The petition is denied. on the other hand. 2000. They also argue that there is no legal basis to hold petitioner Candida A. Inc.30 A rejoinder was submitted by respondent. The Court of Appeals."32 The right of election is extinguished when the party who may exercise that option categorically and unequivocally makes his or her choice known.968..debtor of respondent. opportunity to express his consent.33 The choice of the debtor must also be communicated to the creditor who must receive notice of it since: The object of this notice is to give the creditor . Santos was solidarily liable with Arco Pulp and Paper Co. determined by the choice of the debtor who generally has the right of election.31 The issues to be resolved by this court are as follows: 1.27 Respondent. Whether moral damages.M. petitioners reiterate that novation took place since there was nothing in the memorandum of agreement showing that the obligation was alternative. and the fulfillment of one is sufficient. "In an alternative obligation. Santos personally liable for the transaction that petitioner corporation entered into with respondent. which states: Article 1199. The creditor cannot be compelled to receive part of one and part of the other undertaking. they allege. Whether the obligation between the parties was extinguished by novation 2. and only after said notice . No. They also argue that when respondent allowed them to deliver the finished products to Eric Sy. 3. 99-2-04-SC dated November 21.220. there is more than one object.28 He also argues that the Court of Appeals was correct in holding petitioners solidarily liable since petitioner Candida A. argues that the Court of Appeals was correct in ruling that there was no proper novation in this case. exemplary damages. . but it was noted without action in view of A. He argues that the Court of Appeals was correct in ordering the payment of 7. The obligation between the parties was an alternative obligation The rule on alternative obligations is governed by Article 1199 of the Civil Code. the original obligation was novated. or to impugn the election made by the debtor. also erred in awarding moral and exemplary damages and attorney’s fees to respondent who did not show proof that he was entitled to damages. . A person alternatively bound by different prestations shall completely perform one of them."29 In their reply. Santos was "the prime mover for such outstanding corporate liability. 31 to petitioner Arco Pulp and Paper. By agreement. The payment for this delivery became petitioner Arco Pulp and Paper’s obligation. as the debtor. The memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished products would be to a third person. petitioner Arco Pulp and Paper. which was executed on the same day. it did not novate the original obligation between the parties. (2) Substituting the person of the debtor. the original contract between the parties was for respondent to deliver scrap papers worth P7.220.34 According to the factual findings of the trial court and the appellate court. Obligations may be modified by: (1) Changing their object or principal conditions. When petitioner Arco Pulp and Paper opted instead to deliver the finished products to a third person. or that the old and the new obligations be on every point incompatible with each other. after receiving the raw materials from respondent. thus: Article 1291. they exercised their option to pay the price. When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap papers. In order that an obligation may be extinguished by another which substitute the same. deliver to him the finished products of equivalent value.shall the election take legal effect when consented by the creditor. This choice was also shown by the terms of the memorandum of agreement.968. whereby petitioner Arco Pulp and Paper. had the option to either (1) pay the price or(2) deliver the finished products of equivalent value to respondent. in the alternative. when declared proper by a competent court. (1204) . (3) Subrogating a third person in the rights of the creditor. The rules on novation are outlined in the Civil Code. it is imperative that it be so declared in unequivocal terms. therefore.35 The appellate court. thereby extinguishing the option to deliver the finished products of equivalent value to respondent. correctly identified the obligation between the parties as an alternative obligation. The memorandum of agreement did not constitute a novation of the original contract The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation of the contract between the parties. (1203) Article 1292. would either pay him the price of the raw materials or. Respondent’s receipt of the check and his subsequent act of depositing it constituted his notice of petitioner Arco Pulp and Paper’s option to pay. or if impugned by the latter. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. In delegacion. an act known as subjective or personal novation. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. Article 1293 of the Civil Code defines novation as follows: "Art. there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. . by substituting a new debtor in place of the old one. In general. (1205a) Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or when there is subrogation of the creditor. Llamas:37 Novation is a mode of extinguishing an obligation by changing its objects or principal obligations. but not without the consent of the creditor. or by subrogating a third person to the rights of the creditor. thus. but not without the consent of the creditor. may be made even without the knowledge or against the will of the latter. may be made even without the knowledge or against the will of the latter. It occurs only when the new contract declares so "in unequivocal terms" or that "the old and the new obligations be on every point incompatible with each other. Both modes of substitution by the debtor require the consent of the creditor. a third person who consents to the substitution and assumes the obligation. 3) The old contract must be extinguished. the following requisites must concur: 1) There must be a previous valid obligation. or by substituting the person of the debtor or subrogating a third person to the rights of the creditor. and the creditor accepts. 1293." does not come from — and may even be made without the knowledge of — the debtor. referred to as objective or real novation. In expromision. novation is made either by changing the object or the principal conditions. Whether extinctive or modificatory. 2) The parties concerned must agree to a new contract. Novation which consists in substituting a new debtor in the place of the original one. the initiative for the change 4) There must be a valid new contract. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. since it consists of a third person’s assumption of the obligation. As such. Novation which consists in substituting a new debtor in the place of the original one. Novation may also be extinctive or modificatory. the debtor offers. it logically requires the consent of the third person and the creditor."36 Novation was extensively discussed by this court in Garcia v. the consent of these three persons are necessary. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. For novation to take place.Article 1293. clearly show that novation did not take place. Petitioner Arco Pulp and Paper. . novatio is literally construed as to make new. debitum pro debito — basically extinguishing the old obligation for the new one. when taken together. it has been mutually agreed between Mrs. It merely shows that petitioner Arco Pulp and Paper opted to deliver the finished products to a third person instead. therefore. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. it is never presumed. which states: If the memorandum of agreement was intended to novate the original agreement between the parties. thus. its animus must be ever present.At bottom. petitioner Arco Pulp and Paper’s obligation to respondent remains valid and existing. Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their alleged intent to pass on their obligation to Eric Sy. it showed that the former neither acknowledged nor consented to the latter as his new debtor.38 (Emphasis supplied) the parties to novate the old agreement. Candida A. The memorandum of agreement must also state in clear and unequivocal terms that it has replaced the original obligation of petitioner Arco Pulp and Paper to respondent. his conformity to the contract need not be secured. . respondent was not privy to the memorandum of agreement. for novation tobe a jural reality.39 (Emphasis supplied) There is nothing in the memorandum of agreement that states that with its execution. So it is deeply rooted in the Roman Law jurisprudence. each one with its own independent existence. . The test of incompatibility is whether the two obligations can stand together. This is clear from the first line of the memorandum. and not to Eric Sy. Santos and Mr. respondent must have first agreed to the substitution of Eric Sy as his new debtor. Since there was no novation. Neither of these circumstances is present in this case. the principle — novatio non praesumitur —that novation is never presumed.968. These acts. When respondent sent his letter of demand to petitioner Arco Pulp and Paper.40 (Emphasis supplied) Because novation requires that it be clear and unequivocal. The consent of the creditor must also be secured for the novation to be valid: Novation must be expressly consented to. . Eric Sy. 2007. Moreover.220.41 In the civil law setting.Novation may also be express or implied. April 18.31. must still pay respondent the full amount of P7. It is implied when the new obligation is incompatible with the old one on every point. thus: Per meeting held at ARCO. It also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as respondent’s debtor. the obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. the conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by In this case. (2) second.43 Here. the award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. As this court stated: Moral damages are not recoverable simply because a contract has been breached. reckless. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries. (5) Illegal or arbitrary detention or arrest. there must be an injury. This injury undoubtedly was caused by petitioner Arco Pulp and Paper’s act of refusing to pay its obligations. Willfull injury to property may be a legal ground for awarding moral damages if the court should find that. As to the fourth requisite. under the circumstances. to wit: (1)first. Article 2219 of the Civil Code provides that moral damages may be awarded in the following instances: Article 2219. and oppressive or abusive. or other lascivious acts. there must be culpable act or omission factually established. This has remained unpaid since 2007. 2220. (3) Seduction. mental or psychological. clearly sustained by the claimant. the wrongful act or omission of the defendant (2) Quasi-delicts causing physical injuries.42 is the proximate cause of the injury sustained by the claimant. whether physical. Further. (Emphasis supplied) Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach was due to fraud or bad faith.220. The breach must be wanton. abduction.968. (3) third. moral damages may be awarded in case of breach of contract where the breach is due to fraud or bad faith: Art. and (4) fourth. rape. the injury suffered by respondent is the loss of P7. (4) Adultery or concubinage. malicious or in bad faith. the following requisites must be proven for the recovery of moral damages: An award of moral damages would require certain conditions to be met. petitioner Arco Pulp and Paper not only issued an unfunded check but also entered into a contract with a third person in an effort to evade its liability. . such damages are justly due. When the obligation became due and demandable.31 from his business.Petitioners are liable for damages Under Article 2220 of the Civil Code. They are recoverable only if the party from whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. This proves the third requirement. while Article 21 only concerns with lawful acts that are contrary to morals. When a party breaches a contract. good customs. contrary to law. (8) Malicious prosecution. 34.45 . good customs or public policy shall compensate the latter for the damage. that there was an intention to do the act and a desire to achieve the outcome. Willful may refer to the intention to do the act and the desire to achieve the outcome which is considered by the plaintiff in tort action as injurious. By itself. and 35. however. that is. he or she goes against Article 19 of the Civil Code. (7) Libel. (10) Acts and actions referred to in Articles 21. This article requires that the act be willful. and public policy: Article 20 concerns violations of existing law as basis for an injury. the legal issues revolve around whether such outcome should be considered a legal injury on the part of the plaintiff or whether the commission of the act was done in violation of the standards of care required in Article 19. Every person who. 27. it is not the basis of an actionable tort. wilfully or negligently causes damage to another. give everyone his due. cannot be its sole basis: Article 19 is the general rule which governs the conduct of human relations. however. Every person must. 28. are not specified within this enumeration. Article 20 requires a violation of law. concerns injuries that may be caused by acts which are not necessarily proscribed by law. act with justice. It allows recovery should the act have been willful or negligent. Article 19 describes the degree of care required so that an actionable tort may arise when it is alleged together with Article 20 or Article 21. Article 21. To be actionable. shall indemnify the latter for the same. Persons who have the right to enter into contractual relations must exercise that right with honesty and good faith. 26. Breaches of contract done in bad faith. Failure to do so results in an abuse of that right. 32.(6) Illegal search. 30. in the exercise of his rights and in the performance of his duties. slander or any other form of defamation. on the other hand. which states: Article 19. In cases under Article 21. 29.44 Article 20 and 21 of the Civil Code are as follows: Article 20. and observe honesty and good faith. which may become the basis of an action for damages.Any person who wilfully causes loss or injury to another in a manner that is contrary to morals. Article 21. Negligence may refer to a situation where the act was consciously done but without intending the result which the plaintiff considers as injurious. (9) Acts mentioned in Article 309. Article 19. however. reckless and malicious. Article 2220 requires that the breach be done fraudulently or in bad faith. exemplary damages are due in the following circumstances: Article 2232. Petitioner Arco Pulp and Paper’s actions clearly show "a dishonest purpose or some moral obliquity and conscious doing of a wrong. therefore. it requires an examination of the circumstances in each case. It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong. be awarded. the breach must be palpably wanton. When a party reneges on his or her obligations arising from contracts in bad faith. oppressive. Under the Civil Code. among others. Worse. a question of intention. therefore. reckless. Exemplary damages may also be awarded. . a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud. the act is not only contrary to morals. oppressive. a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud. it is also a violation of Article 1159. but also under Articles 19 and 20 in relation to Article 1159. It is. in bad faith. When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to respondent. good customs. it attempted to shift their obligations to a third person without the consent of respondent. not only under Article 2220. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. the person claiming bad faith must prove its existence by clear and convincing evidence for the law always presumes good faith. is not an exhaustive list of the instances where moral damages may be recovered since it only specifies.When parties act in bad faith and do not faithfully comply with their obligations under contract. it was presumably with the knowledge that it was being drawn against a closed account. therefore. Bad faith does not simply connote bad judgment or negligence. Hence. Article 21. are not recoverable on the mere breach of the contract. Breaches of contract become the basis of moral damages. the court may award exemplary damages if the defendant acted in a wanton. Article 2219."48 Moral damages may. which can be inferred from one’s conduct and/or contemporaneous statements.47 (Emphasis supplied) Since a finding of bad faith is generally premised on the intent of the doer. Lasala:46 To recover moral damages in an action for breach of contract. or malevolent manner. and public policy. or abusive. Moral damages. In Adriano v. fraudulent. In contracts and quasi-contracts. they run the risk of violating Article 1159 of the Civil Code: Article 1159. insult or fraud or gross fraud—that intensifies the injury. In common law. but not always. temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. stated that: 49 we The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a similar offense. used interchangeably. gross negligence or recklessness. In Tankeh v. Dalisay held that: Also known as ‘punitive’ or ‘vindictive’ damages. wantonness. While the amount of the exemplary damages need not be proven. the plaintiff must show that he is entitled to moral. citations omitted) The requisites for the award of exemplary damages are as follows: (1) they may be imposed by way of example in addition to compensatory damages.Article 2233. Development Bank of the Philippines. considering that these obligations were freely entered into by them. Exemplary damages cannot be recovered as a matter of right. The terms punitive or vindictive damages are often used to refer to those species of damages that may be awarded against a person to punish him for his outrageous conduct. (2) that they cannot be recovered as a matter of right. The case of People v. They cannot be allowed to renege on their obligations. and (3) the act must be accompanied by bad faith or done in a wanton. Exemplary damages may also be awarded in this case to serve as a deterrent to those who use fraudulent means to evade their liabilities. Article 2234.50 (Emphasis supplied. the court will decide whether or not they should be adjudicated. exemplary or corrective damages are intended to serve as a deterrent to serious wrong doings.51 Business owners must always be forthright in their dealings. their determination depending upon the amount of compensatory damages that may be awarded to the claimant. there is preference in the use of exemplary damages when the award is to account for injury to feelings and for the sense of indignity and humiliation suffered by a person as a result of an injury that has been maliciously and wantonly inflicted. In either case. oppressive or malevolent manner. . oppression. and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a punishment for those guilty of outrageous conduct. Ranteciting People v. These terms are generally. malice. these damages are intended in good measure to deter the wrongdoer and others like him from similar conduct in the future. fraudulent. the theory being that there should be compensation for the hurt caused by the highly reprehensible conduct of the defendant—associated with such circumstances as willfulness. and only after the claimant's right to them has been established. obligations incurred by the corporation. However.. or as a vehicle for the evasion of an existing obligation. as in this case. and (2) such negligence or bad faith was clearly and convincingly proven. and (2) the complainant must clearly and convincingly prove such unlawful acts.52 we stated that: Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and. officers and employees. negligence or bad faith.53 (Emphasis supplied) As a general rule. that (1) the officer is guilty of negligence or bad faith. attorney’s fees and cost of the suit may also be recovered.. Article 2208 of the Civil Code states: Article 2208. the circumvention of statutes. officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation. this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act. cannot be recovered. Following this principle. attorney's fees and expenses of litigation.Since the award of exemplary damages is proper. however. acting through its directors. in general. Nevertheless.. . or to confuse legitimate issues. this veil of corporate fiction may be pierced if complainant is able to prove. from the people comprising it. Santos is solidarily liable with petitioner corporation Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced to prove that the transaction was also a personal undertaking of petitioner Santos. International Exchange Bank. In the absence of stipulation. We disagree. While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45. other than judicial costs. this Court can take cognizance of factual issues if the findings of the lower court are not supported by the evidence on record or are based on a misapprehension of facts. directors. or that the officer was guilty of gross negligence or bad faith. . In Heirs of Fe Tan Uy v. the following requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation. Before a director or officer of a corporation can be held personally liable for corporate obligations. officers. A director. are its sole liabilities. except: (1) When exemplary damages are awarded[.] Petitioner Candida A. or employees of a corporation cannot be held personally liable for obligations incurred by the corporation. 57 We agree with the Court of Appeals.766. Gallery Frames58 In view. the corporate veil may be pierced. Petitioner Santos cannot be allowed to hide behind the corporate veil. .59 the rate of interest due on the obligation must be modified from 12% per annum to 6% per annum from the time of demand. These acts prompted the [respondent] to avail of the remedies provided by law in order to protect his rights. petitioner Santos entered into a contract with respondent in her capacity as the President and Chief Executive Officer of Arco Pulp and Paper."54 Any obligation arising from these acts would not. such as to evade a just and due obligation. After the check in the amount of 1. the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes. "Arco Pulp & Paper.. in which case. She also issued the check in partial payment of petitioner corporation’s obligations to respondent on behalf of petitioner Arco Pulp and Paper. other unjustifiable aims or intentions. We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor their undertaking in favor of the [respondent]. of the promulgation by this court of the decision dated August 13.Here. These acts clearly amount to bad faith. to shield or perpetrate fraud or to carry out similar or inequitable considerations. however. be petitioner Santos’ personal undertaking for which she would be solidarily liable with petitioner Arco Pulp and Paper. the fiction will be disregarded and the individuals composing it and the two corporations will be treated as identical. and petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper. stating that: In the present case. however.68 issued by [petitioner] Santos was dishonored for being drawn against a closed account. In Livesey v. 2013 in Nacar v. she not only issued an unfunded check but also contracted with a third party in an effort to shift petitioner Arco Pulp and Paper’s liability. ordinarily. or to justify a wrong. This is clear on the face of the check bearing the account name.487.56 (Emphasis supplied) According to the Court of Appeals. Inc.1âwphi1 When petitioner Arco Pulp and Paper’s obligation to respondent became due and demandable. She unjustifiably refused to honor petitioner corporation’s obligations to respondent. petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper. Under the doctrine. that the corporate veil must be pierced. [petitioner] corporation denied any privity with [respondent]. The rate of interest due on the obligation must be reduced in view of Nacar v. Gallery Frames. We find. In this instance. Binswanger Philippines:55 Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. Co. quasi-contracts. however. i. delicts or quasi-delicts is breached. No interest. With regard particularly to an award of interest in the concept of actual and compensatory damages. in any case. 799. an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.e. When an obligation. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. as follows: 1. II. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. Accordingly. the rate of legal interest. the interest due should be that which may have been stipulated in writing. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. not constituting a loan or forbearance of money. the rate of interest. in addition to the above.e. as follows: I. law. the guidelines laid down in the case of Eastern Shipping Linesare accordingly modified to embody BSP-MB Circular No. as well as the accrual thereof. Civil Code). When an obligation. above. but when such certainty cannot be so reasonably established at the time the demand is made. 1169. where the demand is established with reasonable certainty. and it consists in the payment of a sum of money. regardless of its source. shall be adjudged on unliquidated claims or damages. shall be 6% per annum from such finality until its satisfaction.Nacar effectively amended the guidelines stated in Eastern Shipping v. is breached. And. contracts. In the absence of stipulation. judgments that have become final and executory prior to July 1. shall not be disturbed and shall continue to be implemented . be on the amount finally adjudged.. the rate of interest shall be 6% per annum to be computed from default..e. is imposed.. When the judgment of the court awarding a sum of money becomes final and executory. this interim period being deemed to be by then an equivalent to a forbearance of credit. Furthermore. the contravenor can be held liable for damages. Court of Appeals. i. The actual base for the computation of legal interest shall. except when or until the demand can be established with reasonable certainty. i. the interest due shall itself earn legal interest from the time it is judicially demanded. When the obligation is breached. the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). whether the case falls under paragraph 1 or paragraph 2. 2. 3.60 and we have laid down the following guidelines with regard to the rate of legal interest: To recapitulate and for future guidance. a loan or forbearance of money. 2013. action for a sum of money thereat commenced by the . 95709 is AFFIRMED. and attorney's fees in the amount of P50. GARMENT September 21.61 (Emphasis supplied. 48232-CV. Present: SAMPAGUITA CORPORATION.R.220.A. Inc. 127454 Petitioners.00. The decision in CA-G. No. and GARCIA. J.: Assailed and sought to be set aside in this petition for review on certiorari under Rule 45 of the Rules of Court is the Decision[1] dated 10 December 1996 of the PANGANIBAN..31 should now be at 6% per annum. SANDOVAL-GUTIERREZ.. citations omitted. .R.. No.R. x---------------------------------------------------------------------------------x DECISION GARCIA. computed from May 5. CV No.968. affirming. the interest due on the obligation of P7. when respondent sent his letter of demand to petitioners.00.applying the rate of interest fixed therein. Santos are hereby ordered solidarily to pay respondent Dan T.31 with interest of 6% per annum at the time of demand until finality of judgment and its full satisfaction. J. 2005 Respondent. Lim the amount of P7. and MAVEST Manila Liaison Office. Chairman Court of Appeals in CA-G.S. with moral damages in the amount of P50. exemplary damages in the amount ofP50.) INC. G.versus - Promulgated: WHEREFORE. the petition is DENIED in part.000.with modifications. CARPIO MORALES.968. an CORONA.000. Petitioners Arco Pulp & Paper Co. and Candida A.00. an earlier decision of the Regional Trial Court at Makati City in Civil Case No. MAVEST (U. 90-1131. 2007. JJ.220.) According to these guidelines.000. This interest shall continue to be due from the finality of this decision until its full satisfaction. ).S. Style Nos.S. 2. . respondent Sampaguita Garment Corporation is a domestic corporation engaged in the business of manufacturing and exporting garments. . Style 45714 (S/SZ-218). for shipment to [petitioners] foreign buyers. Sometime in July and August 1989. Each transaction was embodied in a purchase order [PO] specifying the style and description. 1989 . Style 7511. . Nylon Swim Trunks. Nylon Swim Trunks. 1989 . b. . e. d. Petitioner MAVEST (U.S. 1989 . for short) is a corporation duly organized and existing under the laws of the United States of America but registered with the Philippine Board of Investments.A. . Nylon Swim Trunks. [PO] dated July 24. as follows. . (MAVEST.A. 1989 . . c. .A. Cotton Woven Pants [PO] dated August 10.A. Inc. and MAVEST Manila Liaison Office and two (2) others. Style 33303 (SZ-217).herein respondent Sampaguita Garment Corporation against the herein petitioners MAVEST (U. U. (PO] dated July 12. [PO] dated August 9. .s representative in the Philippines. . . . 100% Cotton Pigment Twill Shorts. 1989 . Inc. On the other hand.A). Style 45715 (S/SZ219). .. . As found by the appellate court in the decision under review. [PO] dated July 24. . . [PO] dated July 24. . f. . . 1989 . while copetitioner MAVEST Manila Liaison Office is MAVEST U.S. DJ-1 BR and DJ-1 XT. Sears Roebuck and JC Penney. Solid Woven Hooded Jacket. whereby the former would furnish from abroad raw materials to be manufactured by the latter into finished products. . a. Style 45712 (S/44759).S. . the factual antecedents are: 1. . and Mavest Manila Liaison Office] entered into a series of transactions with [respondent] Sampaguita Garment Corporation. . . . [petitioners Mavest U. 57 due to the damages and losses it (sic) incurred as a result of the breaches committed in the previous shipments to Sears Roebuck.999. former General Manager of MLO]. Cotton Woven Pants (Styles DJ-1 BR and DJ-1 XT x x x at $3. [petitioners and their codefendants] alleged that they also suffered losses on account of delays in the JC Penney shipments. The orders of Sears Roebuck were duly paid in full by way of letter of credit. 45714.00 with damages [before the Regional Trial Court at 7. 33303. 1990. amounting to US$34. DJ-1 BR and DJ-1 XT) were upon the orders of JC Penney. The damages and losses refer to: i) failure to observe specifications and quantity requirements. In their Answer with Counterclaim filed on June 21. 4. On April 27. 799.while Styles (7511.Makati City against the herein petitioners and two (2) others. 1990. 5. 45715) were upon the orders of Sears Roebuck .200. iii) over declaration of value in Style No.00 were not covered by a letter of credit. no payment was made. Moreover. 3.65 per piece or a total of $29. [petitioners and their two co-defendants] countered that plaintiff [Sampaguita Garment Corporation] has already been paid by virtue of legal compensation.. iv) shortshipment of garments. LTD and Patrick Wang. mode and date of delivery. The JC Penney orders consisting of 8. MAVEST International Co. and that it is plaintiff which owes defendants US5. as well as the quantity.200. Styles (33303. 45712.57.000 pcs. . ii) delay in shipping out the garments. [respondent] filed a complaint for collection of a sum of money amounting to US$29. 6. Despite shipment and receipt by JC Penney of said orders. namely. v) failure to return raw materials for the unshipped garments. thus prompting [respondent] to send demand letters which remained unheeded. On September 9. 9. 2.00 and which were delivered to JC Penney Corporation of California.47. On August 6. 11. 45712. After a protracted trial that lasted for four (4) years. the trial court rendered judgment in favor of herein respondent. underscoring and italicization ours). [defendants] alleged that by virtue of legal compensation.200. thus: . That the total costs of the goods remained unpaid. (Words in bracket. the consignee. . That the defendant(s) ordered from plaintiff an aggregate volume of 8. 7511 and SZ-217 were airshipped after inspection and acceptance and upon the instruction of defendant Mavest Intl. Corp.000 pieces Youngmens Cotton Woven Pants at US$29. That all the foregoing garments Style Nos. more or less. as evidenced by the following documents to be marked as plaintiffs exhibits xxx. plaintiff has already been paid as. During the pre-trial. as plaintiff and against the petitioners and their co-defendants. the parties came up with the following stipulation of facts: xxx xxx xxx 1.259. subject to the defense of compensation. in fact.8. 1993. In said Amended Answer with Counterclaim. a partial stipulation of facts duly signed by counsels of both parties was submitted. 1991. the defendant(s) denied that the goods were accepted by the consignee and that it was properly inspected by them. [petitioners and their co-defendants] filed an Amended Answer (To Conform To Evidence) with counterclaim . 45714. as further proposed by the plaintiff. . with the following statements: 22. it still owes defendants US$101. 45715. . 10. However. Dispositively. The attorneys fees and costs of suit are deleted. the appellate court modified that of the trial court in the sense that petitioners co-defendants were in effect released from any liability and the award of attorneys fees and costs of suit deleted.200. 2.00 or its equivalent in Philippine Pesos at the time of payment plus interest at the rate of six percent (6%) per annum from the time of filing of this complaint until fully paid as actual damages. in a decision[2] dated 10 December 1996. {Petitione r] Mavest-U. 2) WHEREFORE. the appealed decision in Civil Case No.00 or its equivalent in Philippine Pesos at the time of payment plus interest at the rate of six percent (6%) per annum from the time of filing of this complaint until fully paid as actual damages. as follows: 1) the amount of US$29.00 as and for attorneys fees. And. Therefrom. petitioners and their co-defendants a quo appealed to the Court of Appeals (CA) whereat their recourse was docketed as CA-G.200. and 3) costs of suit. and Patrick Wang is DISMISSED. Ltd.. judgment is hereby rendered in favor of plaintiff and against the defendants ordering the defendants jointly and severally to pay plaintiff. 90-1131 is AFFIRMED with the following MODIFICATIONS: 1. SO ORDERED. .000. the appellate courts decision reads: No costs. (Words in bracket ours)..R.WHEREFORE.S. 48232-CV./Mavest Manila Liaison Office is ordered to pay [respondent] the amount of US$29. 3. No. SO ORDERED. Inc. The complaint against defendants Mavest International Co. the amount of P300.A. petitioners are now with us via the instant recourse.Undaunted. contending that the appellate court erred I IN AFFIRMING THE TRIAL COURTS DECISION THAT LEGAL COMPENSATION DOES NOT APPLY IN THIS CASE. . [4] as opposed to conventional or voluntary compensation which occurs when the parties agree to the mutual extinguishment of their credits or to compensate their mutual obligations even in the absence of some of the legal requisites. V IN RULING THAT PETITIONERS ARE LIABLE TO PAY RESPONDENT ACTUAL DAMAGES IN THE AMOUNT OF US$29. III IN NOT ACCORDING PROBATIVE VALUE TO THE EVIDENCE SUPPORTING PETITIONERS DAMAGE. missed delivery dates and incurred delay in the shipment of certain goods. IV IN HOLDING THAT MAVEST LIAISON OFFICE IS SOLIDARILY LIABLE WITH MAVEST USA.00 claimed by respondent for garments delivered to J.II IN APPLYING ARTICLE 1719 OF THE NEW CIVIL CODE AS SUPPORT TO THE TRIAL COURTS FINDING THAT PETITIONERS ACCEPTED THE FINISHED GARMENTS WITHOUT PROTEST AND IN NOT CONSIDERING THE SAME AS AN EXERCISE TO MITIGATE DAMAGE. Penney is compensable and has in fact been compensated by the damages/losses petitioners suffered from previous transactions involving deliveries to Sears Roebuck.200. We are not persuaded. with respect to the Sears Roebuckshipment. INC. inter alia failed to observe the specifications and quantity requirements.00 OR ITS EQUIVALENT IN PHILIPPINES PESOS AT THE TIME OF PAYMENT PLUS INTEREST AT THE RATE OF SIX PERCENT (6%) PER ANNUM FROM THE TIME OF FILING OF THE COMPLAINT UNTIL FULLY PAID AND IN NOT HOLDING RESPONDENT LIABLE TO PAY PETITIONERS.[5] . second and fifth assigned errors converged on petitioners main submission that the amount of US$29. are creditors and debtors of each other. in their own right. the Civil Code lists compensation as one of the modes of extinguishing the obligations of persons who. The interrelated first. petitioners assert that respondent.200.C. petitioners argue that the unpaid amount due respondent has thereby been extinguished by reason of legal compensation. Concededly.. Upon this postulate. Expounding. Legal compensation takes place ipso jure when all the requisites of law are present.[3] Compensation may be legal or conventional. petitioners failed to establish respondents purported liability to them which would have then set the automatic operation of legal compensation in motion. the money value of the damages/losses they incurred respecting the previous shipments to Sears Roebuck.000 pieces of young mens cotton woven pants at US$3. general manager of Mavest Manila Liaison Office. on one hand. on the other. 1990. On February 15. compensation presupposes two persons who. requires the confluence in the parties of the characters of mutual debtors and creditors. It pointed to the fact that petitioners. arose out of respondents alleged failure to observe specifications and quantity requirements. they add.200.00.00.999. are mutually indebted to each other respecting equally demandable and liquidated obligations over any of which no retention or controversy commenced and communicated in due time to the debtor exists.[7] With the view we take of this controversy. . Said the appellate court. The appellate court delved on the reason why legal compensation does not obtain herein. petitioners unyielding stance is that respondent is indebted to them to the liquidated tune of US$34. need not spring from one and the same contract or transaction. That the defendant ordered from plaintiff an aggregate volume of 8. Not to be overlooked on the acknowledgment-ofdebt angle is what the parties stipulated during the pretrial conference before the trial court.65 per piece or a total amount of US$29. be it legal or conventional. subject to the defense of compensation. the consignee. their rights as such creditors.57. are not mutually bound as creditors and debtors. in their own right and as principals.200. legal compensation could not have occurred in this case. As correctly found by the Court of Appeals. it was only the petitioners debt to the respondent that had been rightfully established. quoting with approval the trial courts decision: It is likewise observed that [petitioners] had acknowledged their obligation to [respondent] in the amount of US$29. The same court added the observation that petitioners even acknowledged their obligation to respondent in the amount of US$29. As may be recalled. defendant Patrick Wang. 2.200. At its minimum. wrote [respondent] stating that they would not want to give the impression that we are holding the payment for DJ-1 Twill Pants. These damages/losses.200.[8] In contrast.00. That the total cost of the goods remains unpaid. (Words in bracket ours).For compensation to validly take place. or their obligations as such debtors. x x x We honor our word that we will issue corresponding check valued at US$29. the governing Civil Code provisions[6] require the concurrence of welldefined conditions.00 and which were delivered to JC Penney Corporation of California. and respondent. But while compensation. short shipment and delay in shipment. to wit: 1. however. . particularly their having paid in full for such shipments. as evidenced by the following documents to be marked as plaintiffs exhibits. That all the foregoing garments Style Nos. on previously delivered goods covered by different [POs]. in the stipulation of facts signed by counsels of both parties. these [POs] had been completely settled and paid before this case was instituted. upon acceptance of the garments. petitioners appeared not to have objected to the quality or quantity of the work done by respondent or to the production or delivery schedule it observed. appeared to have kept silent. as found by the appellate court. expected to recognize the same. 45712. It cannot be overemphasized. that. All goods were properly inspected by the defendants and/or the defendants buyers. Aptly wrote the Court of Appeals in this regard: Defendants [petitioners] base their defense of compensation.and other breaches of contract. thus. however. However. by his special knowledge. In fact. It was also established that defendants accepted those deliveries made without any qualification. the consummation of the contract with respect to the goods accepted.. their actuations relative to theSears Roebuck shipments. and (2) the employer expressly reserves his right against the contractor by reason of hidden defects. to wit: (1) the defect is hidden and the employer is not. protest or challenge. 7511 and SZ 217 were airshipped after inspection and acceptance and upon the instruction of defendant Mavest Intl Corp. expressly reserve the right to take such action as may be appropriate against respondent. xxx. Neither did they. if any. argue against the notion of respondent reneging on its faithful part of the bargain. with respect to defects. In fact. Sadly. as in set-off. 45714. Therefore. Article 1719 of the Civil Code admits of two (2) exceptions to the rule that acceptance relieves the contractor of liability for any defect in the work. it is even acknowledged 22. The acceptance of the goods by defendants buyers . petitioners.. 45715. the defendants cannot now claim compensation for the damages they allegedly incurred for the plaintiffs allegedly incurred (Underscoring and words in bracket added] It may be that petitioners acceptance of the goods delivered does not preclude them from subsequently raising objections about the existence of hidden defects in the finished and delivered products of respondent. is an indication that they were satisfied with the goods delivered. [9] (Emphasis supplied) . Quite the contrary. The defendants never informed plaintiff [respondent] that they had suffered any loss with respect to the previous shipments sent to their buyers. in the manufactured clothes which were not discoverable upon a casual examination thereof. . these causes stemmed from respondents failure to meet specifications and quantity standards. they did not deny owing respondent the amount of US$29. the burden of proof is on the defendant if he alleges. there can be no valid set-off. the factual conclusion . Such issue.200. if established. namely. In short.e. evidence which is of greater weight. is that that petitioners evidence. For.200. On their third assigned error. an avoidance of the claim. as the case may be. the plaintiff already has because of the defendants own admissions in the pleadings. What they averred was that their obligation to pay was deemed extinguished because of legal compensation.shipment. failed to sufficiently establish. under the premises. [13] The categorical conclusion of the Court of Appeals. delay in shipment.[15] As nothing in the record indicates any of such exceptions.. confirmatory of that of the trial court. As earlier mentioned. petitioners still owe respondent the amount of US$29. but is one which. is contextually beyond the purview of the Courts reviewing power.[14] except for the most compelling and well-defined cogent reasons. which prima facie.[11] [10] Petitioners defense in this case is doubtless affirmative in character. an affirmative defense. under . over declaration of value in Style 33303 and its failure to return raw materials from unshipped garments. which is not a denial of an essential ingredient in the plaintiffs cause of action.e. by the required quantum of evidence. They also maintained having incurred losses and damages due to respondents actions or inaction. assigns the burden of proof upon the party who alleges the truth of his claim or defense. or more convincing than that which is offered in opposition to it. we rule without hesitancy that what petitioners take as losses and damages incurred while transacting with respondent cannot plausibly be categorized as respondents compensable debt to them. he must discharge by the amount of evidence required by law. albeit numerous. in his answer. In civil cases. of legal compensation. As it were..00.00. And since the parties are not mutually creditors and debtors of each other. [12] i. the burden is on them to prove their averments by the quantum of proof required in civil cases. or any fact in issue. petitioners fault the appellate court for not giving probative value to their evidence in support of their claim for damages. it is not the function of this Court to analyze or weigh all over again the evidence or premises supportive of such factual determination. To the appellate court. It is evident that the issue tendered under petitioners third assignment of error relates to the correctness of the Court of Appeals factual determination as to whether or not they incurred losses/damages as a result of what they regard as contractual breaches committed by respondent in the shipment of garments to meet Sears Roebuck job orders. Because these are allegations in petitioners pleadings. Section 1. And this. will be a good defense i. preponderance of evidence. Rule 131 of the Rules of Court. what petitioners adduced could not support a solid inference that respondent should be held liable for the damages and losses they allegedly sustained that would justify the application.Given the foregoing perspective. however. the underlying causes of their losses/ damages which they alleged to be respondents doing. . it must be executed strictly according to its tenor.: When the dispositive portion of a judgment is clear and unequivocal. Respondent. VICENTE D. In holding MLO solidarily liable with Mavest U.of the appellate court that petitioners evidence did not adequately support their claim for damages must be affirmed. 1990. MILLORA. Millora (Vicente) obtained a loan of P400. This Petition for Review on Certiorari1 assails the Decision2 dated May 19. Jesus M. Factual Antecedents On July 24. and Mr. MLO can be charged for the liabilities incurred by Mavest U. As it were. DECISION DEL CASTILLO. MONTEMAYOR. 2011 JESUS M.A. a firm organized under the laws of Taiwan. while adjudged liable in solidum with the petitioners by the trial court.A.000.A. 81075. respondent Atty. Ltd. the instant petition is DENIED and the assailed decision of the Court of Appeals AFFIRMED in toto. a former manager of MICL and MLO. (MICL). 20023 and October 2.S.R. WHEREFORE. Petitioners were two (2) of the original four (4) defendants impleaded in the basic complaint.A and the extension office of both Mavest U. should not be held solidarily liable with the principal. In their fourth assigned error.A. and MILC.S. Mavest U. Mavest U. Both MICL and Mr. The Court of Appeals holding commends itself for concurrence. being merely an agent of Mavest U. J. SP No.S.S. the other two (2) being Mavest International Co. Q-93-17255. G. which dismissed the petition for certiorari seeking to annul and set aside the Orders dated September 6. No.S. Branch 98 in Civil Case No. as did the appellate court. the appellate court proceeded on the postulate that MLO is the liaison office of Mavest U. 168251 July 27. And if MLO can be so charged. appears to have constituted MLO as its representative and its fully subsidized extension office in the Philippines. petitioners submits that Mavest Manila Liaison Office (MLO).A. Patrick Wang. there is no rhyme nor reason why it cannot be adjudged. Montemayor (Jesus) as evidenced by a promissory . in the country. 2005 of the Court of Appeals (CA) in CA-G. Vicente D. Petitioner.A.S. 20034 of the Regional Trial Court (RTC) of Quezon City. vs.00 from petitioner Dr. As such.R. as solidarily liable with head office. were eventually absolved from any liability by the Court of Appeals. Wang..S. 00 plus interest of 12% from the time of the filing of the complaint on August 17. on August 17. 1999. 2000.note5executed by Vicente. the trial court found merit in Vicente’s counterclaim and thus ordered Jesus to pay Vicente his attorney’s fees which is equivalent to the amount of Vicente’s monetary liability.000. Vicente was supposed to pay P42.5% or P10.00 a month. 2000. Subsequently and with Vicente’s consent.500. premises above-considered [sic]. 2000.00. In an Order16 dated June 23. 1991.000. Vicente claimed that he handled several cases for Jesus but he was summarily dismissed from handling them when the instant complaint for sum of money was filed. viz: WHEREFORE.00 with interest at the rate of 12% per annum counted from the filing of the instant complaint on August 17. 1990. the RTC ordered Vicente to pay Jesus his monetary obligation amounting to P300. SO ORDERED. 1993.000. the interest rate was increased to 3.00. From March 24. Vicente filed a Motion for Reconsideration12 to which Jesus filed an Opposition. Vicente filed a Motion for the Issuance of a Writ of Execution14 with respect to the portion of the RTC Decision which awarded him attorney’s fees under his counterclaim. Millora to pay plaintiff Jesus M.000. the RTC denied Vicente’s Motion for Reconsideration but granted his . Thus. 1991 to July 23. On August 10.11 On December 8. and which shall be set-off with the amount Vicente is adjudged to pay Jesus.13 On March 15. the parties executed a loan contract6 wherein it was provided that the loan has a stipulated monthly interest of 2% and that Vicente had already paid the amount of P100.000. On October 19.00 as well as the P8. or for a period of four months. This was the last payment Vicente made. Jesus filed before the RTC of Quezon City a Complaint8 for Sum of Money against Vicente which was docketed as Civil Case No. At the same time. JUDGMENT is hereby rendered ordering defendant Vicente D. No pronouncement as to attorney’s fees and costs of suit.00 as interest but was able to pay only P24. Ruling of the Regional Trial Court In its Decision10 dated October 27. Jesus filed his Urgent Opposition to Defendant’s Motion for the Issuance of a Writ of Execution15 dated May 31. 1990. Q-9317255. Montemayor the sum of P300. 1999. Jesus made several demands7 for Vicente to settle his obligation but to no avail. Vicente filed his Answer9interposing a counterclaim for attorney’s fees of not less than P500. 1993 until fully paid and whatever amount recoverable from defendant shall be set off by an equivalent amount awarded by the court on the counterclaim representing attorney’s fees of defendant on the basis of "quantum meruit" for legal services previously rendered to plaintiff.00 representing the interest for the period July 24 to August 23.000.000. 1993 until fully paid. 1993. the RTC issued an Order22dated September 6.21 After the hearing on the said motions. as well as the orders of September 6. 2000 a Motion for Reconsideration and Clarification20 of the June 23.23 Rule 15 of the Rules of Court and likewise the Motion for the Issuance of a Writ of Execution. 2002 and October 2. Jesus is now before this Court via a Petition for Review on Certiorari under Rule 45 of the Rules of Court.28 Not satisfied. 2002 but this was eventually denied by the trial court through its Order26 dated October 2. Vicente filed on July 6. 1999 Decision considering that same does fix the amount of attorney’s fees. the petition for certiorari is DENIED and the assailed Orders areAFFIRMED in toto. the legal issue to be resolved in this case is whether x x x [DESPITE] the absence of a specific amount in the decision representing respondent’s counterclaim. Jesus filed on July 12. Thereafter. 2003. 2000 a Notice of Appeal. Jesus filed on September 22. 2000 on the ground that the Decision has already become final and executory on July 1.29 Petitioner’s Arguments Jesus contends that the trial court grievously erred in ordering the implementation of the RTC’s October 27.000. Issue notwithstanding the finality of the trial court’s decision of October 27. 1999. Jesus went to the CA via a Petition for Certiorari27 under Rule 65 of the Rules of Court. 1993 until fully paid. SO ORDERED. The Motion for Reconsideration and Clarification was denied for violating Section 5. the CA issued its Decision the dispositive portion of which provides: Meanwhile. According to Jesus. 2005.00 with interest at the rate of 12% per annum counted from the filing of the complaint on August 17. 2000 his Motion for the Issuance of a Writ of Execution.19 On May 19. such disposition leaves the matter of computation of the .Motion for Issuance of a Writ of Execution of the portion of the decision concerning the award of attorney’s fees. 2003.24 Rule 15 of the same Rules. Intending to appeal the portion of the RTC Decision which declared him liable to Jesus for the sum of P300. Ruling of the Court of Appeals WHEREFORE. for violating Section 6. 2000 Order granting Vicente’s Motion for the Issuance of a Writ of Execution.17 This was however denied by the RTC in an Order18 dated July 10. the foregoing considered. No costs. Jesus filed his Motion for Reconsideration25 thereto on October 10. 2002 denying both motions for lack of merit. 2000. the same could be validly [offset] against the specific amount of award mentioned in the decision in favor of the petitioner. it was Vicente who actually filed a motion for reconsideration and a notice of appeal. The doctrine of finality of judgment is explained in Gallardo-Corro v. otherwise. Just as the losing party has the right to file an appeal within the prescribed period. In fact. the judgments or orders of courts must become final at some definite time fixed by law. the Court loses its jurisdiction to amend. Except for correction of clerical errors or the making . revision. and regardless of whether the modification is attempted to be made by the court rendering it or by the highest court of the land. it can no longer be the subject of an appeal. hence. Our Ruling The petition lacks merit. modify or alter the same. even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law. 1999 Decision of the RTC is already final and executory. 1999 Decision of the RTC is already final and executory. either by way of an appeal or by way of a special civil action for certiorari because it had already attained finality when after its promulgation. It may no longer be modified in any respect. it should be stressed that the October 27. well-settled is the rule that a decision that has attained finality can no longer be modified even if the modification is meant to correct erroneous conclusions of fact or law. Jesus points out that not even the Sheriff who will implement said Decision can compute the judgment awards. Gallardo:30 Nothing is more settled in law than that once a judgment attains finality it thereby becomes immutable and unalterable. hence. the October 27. Jesus is bound by the decision and can no longer impugn the same. a sheriff is not clothed with the authority to render judicial functions such as the computation of specific amounts of judgment awards.31 To stress. Besides. At the outset. Upon finality of the judgment. Respondent’s Arguments Vicente counter-argues that the October 27. thus setting to naught the main role of courts of justice which is to assist in the enforcement of the rule of law and the maintenance of peace and order by settling justiciable controversies with finality. amendment or reversal. Jesus did not even file a motion for reconsideration thereof or interpose an appeal thereto. at the risk of occasional errors. The doctrine of finality of judgment is grounded on fundamental considerations of public policy and sound practice. and that. there would be no end to litigations. 1999 RTC Decision can no longer be made subject of review. "Such definitive judgment is no longer subject to change. the winning party also has the correlative right to enjoy the finality of the resolution of his case. Indeed. The October 27.attorney’s fees uncertain and. immutable. which was eventually denied and disapproved by the trial court. Hence. the writ of execution cannot be implemented. Consequently. 1999 Decision of the RTC has already attained finality. In this regard. who has an unliquidated claim. Nor is it necessary that the credit appear in a final judgment in order that it can be considered as liquidated. (5) That over neither of them there be any retention or controversy. the two debts must be liquidated or ascertainable. they be of the same kind. "A debt is liquidated when its existence and amount are determined. Compensation shall take place when two persons. And a debt is considered liquidated. ARTICLE 1278. in their own right.. the trial court merely awarded to Vicente attorney’s fees based on quantum meruit without specifying the exact amount thereof."33 In Lao v. Del Rosario35 where we held that compensation takes place only if both obligations are liquidated. In order that compensation may be proper. and a judgment is rendered liquidating such claim. (3) That the two debts be due. He maintains that for offsetting to apply. quoted below. must be present. and that he be at the same time a principal creditor of the other. Hon. but also when the determination of the exact amount depends only on a simple arithmetical operation x x x.34 we ruled that: When the defendant. 1999 judgment of the RTC failed to specify the amount of attorney’s fees. We have restated this in Solinap v. The amount of attorney’s fees is ascertainable from the RTC Decision. or where the judgment is void. This is the principle of immutability of final judgment."32 (2) That both debts consist in a sum of money. it is enough that its exact amount is known.of nunc pro tuncentries which cause no prejudice to any party. the requirements set forth in Articles 1278 and 1279 of the Civil Code. It is not necessary that it be admitted by the debtor. . the judgment can neither be amended nor altered after it has become final and executory. Inc. commenced by third persons and communicated in due time to the debtor. compensation is possible. it is necessary: (1) That each one of the obligors be bound principally. are creditors and debtors of each other. (4) That they be liquidated and demandable. Jesus contends that offsetting cannot be made because the October 27. not only when it is expressed already in definite figures which do not require verification. For legal compensation to take place. Thus. We do not agree. it can be compensated against the plaintiff’s claim from the moment it is liquidated by judgment. and also of the same quality if the latter has been stated. sets it up by way of counterclaim. Special Plans. or if the things due are consumable. However. ARTICLE 1279. 000. Jesus. Romulo Reyes against plaintiff such as the falsification and libel cases and the disbarment case filed by plaintiff against Atty. The said attorney’s fees were awarded by the RTC on the counterclaim of Vicente on the basis of "quantum meruit" for the legal services he previously rendered to Jesus. Montemayor the sum of P300. 1993 until fully paid and whatever amount recoverable from defendant shall be set off by an equivalent amount awarded by the court on the counterclaim representing attorney’s fees of defendant on the basis of "quantum meruit" for legal services previously rendered to plaintiff. former Senior Provincial Board Member.00 with interest at the rate of 12% per annum counted from the filing of the instant complaint on August 17. on the other hand. the various cases filed by Atty. has the obligation to pay attorney’s fees which the RTC had already determined to be equivalent to whatever amount recoverable from Vicente. Vicente has the obligation to pay his debt due to Jesus in the amount of P300. Millora to pay plaintiff Jesus M. Bar topnotcher in 1957 bar examination. premises above-considered. .36 The above discussion in the RTC Decision was then immediately followed by the dispositive portion. More particularly in the Calamba. Aside from this contingent fee. 1993 until fully paid. Aside from these cases. on his counterclaim.In the instant case. Vice-Governor and Governor of the province of Pangasinan.000. 5).00 and his appearance fee at that time was x x xP2. plaintiff had made defendant his consultant on almost everything that involved legal opinions. For all his legal services rendered to plaintiff. The lawyer-client relationship between the parties was severed because of the instant case.000. the trial court elucidated on how Vicente had established his entitlement for attorney’s fees based on his counterclaim in this manner: Defendant. both obligations are liquidated. has established the existence of a lawyer-client relationship between him and plaintiff and this was admitted by the latter. plaintiff had agreed to pay defendant a contingent fee of 25% of the value of the property for the latter’s legal services as embodied in the Amended Complaint signed and verified by plaintiff (Exh.00 per appearance but still plaintiff paid nothing. defendant deserves to be compensated at least on a "quantum meruit" basis. viz: WHEREFORE.000. Defendant had represented plaintiff in several court cases which include the Laguna property case. The court is however fully aware of defendant’s stature in life – a UP law graduate. In its Decision. defendant had likewise told plaintiff that his usual acceptance fee for a case like the Laguna land case is P200. JUDGMENT is hereby rendered ordering defendant Vicente D. later as Assemblyman of the Batasang Pambansa and is considered a prominent trial lawyer since 1958.00 with interest at the rate of 12% per annum counted from the filing of the instant complaint on August 17. Laguna land case alone. Romulo Reyes before the Commission on Bar Integration. Therefore. there is nothing to execute and satisfy in favor of either of the herein protagonists because the said decision also states clearly that "whatever amount recoverable from defendant shall be SETOFF by an equivalent amount awarded by the Court on the counterclaim representing attorney’s fees of defendant on the basis of "quantum meruit" for legal services previously rendered to plaintiff" x x x. This is achieved by following the clear wordings of the above fallo of the RTC Decision which provides that Vicente is entitled to attorney’s fees which is equivalent to whatever amount recoverable from him by Jesus. if indeed there is any ambiguity in the .) It is therefore clear that in the execution of the RTC Decision.000. and vice versa because there is in fact a setting off of each other’s claims and liabilities under the said judgment which has long become final. The result thereof plus the principal of P300. In fact.00 is the total amount that Vicente must pay Jesus. Legal compensation or set-off then takes place between Jesus and Vicente and both parties are on even terms such that there is actually nothing left to execute and satisfy in favor of either party. The product is then multiplied by the number of years that had lapsed from the filing of the complaint on August 17. The principal amount of P300. 2002. still. there are two parts to be executed.38 (Emphasis in the original. Furthermore. It unequivocably ordered that any amount due in favor of plaintiff and against defendant is set off by an equivalent amount awarded to defendant in the form of counterclaims representing attorney’s fees for past legal services he rendered to plaintiff. viz: Notwithstanding the tenor of the said portion of the judgment. 1993 up to the date when the judgment is to be executed.) A reading of the dispositive portion of the RTC Decision would clearly show that no ambiguity of any kind exists. The second part is the payment of attorney’s fees to Vicente. the RTC.000. SO ORDERED.No pronouncement as to attorney’s fees and costs of suit. in addressing Jesus’ Motion for Reconsideration and Clarification dated July 12. 2000 had already succinctly explained this matter in its Order dated September 6. It will be an exercise in futility and a waste of so precious time and unnecessary effort to enforce satisfaction of the plaintiff’s claims against defendant. whatever amount due to Jesus as payment of Vicente’s debt is equivalent to the amount awarded to the latter as his attorney’s fees. This is achieved by doing a simple arithmetical operation at the time of execution. The first part is the computation of the amount due to Jesus.00 is to be multiplied by the interest rate of 12%. Said dispositive portion of the decision is free from any ambiguity.37 (Emphasis supplied. .R. Q-93-17255. TINGA. modification. Present: WHEREFORE. is hereby AFFIRMED. INC. SP No.. correction or alteration to an already final decision as it is conceded that such cannot be done anymore. SR. What the RTC simply did was to state in categorical terms what it obviously meant in its decision. FABRIGAS and G. FABRIGAS.dispositive portion as claimed by Jesus. This clarification is not an amendment. The assailed Decision of the Court of Appeals dated May 19. November 25. and CHICO-NAZARIO. that is.versus . J. any amount due in favor of Jesus and against Vicente is set off by an equivalent amount in the form of Vicente’s attorney’s fees for past legal services he rendered for Jesus. the instant Petition for Review on Certiorari is DENIED. No. 2003 of the Regional Trial Court of Quezon City. 2002 and October 2. Respondent. J. Petitioners. 2005 in CA-G. . Chairman. Suffice it to say that the dispositive portion of the decision is clear and unequivocal such that a reading of it can lead to no other conclusion.AUSTRIA-MARTINEZ. 81075 which dismissed the petition for certiorari seeking to annul and set aside the Orders dated September 6. PUNO.. Branch 98 in Civil Case No. 2002 by categorically stating that the attorney’s fees awarded in the counterclaim of Vicente is of an amount equivalent to whatever amount recoverable from him by Jesus. 152346 MARCELINA R. Promulgated: x ---------------------------------------------------------------------x DECISION TINGA. SAN FRANCISCO DEL MONTE. the RTC had already clarified it through its Order dated September 6.R. JJ.: . CALLEJO. 2005 ISAIAS F. the allegation appearing in its complaint and is therefore. Ordering defendant to make complete payment under the conditions of Contract to Sell No. which assails the Decision of the Court of Appeals in CAG. Said Decisionaffirmed the Decision dated January 3. 3 of Subdivision Plan (LRC) Psd-50064 covered by Transfer Certificate of Title No. Considering. Branch 63.[1] The following factual antecedents are matters of record.R. That in the event that defendants chose to surrender possession of the property.Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure. . 2491-V dated January 21. 9 Block No. the Court is convinced that plaintiff has proven by preponderance of evidence. 90-2711 entitled San Francisco Del Monte.000. Isaias F. defendants and all persons claiming right of SO ORDERED. however. and in the event that defendant fail or refuse to observe the latter. and 4. entitled to the reliefs prayed for. 1994 of the Regional Trial Court (RTC). Ordering defendants to pay the costs of suit. described as Lot No. Inc.80 as unpaid installments on the land inclusive of interests. and to surrender possession thereof to plaintiff or any of its authorized representatives. 3. 1985. Ordering defendants to jointly and severally pay plaintiff the amount of P10. that defendants had already paid P78. within twenty days from receipt of this Decision. trial 2. the Court exercising its discretion. hereby renders judgment as follows: 1. 4980 (161653) T-1083 of the Registry of Deeds of Rizal. 45203 and its Resolution therein denying petitioners motion for reconsideration. Makati City in Civil Case No. Fabrigas. The dispositive courts Decision reads: portion of the possession or occupation from defendants are ordered to vacate and leave the premises. v. In the light of the foregoing. CV No.223. Fabrigas and Marcelina R.00 as and for attorneys fees. they are further ordered to pay plaintiff P206.152.00. Spouses Fabrigas took possession of the property but failed to make any installment payments on the balance of the purchase price. and the PURCHASER hereby waives all right to ask or demand the return thereof and agrees to premises. within 30 days after the due date.[7] A few days thereafter.00. granting Spouses Fabrigas another grace period of fifteen days within which to pay the overdue amount and warned them that their failure to satisfy their obligation would cause the rescission of the contract and the forfeiture of the sums of money already paid. Del Monte considered Contract to Sell No. Should the PURCHASER fail to make any of the payments including interest as herein provided. 9.On April 23. Las Pias. Said property. 2482-V. 1985.000. which is known as Lot No. The agreement stipulated that Spouses Fabrigas shall pay P30. 1985. but did not furnish petitioners any notice regarding its cancellation.[6] On January 12. Said notice granted Spouses Fabrigas a fifteen-day grace period within which to settle their accounts. (Del Monte) entered into an agreement. 4980 (161653) T-1083 registered in the name of respondent Del Monte. Petitioners received Del Montes final demand letter on December 23. Petitioners failure to heed Del Montes demands prompted the latter to send a final demand letter dated December 7.69.200. herein petitioner spouses Isaias and Marcelina Fabrigas (Spouses Fabrigas or petitioners) and respondent San Francisco Del Monte.000. denominated as Contract to Sell No. covering the same property but under restructured terms of payment. Block No. Manila for and in consideration of the amount of P109.000. which states as follows: 7. Inc.000.[4] In particular. 1983. 1983 demanded the payment of arrears in the amount ofP8. is covered by Transfer Certificate of Title No. [2] Among the clauses in the contract is an automatic cancellation clause in case of default.00.[3] peaceably vacate the said After paying P30. 1983. petitioner Marcelina again remitted the amount of P12. whereby the latter agreed to sell to Spouses Fabrigas a parcel of residential land situated in Barrio Almanza.[5] On November 6. Del Monte sent demand letters on four occasions to remind Spouses Fabrigas to satisfy their contractual obligation.285. In the event of such forfeiture. all sums of money paid under this contract will be considered and treated as rentals for the use of said parcel of land.00 to Del Monte.00 as downpayment and the balance within ten (10) years in monthly successive installments ofP1. petitioner Marcelina and Del Monte entered into another agreement denominated as Contract to Sell No. the parties agreed on a new purchase price . 1983.00. 3 of Subdivision Plan (LRC) Psd-50064. this contract will be deemed and considered as forfeited and annulled without necessity of notice to the PURCHASER. 1984. Under the second contract. 2491-V.00. petitioner Marcelina Fabrigas (petitioner Marcelina) remitted the amount of P13. 2482V cancelled fifteen days thereafter. Del Montes third letter dated November 9. and said SELLER shall be at liberty to dispose of the said parcel of land to any other person in the same manner as if this contract had never been executed. or on January 21.999. 80 plus interest of 24% per annum.00 September 30.00 June 6. which materially and unjustly altered the terms and conditions of the original contract. 000. Branch 63 of Makati City. 000. 2482-V had been cancelled and demanded that petitioners vacate the property. Del Monte required petitioners to satisfy said amount immediately in two subsequent letters dated March 5 and April 2. 000. Spouses Fabrigas made irregular payments under Contract to Sell No. 1985 P2. 1986.00 November 27. informing petitioners of their overdue account equivalent to nine (9) installments or a total amount of P26. 1985 P2. 2491-V.642.52 July 2. 1985 P2. 000.00 July 14. representing the payments made under the restructured contract.861.60 less P48.40.00 April 9. Del Monte instituted an action for Recovery of Possession with Damages against Spouses Fabrigas before the RTC. 000. to wit: March 19. 1988.984. 2482-V which had already been previously cancelled. 1986 P2. 1986 P2. On March 24.00 March 10.[8] Between March 1985 and January 1986.ofP131. 1989 that Contract to Sell No. 2491-V in the amount of P165. Spouses Fabrigas claimed. 1986 P2.52 as downpayment and the balance to be paid in monthly installments of P2. 1990. or the net amount of P117. 600. 1986 P2.08. 1986 P2. [10] This prompted petitioners to pay the following amounts: February 3.00[9] Del Monte sent a demand letter dated February 3.328. 1986 P2.00 January 20. 1985 P1.128.00 May 13. Del Monte sent a letter demanding the payment of accrued installments under Contract to Sell No.60 each. 1986 P2.00 which petitioners tendered sometime in October 1987 but which Del Monte refused to accept. 328.[12] On September 28. For failure to pay. that Del Monte unilaterally cancelled the first contract and forced petitioner Marcelina to execute the second contract. 600.52. among others. 600. In their answer.223. 1986. Del Monte allowed petitioners a grace period of thirty (30) days within which to pay the amount asked to avoid rescission of the contract.58.[13] . the latter claiming that the payment was intended for the satisfaction of Contract to Sell No. 000.631. Del Monte notified petitioners on March 30.000. The complaint alleged that Spouses Fabrigas owed Del Monte the principal amount of P206. the amount of P26. 000.759.00[11] No other payments were made by petitioners except the amount of P10. 2491-V. the trial court rendered a Decision on January 3. [15] According to petitioners. THE COURT OF APPEALS ERRED IN ITS APPLICATION OF THE RULES OF NOVATION TO THE INSTANT CASE. 2482-V was rescinded. Spouses Fabrigas elevated the matter to the Court of Appeals. 1994. Hence. 2482-V instead and nullified Contract to Sell No. 2491-V. 2482V should remain valid and subsisting because the notice of cancellation sent by Del Monte did not observe the requisites under Section 3 of R. While the Court of Appeals declared Contract to Sell No. the instant petition attributing following errors to the Court of Appeals: A. C. The Court of Appeals rejected this argument on the ground that Contract to Sell No. are petitioners liable for breach under the subsequent agreement? the Petitioners theorize that Contract to Sell No. Aggrieved.A. 2482-V extinguished through rescission or was it novated by the subsequent Contract to Sell No. 2482-V was subsequently novated by Contract to Sell No. B. it upheld its validity upon finding that the contract was subsequently ratified. THE COURT OF APPEALS GRAVELY ERRED WHEN IT IGNORED THE PROVISIONS OF R.[14] As reframed for better understanding. 2491-V? If Contract to Sell No.After trial on the merits. 2482-V. 2482-V and also did not pay them the cash surrender value of the payments on the property. 2491-V. since respondent did not send a notarial notice informing them of the cancellation or rescission of Contract to Sell No. arguing that the trial court should have upheld the validity and existence of Contract to Sell No. 6552. the questions are the following: Was Contract to Sell No. 2491-V as merely unenforceable for having been executed without petitioner Marcelinas signature. 2482-V had been rescinded pursuant to the automatic rescission clause therein. upholding the validity of Contract to Sell No. NO. 6552 (THE MACEDA LAW) AND RULED THAT CONTRACT TO SELL NO. 2491-V and ordering Spouses Fabrigas either to complete payments thereunder or to vacate the property. 2482-V WAS VALIDLY CANCELLED BY SENDING A MERE NOTICE TO THE PETITIONERS. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THERE WAS AN IMPLIED RATIFICATION OF CONTRACT TO SELL NO.) 6552? If Contract to Sell No. should the manner of rescission comply with the requirements of Republic Act No. Petitioners also cite Section 7[16] of said law to bolster their theory that . (R.A. the Court of Appeals erred in concluding that respondent correctly applied the automatic rescission clause of Contract to Sell No.A. by the confusion or merger of the rights of the creditor and debtor. with the requirement of notice of cancellation or a demand for rescission. 6552. by the condonation or remission of the debt. effective thirty (30) days from the buyers receipt thereof. 6552. however. 6552. 2482-Vis Section 4 and not Section 3 of R. In case where less than two years of installments were paid. They may be credited only with the amount of P30. the seller should extend the buyer a grace period of at least sixty (60) days from the due date of the installment. Given the nature of the contract between petitioners and Del Monte. would not suffice.A. It is worth mentioning. 2482-V.00 paid upon the execution of Contract to Sell No.A.[17] instead of applying the pertinent provisions of R.000. by the loss of the thing due. It reads: SECTION 4. short of a notarial act. obligations are also extinguished by payment or performance. by compensation. Ordinarily. the seller shall furnish the buyer with a notice of cancellation or demand for rescission through a notarial act.[20] . the automatic cancellation clause is void under Section 7[18] in relation to Section 4 of R. While the Court concedes that Del Monte had allowed petitioners a grace period longer than the minimum sixty (60)-day requirement under Section 4. If the buyer fails to pay the installments due at the expiration of the grace period. that a mere notice or letter. the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. to Del Montes position which the appellate court sustained. the cancellation of the contract under Section 4 is a two-step process. Section 4 is applicable to instances where less than two years installments were paid.[19] Rescission. it did not comply. the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. 2482-V is correct. Contrary. 2482-V is invalid for being contrary to law and public policy. of course. Del Monte applied the automatic rescission clause of the contract. Petitioners contention that none of Del Montes demand letters constituted a valid rescission of Contract to Sell No. Thus. is not the only mode of extinguishing obligations. First. of course. however. Second.the automatic rescission clause in Contract to Sell No. which should be deemed equivalent to less than two (2) years installments. Petitioners defaulted in all monthly installments. Instead. at the end of the grace period. The Court of Appeals erred in ruling that Del Monte was well within its right to cancel the contract by express grant of paragraph 7 without the need of notifying [petitioners].A. the applicable legal provision on the mode of cancellation of Contract to Sell No. or by novation. in its broad concept. 2491V accompanied an upward change in the contract price. 2482-V was subsequently novated byContract to Sell No. If they cannot.[21] Notwithstanding the improper rescission. the facts of the case show that Contract to Sell No. petitioners contend that the subsequent contract is void for two reasons: first. they are incompatible and the latter obligation novates the first. or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Since only petitioner Marcelina executedContract to Sell No. and (4) the birth of a valid new obligation. 2491-V. An extinctive novation results either by changing the object or principal conditions (objective or real). they agreed to the terms and conditions of Contract to Sell No. 2482-V. the upward change in price was the consideration for entering intoContract to Sell No. In entering into Contract to Sell No. may either be extinctive or modificatory. 2491-V. and second. On the part of petitioners.[22] The test of incompatibility is whether or not the two obligations can stand together. 2482-V. 2482-V by Contract to Sell No. which constitutes a change in the object or principal conditions of the contract. the other to substitute a new one in its placerequiring a conflux of four essential requisites: (1) a previous valid obligation. 2491-V not only to acquire ownership over the subject property but also to avoid the consequences of their default under Contract No. (3) the extinguishment of the old obligation. Said article states that the wife cannot bind the conjugal partnership without the husbands consent except in cases provided by law. novation would have dual functionsone to extinguish an existing obligation. the same is allegedly void. . the subsequent contract is a contract of adhesion. Petitioner rely on Article 172 of the Civil Code governing their property relations as spouses. 2491V created new obligations in lieu of those under Contract to Sell No. 2491-V. or that the old and the new obligations be on every point incompatible with each other. petitioners conclude. which are already considered extinguished upon the execution of the second contract. In order that an obligation may be extinguished by another which substitutes the same. To dispel the novation of Contract to Sell No. The execution of Contract to Sell No. each one having its independent existence. 2491-V. it is imperative that it be so declared in unequivocal terms. it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. Under this mode.Novation. (2) an agreement of all parties concerned to a new contract. petitioner Isaias Fabrigas did not give his consent thereto. On Del Montes end. The two contracts do not have independent existence for to hold otherwise would present an absurd situation where the parties would be liable under each contract having only one subject matter. 2491-V. the parties were impelled by causes different from those obtaining under Contract to Sell No. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former.[23] The execution of Contract to Sell No. 2482-V. or is under civil interdiction or is confined in a leprosarium. The wife may. In case of abuse of powers of administration of the conjugal partnership property by the husband. on petition of the wife. administer the conjugal partnership property. Justice Abad Santos. the Court anchored its ruling on Article 173 of the Civil Code which states that contracts entered by the husband without the consent of the wife when such consent is required. In Felipe v.[31] ARTICLE 167. The defect which Contract to Sell No. who was out of the country at the time of the execution of the contract. differs from that in Felipe. are annullable at her instance during the marriage and within ten years from the transaction mentioned. 2491-V suffers from is lack of consent of the husband. however. or separation of property. as in the case at bar. by express authority of the husband embodied in a public instrument. there is no comparable provision covering an instance where the wife alone has consented to a contract involving conjugal property.[25] Conversely. the husband cannot alienate or encumber any real property of the conjugal partnership without the wife's consent. Heirs of Maximo Aldon. though. however. The following Civil Code provisions. However. It is also not one of the contracts considered as void under Article 1409[28] of the Civil Code. [24] Unless the wife has been declared a non compos mentis or a spendthrift. is it automatically void for that reason alone? The factual milieu of the instant case.[30] In that case.[29] the Court had the occasion to rule on the validity of a sale of lands belonging to the conjugal partnership made by the wife without the consent of the husband. The spouses. . if a contract entered into by one spouse involving a conjugal property lacks the consent of the other spouse.Under the Civil Code. Article 172 of the Civil Code. There is no express provision in the Civil Code governing a situation where the husband is absent and his absence incapacitates him from administering the conjugal partnership property. ARTICLE 168. the courts. are illuminating: Article 173[27] of the Civil Code expressly classifies a contract executed by the husband without the consent of the wife as merely annullable at the instance of the wife. Speaking through Mr. or administration by the wife. the Court declared such a contract as voidable because one of the parties is incapable of giving consent to the contract. the wife cannot bind the conjugal partnership without the husbands consent except in cases provided by law.[26] capacity to give consent belonged not even to the husband alone but to both Thus. the husband is the administrator of the conjugal partnership. may provide for receivership. does not expressly declare as void a contract entered by the wife without the husbands consent. although she had to sign contract No. Parties who enter into such contracts are free to reject the stipulations entirely. to avoid forfeiture of her downpayment.[34] . In the abovementioned instances. any transaction entered by the wife without the court or the husbands authority is unenforceable in accordance with Article 1317[32] of the Civil Code. . At most. 2491-V. 2491-V is a contract of adhesion. Such contracts are not void in themselves. The factual findings of the courts below are beyond review at this stage. 2491-V. Being an unenforceable contract. continued remitting payments for the satisfaction of the obligation under Contract to Sell No. [33] The Court quotes with approval the following factual observations of the trial court. There was no clear case of intimidation or threat on the part of plaintiff in offering the new contract to her. by express authority of the husband appearing in a public instrument.ARTICLE 169. suffice it to say that assuming for the nonce that the contract is such the characterization does not automatically render it void. That is the status to be accorded Contract to Sell No. A contract of adhesion is so-called because its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto. The wife may also. administer the latter's estate. the husband. which cannot be disturbed in this case. 2491-V is susceptible to ratification. While the husband is the recognized administrator of the conjugal property under the Civil Code. Such ratification cleanses the contract from all its defects from the moment it was constituted. was entirely free to refuse to accept the new contract. Marcelina Fabrigas. the wife must be expressly authorized by the husband or seek judicial authority to assume powers of administration. . These acts constitute ratification of the contract. 2491-V is taken to be valid and binding. 2491-V. 2491-V. and her other monthly amortizations. As found by the courts below. Where the husband is absent and incapable of administering the conjugal property. it having been executed by petitioner Marcelina without her husbands conformity. They are as binding as ordinary contracts. Contract to Sell No. there are instances when the wife may assume administrative powers or ask for the separation of property. to wit: The Court notes that defendant. Thus. the wife must be authorized either by the court or by the husband. . The fact that she has paid monthly amortizations subsequent to the execution of Contract to Sell No. since she was of sufficient intelligence to discern the agreement she is entering into. is an indication that she had recognized the validity of such contract. petitioner Isaias Fabrigas. her signing of Contract No. after being informed of the execution of the contract. Anent Del Montes claim that Contract to Sell No. 2001 Decision[2] and the June 26.[4] The challenged Resolution.The Case In sum. as it hereby is. THUS. LLAMAS. Petitioner herein fails to show either requirement convincingly. 2001 Decision of the Court of Appeals in CA-G. GARCIA. 2491-V is valid and binding. vs. Docketed as Civil Case No. J. CV No. subject to the modification that the award for attorneys fees and cost of suit is DELETED. denied petitioners Motion for Reconsideration.R. 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. Costs against petitioners. 60521.: Novation cannot be presumed. DIONISIO V.] . respondent. hence. Accordingly. WHEREFORE. petitioner. the complaint alleged that on 23 December 1996[. seeking to nullify the November 26. DECISION PANGANIBAN. The Antecedents The antecedents of the case are narrated by the CA as follows: This case started out as a complaint for sum of money and damages by x x x [Respondent] Dionisio Llamas against x x x [Petitioner] Romeo Garcia and Eduardo de Jesus. on the other hand. Before us is a Petition for Review [1] under Rule 45 of the Rules of Court. the instant Petition for Review is DENIED and the September 28. the summary judgment holding him liable as a joint and solidary debtor stands. the judgment appealed from. It must be clearly shown either by the express assent of the parties or by the complete incompatibility between the old and the new agreements. The appellate court disposed as follows: UPON THE VIEW WE TAKE OF THIS CASE. the case against x x x Eduardo de Jesus is REMANDED to the court of origin for purposes of receiving ex parte [Respondent] Dionisio Llamas evidence against x x x Eduardo de Jesus. The portion of the judgment that pertains to x x x Eduardo de Jesus is SET ASIDE and VACATED. Q97-32-873. AFFIRMED. ROMEO C. Contract to Sell No. There is nothing to prevent respondent Del Monte from enforcing its contractual stipulations and pursuing the proper court action to hold petitioners liable for their breach thereof. 45203 is AFFIRMED. insofar as it pertains to [Petitioner] Romeo Garcia. must be. Annexed to the reply were the face of the check and the reverse side thereof. and.00 [as] attorneys fees. [respondent] was compelled to engage the services of counsel to whom he agreed to pay 25% of the sum to be recovered from [petitioner and de Jesus]. x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the supposed P400.000. one Nits Llamas-Quijencio.00.000. that. received from the Central Police District Command at Bicutan. During the pre-trial conference.[petitioner and de Jesus] borrowed P400. [petitioner and de Jesus] have failed and refused to pay it. plus P1. For his part. [respondent] having agreed to accept the benefits he (de Jesus) would receive for his retirement. that he is relieved from any liability arising from the note inasmuch as the loan had been paid by x x x de Jesus by means of a check dated 17 April 1997. by reason of the[ir] unjustified refusal.000. that is.00 loan.000. for January and February 1997.00 as advance interest.000. Metro Manila (where x x x de Jesus worked). and still another P40. by [respondent] addressed to [petitioner and de Jesus]. Given this development. alternatively.000. [Petitioner Garcia. thereunder asserting that the loan remained unpaid for the reason that the check issued by x x x de Jesus bounced. and that [Petitioner] Garcias answer was not even accompanied by a certificate of non-forum shopping. dated 02 May 1997. and that. Neither did [Petitioner] Garcia file a pre-trial brief.000.00 for every appearance in court. plus P2.] he paid the sum of P120. the sum of P40. Resisting the complaint.] in fact[. he agreed to pay his counsel P20. [they] executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month. on the same day. he received only P360.00. that this was made when [respondents] daughter. and that. in any event. the issuance of the check and [respondents] acceptance thereof novated or superseded the note. the trial court gave [respondent] permission to present his . nor did they file any pre-trial brief. that he had difficulty in paying the loan and had asked [respondent] for an extension of time. [Respondent] tendered a reply to [Petitioner] Garcias answer. Taguig. but [respondent] nonetheless filed the instant case while his retirement was being processed. in defense of his rights. despite repeated demands. Annexed to the complaint were the promissory note abovementioned and a demand letter.] averred that he assumed no liability under the promissory note because he signed it merely as an accommodation party for x x x de Jesus. and his counsel even manifested that he would no [longer] present evidence.000.00 having been advance interest thereon for two months.000. that [respondent] acted in bad faith in instituting the case.000. x x x de Jesus and his lawyer did not appear. that[.00 for every court appearance.000. representing the peso equivalent of his accumulated leave credits. another P40.00 from [respondent]. that the loan has long been overdue and.] in his [Answer. the P40. and that.00 as interest for the months of March and April 1997.00 by way of interests. premises considered. to wit: 1) P400.had taken place when respondent accepted the check from De Jesus. 3) Cost of this suit.which had been intended to extinguish the obligation -. the [respondent] the following sums.express or implied -. Thus. who are hereby ordered to pay. as regards [Petitioner] Garcia. the trial court directed [respondent] to file a motion for judgment on the pleadings. the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case as follows: WHEREFORE. Subsequently. Respondents acceptance of the check did not serve to make De Jesus the sole debtor because.evidence ex parte against x x x de Jesus.00 representing the principal amount plus 5% interest thereon per month from January 23. Meanwhile. his Answer raised genuinely contentious issues. he asserted that [petitioners and de Jesus] solidary liability under the promissory note cannot be any clearer. and for [Petitioner] Garcia to file his comment or opposition thereto.000.[6] Ruling of the Court of Appeals The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against De Jesus. the check was issued precisely to pay for the loan that was covered by the promissory note jointly and severally undertaken by petitioner and De Jesus. Moreover.00 representing interests already paid by x x x de Jesus. because his Answer had failed to raise even a single genuine issue regarding any material fact. Thereunder.00 for each day of [c]ourt appearance. [Petitioner] Garcia filed a [M]anifestation submitting his defense to a judgment on the pleadings. [respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on the pleadings. According to the appellate court. 1998. withdrawing in the process his previous motion. and that the check issued by de Jesus did not discharge the loan since the check bounced. 1997 until the same shall have been fully paid. judgment on the pleadings is hereby rendered in favor of [respondent] and against [petitioner and De Jesus]. . According to the CA. 2) P100. even though De Jesus had been declared in default. the CA treated his case as a summary judgment. he was still required to present his evidence ex parte. The appellate court ruled that no novation -. first. As to petitioner.000. [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to allow him to present his evidence ex parte. respondent was not ipso facto entitled to the RTC judgment. Instead.000.bounced upon its presentment. and.[5] On July 7. jointly and severally.00 as attorneys fees plus appearance fee of P2.000. the obligation incurred by him and petitioner was joint and several. and. less the amount of P120. the check -. second. The case against the latter was therefore remanded by the CA to the trial court for the ex parte reception of the formers evidence. and. [7] Issues Petitioner submits the following issues for our consideration: I Whether or not the Honorable Court of Appeals gravely erred in not holding that novation applies in the instant case as x x x Eduardo de Jesus had expressly assumed sole and exclusive liability for the loan obligation he obtained from x x x Respondent Dionisio Llamas.be it a judgment on the pleadings or a summary judgment -. d) The fact that Respondent Llamas agreed to the proposal of x x x de Jesus that due to financial difficulties.00 in favor of Respondent Llamas.000. as clearly evidenced by: a) Issuance by x x x de Jesus of a check in payment of the full amount of the loan of P400. and 3) whether the judgment against him -. as evidenced by the foregoing circumstances showing his assumption of sole liability over the loan obligation. this Petition. 2) whether the defense that petitioner was only an accommodation party had any basis.] b) Acceptance of the check by the x x x respondent x x x which resulted in [the] substitution by x x x de Jesus or [the superseding of] the promissory note. he be given an extension of time to pay his loan obligation and that his retirement benefits from the Philippine National Police will answer for said obligation.was proper. III Whether or not judgment on the pleadings or summary judgment was properly availed of by Respondent Llamas.000. although the check subsequently bounced[. the issues are the following: 1) whether there was novation of the obligation. despite the fact that the promissory note provided for a joint and solidary liability. c) x x x de Jesus having paid interests on the loan in the total amount of P120. II Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense of petitioner that he was merely an accommodation party.00.[8] Simply put. despite the fact that there are genuine issues of fact. which call for the presentation of evidence in a full-blown trial. . which the Honorable Court of Appeals itself admitted in its Decision. should have been given weight and credence considering that subsequent events showed that the principal obligor was in truth and in fact x x x de Jesus.Hence. by substituting a new debtor in place of the old one. who was his co-obligor. We now come to whether novation took place. the former argues that the original obligation was extinguished when the latter. In delegacion. The fallacy of the second (alternative) argument is all too apparent.and may even be made without the knowledge of -. since it consists of a third persons assumption of the obligation. the debtor offers. but not without the consent of the creditor. the initiative for the change does not come from -. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. [10] Article 1293 of the Civil Code defines novation as follows: In general.the debtor. or by substituting the person of the debtor or subrogating a third person to the rights of the creditor.[13] Whether extinctive or modificatory. there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion.[12] Novation may also be extinctive or modificatory. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. The check could not have extinguished the obligation. the main issue of Novation is a mode of extinguishing an obligation by changing its objects or principal obligations. In expromision. Novation which consists in substituting a new debtor in the place of the original one. a third person who consents to the substitution and assumes the obligation. 1293. it logically requires the consent of the third person and the creditor. an act known as subjective or . Alternatively. may be made even without the knowledge or against the will of the latter.The Courts Ruling Art. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. and the creditor accepts. [11] Both modes of substitution by the debtor require the consent of the creditor. because it bounced upon presentment. thus. or by subrogating a third person to the rights of the creditor. First Issue: Novation Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting that novation took place. As such. paid the loan with the check. novation is made either by changing the object or the principal conditions. The Petition has no merit. either through the substitution of De Jesus as sole debtor or the replacement of the promissory note by the check. referred to as objective or real novation. By law. the consent of these three persons are necessary.[9]the delivery of a check produces the effect of payment only when it is encashed. and on the other. was totally in accord with the terms thereof. and the third person or new debtor must assume [19] the formers place in the relation. or that the joint andsolidary obligation was cancelled and substituted by the solitary undertaking of De Jesus. There is no incompatibility between the promissory note and the check. that a third person was substituted in his place. Such payment was already provided for in the promissory note and. As the CA correctly observed. also constitutes novation[18] -. Verily. Also unmeritorious is petitioners argument that the obligation was novated by the substitution of debtors. 3) The old contract must be extinguished.[21] It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place. the 1) There must be a previous valid obligation. It therefore . Plaintiffs acceptance of the bum check did not result in substitution by de Jesus either. each one with its own independent existence.[20] Consequently. a creditor may demand payment or performance from one of the solidary debtors or some or all of them simultaneously.[14] For novation to following requisites must concur: take place. the nature of the obligation being solidary due to the fact that the promissory note expressly declared that the liability of appellants thereunder is joint and [solidary. the old one must be expressly released from the obligation. [16] The test of incompatibility is whether the two obligations can stand together. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished.change the terms and conditions of the obligation. On the one hand. 2) The parties concerned must agree to a new contract. In order to change the person of the debtor. Neither could the payment of interests -. the check had been issued precisely to answer for the obligation.personal novation. and payment made by one of them extinguishes the obligation. 4) There must be a valid new contract. or that the check would take the place of the note.[17] Applying the foregoing to the instant case. petitioner has not shown that he was expressly released from the obligation. we hold that no novation took place. It is implied when the new obligation is incompatible with the old one on every point.] Reason: under the law. The CA aptly held: x x x. in petitioners view. Well-settled is the rule that novation is never presumed. the two can stand together. the note evidences the loan obligation. the check answers for it. In the present case.[15] Novation may also be express or implied.which. The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check. like the check. that which arises from a purported change in the person of the debtor must be clear and express. LLAMAS.00 RECEIVED FROM ATTY. he was a joint and solidary obligor of the P400. the note was made payable to a specific person rather than to bearer or to order [31] -. The note reads: PROMISSORY NOTE P400. the creditor is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. because a joint and solidary obligor is required to pay the entirety of the obligation. petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an accommodation party. De Jesus was not a third person to the obligation. 144 K-10 St. such waiver must be express. From the beginning.000 loan.[26] It is up to the former to determine against whom to enforce collection.a requisite for negotiability under Act 2031. the sum of FOUR HUNDRED THOUSAND PESOS. with interest at the rate of 5% per month or fraction thereof. 1996. Done at Quezon City.follows that in case the creditor fails to collect from one of the solidary debtors. This reasoning is misplaced. x x x [22] Moreover. the law requires that the creditor expressly consent to the substitution of a new debtor. It is understood that our liability under this loan is jointly and severally [sic]. 1997 at No.Kamias. Metro Manila this 23rd day of December. as such. a non-negotiable note is merely a simple contract in writing and is evidence of such intangible rights as may have been created by the assent of the .[27] Having made himself jointly and severally liable with De Jesus. he was released as obligor when respondent agreed to extend the term of the obligation. It must be noted that in a solidary obligation. he may still proceed against the other or others. thus. DIONISIO V. it must be noted that for novation to be valid and legal. petitioner is therefore liable [28] for the entire obligation. [23] Since novationimplies a waiver of the right the creditor had before the novation. and that. Hence. Philippine Currency payable on or before January 23. that the present respondent has done away with his right to exact fulfillment from either of [25] the solidary debtors. More important. the Negotiable Instruments Law (NIL).000.[30] By its terms.[29] Second Issue: Accommodation Party Petitioner avers that he signed the promissory note merely as an accommodation party. without clear proof. he can be released from it only upon its extinguishment. because the note herein is not a negotiable instrument.[24] It cannot be supposed. Quezon City. Respondents acceptance of his check did not change the person of the debtor. Besides. The liability is immediate and direct. it must be stressed that the trial courts judgment against petitioner was correctly treated by the appellate court as a summary judgment. and that the obligation was extinguished by either payment or novation. still. However. in effect. at the time of its taking. the latter knew the former to be only an accommodation party. Even granting arguendo that the NIL was applicable. counterclaim or cross-claim. petitioner would be liable for the promissory note. not a genuine. issue regarding any material fact. these are not factual issues requiring trial.the accommodation party being the surety. The essential question is whether there are issues generated by the pleadings. not by the NIL. rather than as a judgment on the pleadings. under Section 1 of Rule 34 of the Rules of Court. Under Article 29 of Act 2031. a summary judgment may be rendered after a summary hearing if the pleadings.[35] Consequently.parties. an accommodation party is liable for the instrument to a holder for value even if.[34] Third Issue: Propriety of Summary Judgment or Judgment on the Pleadings The next issue illustrates the usual confusion between a judgment on the pleadings and a summary judgment.that he signed the promissory note allegedly as a mere accommodation party. a judgment on the pleadings is proper when an answer fails to render an issue or otherwise admits the material allegations of the adverse partys pleading. We quote with approval the CAs observations: . [39] Apropos thereto. or specific denials or affirmative defenses are set forth in the answer. His [40] Answer apparently raised several issues -. and (2) the moving party is entitled to a judgment as a matter of law. Under Section 3 of Rule 35 of the Rules of Court.[38] A judgment on the pleadings may be sought only by a claimant.[36] A summary judgment may be applied for by either a claimant or a defending party.[32] The promissory note is thus covered by the general provisions of the Civil Code. The relation between an accommodation party and the party accommodated is. one of principal and surety -. [33] It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissor and debtor from the beginning. supporting affidavits. facts are asserted in the complaint regarding which there is yet no admission. depositions and admissions on file show that (1) except as to the amount of damages. depositions or admissions. or to obtain a declaratory relief. there is no genuine issue regarding any material fact.[37] On the other hand. A summary judgment is a procedural device designed for the prompt disposition of actions in which the pleadings raise only a legal. who is the party seeking to recover upon a claim. disavowal or qualification. but the issues are fictitious as shown by the pleadings. 180144 Ynares-Santiago. J. C. the CA correctly considered as a summary judgment that which the trial court had issued against petitioner. Secondly. considering the allegations and admissions of the parties. and Azcuna. DECISION BRION.[42]he stated that judgment on the pleadings may now be rendered without further evidence. Dario J. Nothing in the note indicates that he was only an accommodation party as he claimed to be. JJ.J.[41] From the records. Sometime in September 1996. Costs against petitioner. In a written Manifestation. applied for and obtained a loan of Five Hundred Thousand Pesos .Although Garcias [A]nswer tendered some issues. the petitioner and his younger brother. 2007 decision2 and the October 15. Bognot (collectively referred to as the "Bognot siblings").R. Mr. vs. Petitioner. Rolando A.. Davide. G. this Petition is hereby DENIED and the assailed Decision AFFIRMED. It is duly represented by its General Manager. CV No. Firstly. No. DARIO J. Garcias claim that he was merely an accommodation party is belied by the promissory note that he signed..R. WHEREFORE. Background Facts RRI Lending Corporation (respondent) is an entity engaged in the business of lending money to its borrowers within Metro Manila. SO ORDERED. 2014 LEONARDO BOGNOT. September 24.: Before the Court is the petition for review on certiorari1 filed by Leonardo Bognot (petitioner) assailing the March 28. RRI LENDING CORPORATION. by way of affirmative defenses. (Chairman).. Respondent. it also appears that petitioner himself moved to submit the case for judgment on the basis of the pleadings and documents.[43] In view of the foregoing. Carpio. Quite the contrary. the documents submitted by [respondent] nevertheless clearly showed that the issues so tendered were not valid issues. represented by its General Manager. 66915. concur. 2007 resolution3 of the Court of Appeals (CA) in CA-G. his claim that his co-defendant de Jesus already paid the loan by means of a check collapses in view of the dishonor thereof as shown at the dorsal side of said check. the promissory note bears the statement: It is understood that our liability under this loan is jointly and severally [sic]. BERNARDEZ. Jr. Bernardez (Bernardez). Bognot applied for another loan extension and issued IBE Check No. as shown by the Official Receipt No. Several days before the loan’s maturity.00) from the respondent.00 as renewal fee. 1997. that Mrs. filed a complaint for sum of money before the Regional Trial Court (RTC) against the Bognot siblings. 1997. 97-035 to make it appear that it would mature on the said date. never returned these documents nor issued a new post-dated check.(P500. the petitioner also issued BPI Check No. These demands went unheeded. no loanextension took place and the loan. 1997" on the upper right portion of Promissory Note No. Mrs. The respondent on the other hand. the Bognot siblings failed to pay their joint and solidary obligation. Mrs. The petitioner purportedly paid the renewal fees and issued a post-dated check dated June 30. went to the respondent’s office and applied for another renewal of the loan. 97-0356 payable on April 1.4 The loan was evidenced by a promissory note and was secured by a post dated check5 dated November 30. and International Bank Exchange (IBE) Check No. 00012522. Bognot). 97-051.600. 1997). and the check dated July 30.7 post dated to April 1. his co-maker was again Rolando. cancelled and returned to the petitioner the post-dated checks issued prior to their renewal. Bognot asked the respondent’s clerk to release to her the promissory note. Julieta Bognot (Mrs. payable on November 30. 1997. issued a new post-dated checkas security. 1996. She issued in favor of the respondent Promissory Note No.600. As security for the loan. 1997 which the Bognot siblings applied for remained unpaid. the disclosure statement. the respondent. 00012522 as payment for the renewal fee. Mrs.000. As had been done in the past. Rolando’s wife. 7979 dated May 5. . that since Mrs. however. On November 27. 1997. and executed and/or renewed the promissory note previouslyissued. that before June30. He again executed as principal and signed Promissory Note No. Bognot. 1997. 1996. Sometime in March 1997. On the excuse that she needs to bring home the loan documents for the Bognot siblings’ signatures and replacement. the respondent superimposed the date "June 30. became due on this date.00 for each renewal. 1997 as security. and the Disclosure Statement dated May 30. the respondent sent the petitioner follow-up letters demanding payment of the loan. originally payable on June 30. Bognot convinced the respondent’s clerk to release to her the promissory note and the other loan documents. He paid a renewal fee of P54. and despite repeated demands. Evidence on record shows that the petitioner renewed the loan several times on a monthly basis. in the amount ofP54. dated July 30. The respondent mainly alleged that the loan renewal payable on June 30.8 Subsequently. the loan was again renewed on a monthly basis (until June 30. 1997. 1997. plus interest and penalty charges. through Bernardez. Consequently. 1997. the petitioner applied for another loan renewal. 1997 duly signed by Bernardez. Bognot never issued any replacement check. 0595236. In his Answer.the RTC ruled in the respondent’s favor and ordered the Bognot siblings to pay the amount of the loan. The trial court said: The Court of Appeals Ruling In its decision dated March 28. ruling that the respondent had successfully proven.000. 1997 until fully paid. the nonpayment of the loan. It further stated that the only document relied uponby the petitioner to substantiate his defense was the April 1. It found the petitioner’s defense of payment untenable and unsupported by clear and convincing evidence. It also noted that the petitioner signed the promissory note as a principal (and not merely as a guarantor). 1997 checkhe issued which was cancelled and returned to him by the respondent. plus interest and penalty charges. by preponderance of evidence. The Regional Trial Court Ruling 12 In a decision dated January 17. He claimed that the one (1) month loan contracted by Rolando and his wife in November 1996 which was lastly renewed in March 1997 had already been fully paid and extinguished in April 1997. He also denied having issued the BPI check post-dated to June 30. in fact. It considered the wordings of the promissory note and found that the loan they contracted was joint and solidary. 1997. claiming that this note had been tampered. 2000. . 1997. he did not. waived. The petitioner appealed the decision to the Court of Appeals. as well as the promissory note dated June 30.10 the petitioner claimed that the complaint states no cause of action because the respondent’s claim had been paid.000. It brushed the petitioner’s defense of full payment aside. been encashed by the respondent and the proceeds applied to the loan.11 Trial on the merits thereafter ensued. or any official receipt evidencing the payment of the loan. He denied being a party to any loan application and/or renewal in May 1997. abandoned or otherwise extinguished.Summons were served on the Bognotsiblings. Records likewise reveal that while he claims that the obligation had been fully paid in his Answer. the CA affirmed the RTC’s findings.00 plus 5% interest monthly as well as 10% monthly penalty charges from the filing of the complaint on December 3. only the petitioner filed his answer. 2007. It observed that the petitioner did not present any evidence showing that the check dated June 30. However. As plaintiff was constrained to engage the services of counsel in order to protect his right.00 as and by way of attorney’s fee. while Rolando was the co-maker.defendants are directed to pay the former jointly and severally the amount of P50. In fine. in order to protect his right filed (sic) a cross-claim against his co-defendant Rolando Bognot despite the fact that the latter did not file any responsive pleading. 1997 had. defendants are liable solidarily to plaintiff and must pay the loan of P500. .13 his obligation had been discharged by virtue of his possession of the post-dated check (stamped "CANCELLED") that evidenced his indebtedness. Whether the parties’ obligation was extinguished by: (i) payment. as a rule. hold him solidarily liable with Rolando for the payment of the loan. the present recourse to us pursuant toRule 45 of the Rules of Court. Whether the petitioner is relieved from liability by reason of the material alteration in the promissory note. Bognot renewed the loan and assumed the indebtedness. He maintained that even without the proof of payment. The petitioner also argued that as a result of the alteration of the promissory note without his consent (e. are notreviewable by this Court. Our Ruling We find the petition partly meritorious. and (ii) novation by substitution of debtors. Bognot who subsequently assumed the obligation by renewing the loan. The CA thus ruled that the petitioner failed to discharge the burden of proving payment. he claimed that he had been released from his indebtedness by novation when Mrs.. but the CA denied his motion in its resolution of October 15. noted the respondent’s established policy of cancelling and returning the post-dated checks previously issued. as well as the subsequent loan renewals applied for by the petitioner. 1997" on the upper right portion of Promissory Note No. the material alteration of the promissory note is sufficient to extinguish his liability. hence. Thus. and 3. the superimposition of the date "June 30. and issuing a check. The Issues The case presents to us the following issues: 1. The petitioner moved for the reconsideration of the decision. The Petition The petitioner submits that the CA erred in holding him solidarily liable with Rolando and his wife. as manifested by the official receipts under his name.g. let alone. Lastly. the respondent can no longer collect on the tampered note. paying the fees and charges. 2. however. Heclaimed that based on the legal presumption provided by Article 1271 of the Civil Code. He argued that it was Mrs. 2007. there is an entirely new obligation whose payment is her sole responsibility.The CA. The Case for the Respondents The respondent submits that the issues the petitioner raised hinge on the appreciation of the adduced evidence and of the factual lower courts’ findings that. Whether the CA committed a reversible error in holding the petitioner solidarily liable with Rolando. 97-035 to make it appear that it would mature on this date). standing alone.As a rule. once the existence of an indebtedness is duly established by evidence. rather than on the plaintiff to prove non-payment.16 As the respondent correctly pointedout. the burden of showing with legal certainty that the obligation has been discharged by payment rests on the debtor. As the CA correctly noted. In the absence of compelling reasons. the petitioner failed to satisfactorily prove that his obligation had already been extinguished by payment. If only to lay the issues raised . The evidence shows that this check was issued to secure the indebtedness.14 Appreciation of evidence and inquiry on the correctness of the appellate court's factual findings are not the functions of this Court. as in this case. we shall proceed to discuss their merits and demerits. review or re-evaluate the evidence and the lower courts’ factual conclusions. Spouses Royeca:20 . (Emphasis supplied) Also. a question of fact exists when the doubt or dispute relates to the truth or falsity of the parties’ factual allegations. do not constitute sufficient evidence of payment. or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed. We note that the petitioner merely relied on the respondent’s cancellation and return to him of the check dated April 1. the Court cannot re-examine. 1997. On the other hand. we are not a trier of facts. Article 1249. Neither did he present official receipts evidencing payment. the petitioner’s allegations are factual issuesthat are not proper for the petition he filed. the petitioner failed to present any evidence that the respondent had in fact encashed his check and applied the proceeds to the payment of the loan. nor any proof that the check had been dishonored.both factual and legal – to rest. Since the CA’s findings of facts affirmed those of the trial court.17 the burden rests on the defendant to prove payment. No Evidence Was Presented to Establish the Fact of Payment Jurisprudence tells us that one who pleads payment has the burden of proving it. we held in Bank of the Philippine Islands v. the Court’s jurisdiction in a Rule 45 petition is limited to the review of pure questions of law. or when through the fault of the creditor they have been impaired.18 Indeed.15 A question of law exists when the doubt or dispute relates to the application of the law on given facts. paragraph 2 of the Civil Code provides: xxxx The delivery of promissory notes payable to order. they are binding on this Court. This is especially true when the CA affirmed the lower court’s findings. rendering any further factual review unnecessary. The acts imputed on the respondent.19 In the present case. the presumption loses efficacy when faced with evidence to the contrary. We trace whatwould amount to a practice under the facts of this case. by itself. I show you Exhibit "3" official receipt of plaintiff dated July 3. the delivery of such an instrument does not. Since a negotiable instrument is only a substitute for money and not money. 97-0572 . no cash payment was proven by the petitioner. sir. 97-0572 TSN December 14. sir. To reiterate. not of payment. xxx22 Civil Case No. The cancellation and return of the check dated April 1. Almeda: Q: In the case of the renewal of the loan you admitted that a renewal fee is charged to the debtor which he or she must pay before a renewal is allowed. to the following testimonial exchanges: Civil Case No. Moreover. would this be your official receipt which you issued to your client which they make renewal of the loan? A: Yes. cannot constitute a valid tender of payment. is that correct? A: Yes. operate as payment. 1998.(Emphasis supplied) Although Article 1271 of the Civil Code provides for a legal presumption of renunciation of action (in cases where a private document evidencing a credit was voluntarily returned by the creditor to the debtor). 1997. Page 13. the old one which is replaced by the renewal has already been cancelled. simply established his renewal of the loan – not the fact of payment. 1997. therefore. reliance by the petitioner on the legal presumption to prove payment is misplaced. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.Settled is the rule that payment must be made in legal tender. but of the renunciation of the credit where more convincing evidence would be required than what normally would be called for to prove payment. Furthermore.21Thus. sir. through repeated acts. Q: It is also true to say that all promissory notes and all postdated checks covered by the old loan which have been the subject of the renewal are deemed cancelled and replaced is that correct? A: Yes. Mere delivery of checks does not discharge the obligation under a judgment. that the respondent cancelled and surrendered the postdated check previously issued whenever the loan is renewed. A check is not legal tender and. it has been established during trial. Atty. this presumption is merely prima facieand is not conclusive. xxx xxx xxx Q: And naturally when a loan has been renewed. the cited provision merely raises a presumption. and denials were made. sir. consent or prior consultation with Leonardo Bognot which was denied by plaintiff. That it is the practice of plaintiff to just rubber stamp or make superimposition through a rubber stamp on old promissory note which has been renewed to . he nevertheless denied that the alteration was done without the petitioner’s consent. or make a superimposition through a rubber stamp. Page 27. The Alteration of the Promissory Note Did Not Relieve the Petitioner From Liability We now come to the issue of material alteration.TSN November 27. Who in particular? Q: Leonardo Bognot. admissions. 1997" on the promissory note without his consent effectively relieved him of liability. The superimposition was done without the knowledge. 97-035 as basis to claim release from his loan. the failure to rebut is tantamount to an admission of the respondent’s allegations: "22. Although the respondent did not dispute the fact of alteration.23 In light of these exchanges."25 (Emphasis supplied) Significantly. The petitioner raised as defense the alleged material alteration of Promissory Note No. wefind that the petitioner failed to discharge his burden ofproving payment. he issued a new check. Your Honor. The parties’ Pre-Trial Order dated November 3. stipulations. 199824 states that: xxx There being no possibility of a possible compromise agreement. To our mind. to wit: FOR DEFENDANT LEONARDO BOGNOT 13. A: Every month. Bognot issued? Court: There are two Bognots. He alleged that the respondent’s superimposition of the due date "June 30. Q: What happened to the check that Mr. 1997" to which the plaintiff admitted the superimposition. 1998. 1997 with a superimposed rubber stamp mark "June 30. 14. The petitioner did not rebut this statement. the old promissory note which has been renewed to make it appear that there is a new loan obligation. the respondent also admitted in the PreTrial Order that part of its company practice is to rubber stamp. We find this defense untenable. they were renewed. Q: Do you have a copy of the checks? A: We returned the check upon renewing the loan. That the promissory note subject of this case marked as Annex "A" of the complaint was originally dated April 1. . the approval and receipt of the loan renewals. Court of Appeals. his admission that the loan had been obtained from the respondent. Even with the tampered promissory note. the existence of the obligation.33 In the present petition. 1996. after paying the renewal fees. These official receipts were issued in the name of the petitioner. as well as its subsequent renewals.26 Even assuming that the note had indeed been tampered without the petitioner’s consent. no other evidence was presented to prove payment other than the cancelled and returnedpost-dated check.make it appear that there is a new loan obligation to which the plaintiff admitted. have been duly established by: first. for the existence of the obligation can be proven by other documentary evidence such as a written memorandum signed by the parties. the petitioner cannot validly deny his obligation and liability to the respondent solely on the ground that the Promissory Note in question was tampered. 79729 and 58730 dated May 5 and July 3. renewal and non-payment of the loan. and seventh. 1997. The petitioner never raised this issue before the lower courts. we hold that the petitioner can still be held liable for the unpaid loan. It canbe used in lieu of and for the same purpose as a promissory note and can therefore be presented to establish the existence of indebtedness. the testimony of Mr. In Guinsatao v. as shown by the Official Receipt Nos. Based on the records. Notably. the petitioner’s application for the loan. we find that the totality of the evidence on record sufficiently established the existence of the petitioner’s indebtedness (and liability) based on the contract ofloan. the petitioner himself admitted his loan application was evidenced by the Promissory Note dated April 1. Under this evidentiary situation. second. Court of Appeals. In fact. third. the loan renewals. Although the petitioner had insisted that the loan had been extinguished. it is not the only evidence. 1997. the latter cannot totally avoid payment of his obligation to the respondent based on the contract of loan. fourth. sixth. respectively.32 this Court likewise expressly recognized that a check constitutes anevidence of indebtedness and is a veritable proof of an obligation." (Emphasis Supplied).31 this Court pointed out that while a promissory note is evidence of an indebtedness.000.28 This loan was renewed several times by the petitioner. fifth. the post-dated checks issued by the petitioner to secure the loan. the Bognot Siblings had applied for and were granted a loan of P500.00 by the respondent. Bernardez on the grant. In Pacheco v. proof of non-payment of the loan. The Petitioner’s BelatedClaim of Novation by Substitution May no Longer be Entertained It has not escaped the Court’s attention that the petitioner raised the argument that the obligation had been extinguished by novation. The loan was evidenced by a promissory note and secured by a post-dated check27 dated November 30. we find no merit in the defense of novation as we discuss at length below. a third person who consents to the substitution and assumes the obligation. it logically requires the consent of the third person and the creditor. He alleged that Mrs. the original debtor must be released from the obligation. there can be no valid novation. novation by substitution of debtor must alwaysbe made with the consent of the creditor. Payment by the new debtor gives him rights mentioned in Articles 1236 and 1237. Novation is a mode of extinguishing an obligation by changing its objects or principal obligations. was done with the respondent’s consent.the debtor." In both cases. otherwise. .34 Matters neither alleged in the pleadingsnor raised during the proceedings below cannot be ventilated for the first time on appeal before the Supreme Court. the initiative for the change does not come from -.35 In any event.and may even be made without the knowledge of -. He further claimed that she issued her own check40 to cover the renewal fees. novation by substitution of debtor has two forms – substitution by expromision and substitution by delegacion. As such. or by subrogating a third person to the rights of the creditor.38Furthermore. may be made even without the knowledge or against the will of the latter. Depending on who took the initiative.36 Article 1293 of the Civil Code defines novation as follows: "Art.It is a settled principle of law thatno issue may be raised on appeal unless it has been brought before the lower tribunal for its consideration. In delegacion. and the new debtor must assume the original debtor’s place in the contractual relationship. since it consists of a third person’s assumption of the obligation. which fact. Novation cannot be presumed and must be clearly and unequivocably proven. the original debtor must be expressly released from the obligation. Llamas:37 "In expromision. and by executing a new promissory note. by substituting a new debtor in place of the old one. the debtor offers.39 The petitioner contends thatnovation took place through a substitution of debtors when Mrs. Novation which consists insubstituting a new debtor in the place of the originalone. thus. and the creditor accepts. The difference between these two was explained in Garcia v. Bognot assumed the obligation by paying the renewal fees and charges." To give novation legal effect. Bognot renewed the loan and assumed the debt. the consent of these three persons are necessary. according to the petitioner. 1293. but not without the consent of the creditor. the respondent can still enforce the payment of the obligation against the original debtor. More importantly. does not ipso factoresult in novation. Mere acquiescence to the renewal of the loan. when the obligor undertakes to be "jointly and severally" liable. 97-035 dated June 30. Bognot did not substitute the petitioner as debtor.1997. In order to give novation legal effect. the respondent never agreed to release the petitioner from his obligation. That the respondent initially allowed Mrs. Bognot to bring home the promissory note. or Order. Moreover.42 There is solidary liability when the obligation expressly so states. 1997.000. does not constitute novation. promise to pay to READY RESOURCES INVESTORS RRI LENDING CORPO. its office at Paranaque. jointly and severally. the originaldue date. however. Since the petitioner failed to show thatthe respondent assented to the substitution.M. June 30. 1997. in the absence of showing that Mrs. did not push through. no valid novation took place with the effect of releasing the petitioner from his obligation to the respondent. when there is clearly no agreement to release the petitioner from his responsibility. The purported one month renewal of the loan. M. In this case. Under the promissory note. when the law so provides. first . the creditor should consent to the substitution of a new debtor. The Nature of the Petitioner’s Liability On the nature of the petitioner’s liability. the obligation is solidary. Mrs. and each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. Bognot did not return the documents or issue a new post dated check. both the RTC and the CA found the petitioner solidarily liable with Rolando based on Promissory Note No. and cannot be presumed.00). disclosure statement and the petitioner’s previous check dated June 30. or when the nature of the obligation so requires. with interest thereon at the rate of Five percent (5%) per month/annum. PhilippineCurrency. Bognot and the respondent had agreed to release the petitioner.43 Thus. A solidary obligation is one in which each of the debtors is liable for the entire obligation. continued to stand. payable in One Installment (01) equal daily/weekly/semi-monthly/monthly of PESOS Five Hundred Thousand Pesos (P500.00). as Mrs.000. that the CA erred in holding the petitioner solidarily liable with Rolando. the principal sum of Five Hundred Thousand PESOS (P500. She merely attempted to renew the original loan by executing a new promissory note41 and check. Since the loan was not renewed for another month. the Bognot Siblings defined the parameters of their obligation as follows: "FOR VALUE RECEIVED. Neither will this acquiescence constitute an implied acceptance of the substitution of the debtor. we rule however. Novation must be clearly and unequivocally shown. I/WE.Contrary to the petitioner’s contention. Other than the promissory note in question. Although the phrase "jointly and severally" in the promissory note clearly and unmistakably provided for the solidary liability of the parties. The respondent even admitted during pre-trial that it could not present the original promissory note because it is in the custody of its cashier who is stranded in Bicol. contrary to morals and jurisprudence. In Medel v.installment to become due on June 30.000. and hence. As we earlier noted. no evidence isadmissible other than the original document itself except in the instances mentioned in Section 3.000. 1997.45 The records show that the respondenthad the custody of the original promissory note dated April 1. we cannot but conclude that the obligation to pay is only joint. 1997". Rule 130 of the Revised Rules of Court. which was never produced. we find the imposition of the 5% monthly interest to be excessive. unconscionableand exorbitant. respectively. Court of Appeals. Although parties to a loan agreement have wide latitude to stipulate on the applicable interest rate under Central Bank Circular No. unconscionable and exorbitant. 1982 (which suspended the Usury Law ceiling on interest effective January 1. iniquitous. and in the absence of evidence showing that the petitioner had bound himself solidarily with Rolando for the payment of the loan.1âwphi1 . The well-entrenched rule is that solidary obligation cannot be inferred lightly. the respondent has not presented any other evidence to support a finding of solidary liability. we haveruled that stipulations authorizing iniquitous or unconscionable interests are contrary to morals and are illegal. the photocopy of the promissory note cannot be admitted as evidence. for being excessive. 1983).46 Since the respondent never produced the original of the promissory note. with a superimposed rubber stamp mark "June 30. much less offered to produce it. It must be positively and clearly expressed and cannot be presumed. while we agree with the CA that the petitioner is liable to the respondentfor the unpaid loan.47 In view of the inadmissibility of the promissory note. xxx"44 (Emphasis Ours). and a 6% per month or 72% per annum interest on a P60. we note and stress that the promissory note is merely a photocopyof the original. on the issue of interest. and that it had been given every opportunity to present it. 905 s.5% per month or 66% per annum interest on a P500. iniquitous.48 The 5% Monthly Interest Stipulated in the Promissory Note is Unconscionable and Should be Equitably Reduced Finally.50 we annulled a stipulated 5.49 In several cases.00 loan. we stress that unconscionable interest rates may still be declared illegal.00 loan. both lower courts completely relied on the note when they found the Bognot siblingssolidarily liable. Under the best evidence rule. whenthe subject of inquiry is the contents of a document. 1997. It is void ab initiofor violating Article 130652 of the Civil Code. and must therefore be reduced to 12% per annum. versus - DECISION BRION. G. - Acting Chairperson.1âwphi1 We accordingly find it equitable to reduce the interest rate from 5% per month to 1% per month or 12% per annum in line with the prevailing jurisprudence. (or 60% per annum) in the promissory note is excessive. premises considered. October 9. 151903 Present: * Applying these cited rulings. GO CINCO. iniquitous. Timan. WHEREFORE.: . Costs against petitioner Leonardo A.51 where we held that the stipulated interest rates of 3% per month and higher are excessive.000. Bognot. The rest of the Court of Appeals' dispositions are hereby AFFIRMED. J. unconscionable and exorbitant. Bognotand his brother. J. CV No. ESTER SERVACIO and MAASIN TRADERS LENDING CORPORATION. ** CARPIO-MORALES. 1997 until fully paid. *** NACHURA. contrary to morals and is thus illegal.R. unconscionable. the Decision dated March 28. BRION.. Bognot are JOINTLY LIABLE to pay the sum of P500. as follows: 1.R.00 plus 12% interest per annum from December 3. Petitioners. No. and ABAD. we now accordingly hold that the stipulated interest rate of 5% per month. The petitioner Leonardo A. 2009 x ------------------------------------------------------------------------------------- 2. CORONA. 2007 of the Court of Appeals in CA-G.We reiterated this ruling in Chua v. COURT OF APPEALS. 66915 is hereby AFFIRMED with MODIFICATION. Rolando A. JJ. MANUEL GO CINCO and ARACELI S. Promulgated: Respondents. 3 Million loan proceeds. MTLCs President. Manuel went to the house of respondent Ester Servacio (Ester). as well as the resolution[3] dated January 25.[5] To be able to pay the loan in favor of MTLC. Under the terms of the promissory note. The loan was evidenced by a promissory note dated December 11.000. the P700. . Manuel executed a Special Power of Attorney[7] (SPA) authorizing Ester to collect the proceeds of his PNB loan. 47578.[4] and secured by a real estate mortgage executed on December 15. 2002 denying the spouses Go Cincos motion for reconsideration.071. When she told Manuel of the banks response. Southern Leyte. spouses Manuel and Araceli Go Cinco (collectively. 2001 of the Court of Appeals (CA) in CA-G. the spouses Go Cinco applied for a loan with the Philippine National Bank.Before the Court is a petition for review on certiorari[1] filed by petitioners.00 loan was subject to a monthly interest rate of 3% or 36% per annum and was payable within a term of 180 days or 6 months. 1989. interest. CV No. however. As of July 16. Manuels outstanding obligation with MTLC amounted to P1. Ester instituted foreclosure proceedings against the spouses Go Cinco on July 24.00 from respondent Maasin Traders Lending Corporation (MTLC). renewable for another 180 days. assailing the decision[2] dated June 22. As the MTLC loan was already due. On July 20. petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount of P700. which amount included the principal. 1989. the release of the amount. 1989. 1987 over the spouses Go Cincos land and 4-storey building located in Maasin.256. Ester again went to the bank to inquire about the proceeds of the loan. On July 16.66. 1989. The PNB approved the loan application for P1. 1987. Ester refused to sign the deed and did not collect the P1. Ester then proceeded to the PNB to verify the information. was conditioned on the cancellation of the mortgage in favor of MTLC.3 Million[6] through a letter dated July 8. and penalties.3 Million loan. Maasin Branch (PNB or the bank) and offered as collateral the same properties they previously mortgaged to MTLC.R. but she claimed that the banks officers informed her that Manuel had no pending loan application with them. This time. Manuel assured her there was money with the PNB and promised to execute a document that would allow her to collect the proceeds of the PNB loan. Outraged that the spouses Go Cinco used the same properties mortgaged to MTLC as collateral for the PNB loan. to inform her that there was money with the PNB for the payment of his loan with MTLC.000. the banks officers confirmed the existence of the P1. but they required Ester to first sign a deed of release/cancellation of mortgage before they could release the proceeds of the loan to her. 1989. THE FACTUAL ANTECEDENTS In December 1987. the spouses Go Cinco). 044. to the spouses Go Cinco.475. (d) P20. She claimed that she had no explicit agreement with Manuel authorizing her to apply the proceeds of the PNB loan to Manuels loan with MTLC. Esters refusal to sign the deed of release/cancellation of mortgage and to collect the proceeds of the PNB loan were. payment or performance of obligation to the damage and prejudice of debtors who may stand liable for payment of higher interest rates. the SPA merely authorized her to collect the proceeds of the loan. Branch 25. and (f) 10% of the total amount as attorneys fees plus costs.[11] Through an appeal with the CA. damages. The spouses Go Cinco alleged that foreclosure of the mortgage was no longer proper as there had already been settlement of Manuels obligation in favor of MTLC.000. representing loss of savings on interest. if defendant corporation insists on the original 3% monthly interest rate.63 per day hereafter. Maasin. P1.[10] After finding MTLC and Ester liable for abuse of rights.15 plus 535. The trial court found that the evidence sufficiently established the existence of the PNB loan whose proceeds were available to satisfy Manuels obligation with MTLC. completely unjustified and entitled them to the payment of damages.[9] the RTC ruled in favor of the spouses Go Cinco. MTLC and Ester successfully secured a reversal of the RTCs decision.00 as exemplary damages. Southern Leyte.00 as litigation expenses. (e) P22.000. and preliminary [8] injunction before the Regional Trial Court (RTC). She thus averred that it was unfair for the spouses Go Cinco to require the release of the mortgage to MTLC when no actual payment of the loan had been made.00 as moral damages. Unlike the trial court. (c) Ester countered these allegations by claiming that she had not been previously informed of the spouses Go Cincos plan to obtain a loan from the PNB and to use the loan proceeds to settle Manuels loan with MTLC.Creditors. the RTC ordered the award of the following amounts to the spouses Go Cinco: (a) (b) P100.000. cannot unreasonably prevent P1. The CA read the SPA as merely authorizing Ester to withdraw the proceeds of . by way of actual or compensatory damages. and that Ester unjustifiably refused to collect the amount.00 as unrealized profit. it ruled.000.To prevent the foreclosure of their properties.000. 1994. In a decision dated August 16. They claimed that the assignment of the proceeds of the PNB loan amounted to the payment of the MTLC loan. the spouses Go Cinco filed an action for specific performance. the appellate court found it significant that there was no explicit agreement between Ester and the spouses Go Cinco for the cancellation of the MTLC mortgage in favor of PNB to facilitate the release and collection by Ester of the proceeds of the PNB loan. as in the present case. They contend that the creditors have the correlative duty to accept the payment. The correctness of the conclusions derived from factual findings raises legal questions when the conclusions are so linked to. [12] The petition raises the issue of whether the loan due the MTLC had been extinguished. their act of applying for a loan with the PNB was indicative of their good faith and honest intention to settle the loan with MTLC. Preliminary Considerations Our review of the records shows that there are no factual questions involved in this case. The spouses Go Cinco charge MTLC and Ester with bad faith and ill-motive for unjustly refusing to collect the proceeds of the loan and to execute the deed of release of mortgage. THE PETITION The spouses Go Cinco impute error on the part of the CA for its failure to consider their acts as equivalent to payment that extinguished the MTLC loan. not aware of the loan and the mortgage to PNB. they insist that the institution of the foreclosure proceedings was proper. Payment as Mode of . but on the conclusions derived from these factual findings. From this dismissal. the CA ruled that no valid objection could be made to the institution of the foreclosure proceedings. MTLC and Ester raise the same arguments they raised before the RTC and the CA. or are inextricably intertwined with. Additionally. the spouses Go Cinco filed the present appeal by certiorari. the appreciation of the applicable law that the case requires. They assert that Esters justifications for refusing the payment were flimsy excuses so she could proceed with the foreclosure of the mortgaged properties that were worth more than the amount due to MTLC. They claim that they were THE COURTS RULING The Court finds the petition meritorious. Accordingly. and that there was no agreement that the proceeds of the PNB loan were to be used to settle Manuels obligation with MTLC. As Manuels loan obligation with MTLC remained unpaid. they conclude that the acts of MTLC and of Ester amount to abuse of rights that warrants the award of damages in their (spouses Go Cincos) favor. The RTC and the CA decisions differed not so much on the findings of fact.the loan. MTLC and Ester contend that the present petition raised questions of fact that cannot be addressed in a Rule 45 petition. this is a question of law that this Court can fully address and settle in an appeal by certiorari. it dismissed the spouses Go Cinco complaint. In refuting the claims of the spouses Go Cinco. Thus. the ultimate facts necessary for the resolution of the case already appear in the records. Since the MTLC loan remained unpaid. the delivery of the sum of money would have been effected and the obligation extinguished. In contracts of loan. by payment or performance. Manuel posits two things: first. Ester refused to collect and allow the cancellation of the mortgage. payment means not only the delivery of money but also the performance. Ester refused to accept the payment because the bank required her to first sign a deed of release/cancellation of the mortgage before the proceeds of the PNB loan could be released. Under Article 1232 of the Civil Code. These provisions must be read in relation with the other rules on payment under the Civil Code. among others.[16] As the records show. the delivery of the SPA was not. as the case may be. a. the debtor is expected to deliver the sum of money due the creditor. strictly speaking. there was no explicit agreement that the MTLC loan would be paid out of the proceeds of the PNB loan. she claimed that the spouses Go Cinco should have obtained her consent before offering the properties already mortgaged to her as security for the PNB loan. upon receipt by Ester. There is nothing legally objectionable in a mortgagors act of taking a second or subsequent mortgage on a property already mortgaged. and Ester could not be compelled to accept it as payment based on Article 1233. As a prior mortgagee. to collect the proceeds of the PNB loan an act that would have led to payment if Ester had collected the loan proceeds as authorized. a delivery of the sum of money due to MTLC. [14] which rules impliedly require acceptance by the creditor of the payment in order to extinguish an obligation. Ester alleged that the SPA merely authorized her to collect the proceeds of the loan. through an SPA. Article 1233 of the Civil Code states that a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered. In the present case. in any other manner. that Esters refusal was based on completely unjustifiable grounds. that the refusal was equivalent to payment that led to the extinguishment of the obligation. Under these facts. Admittedly. of an obligation. Unjust Refusal to Accept Payment After considering Esters arguments. Moreover.Extinguishing Obligations Obligations are extinguished. and second. we agree with Manuel that Esters refusal of the payment was without basis. Rule 68 of the 1997 Rules of Civil Procedure on the disposition of the .[13] the mode most relevant to the factual situation in the present case. the SPA stood as an authority to collect the proceeds of the already-approved PNB loan that. a subsequent mortgage is recognized as valid by law and by commercial practice. subject to the prior rights of previous mortgages. Manuel sought to pay Ester by authorizing her. would have constituted as payment of the MTLC loan. Section 4. [15] Had Ester presented the SPA to the bank and signed the deed of release/cancellation of mortgage. Nonetheless. with the payment of the MTLC loan using the proceeds of the PNB loan.] In short. the thing due is deposited and placed at the disposal of the judicial authorities for the creditor to collect. We find it improbable for Ester to claim that there was no agreement to apply the proceeds of the PNB loan to the MTLC loan. to have the effect of payment and the consequent extinguishment of the obligation to pay. 1989. [Emphasis supplied. Tender of payment. Article 1256 is clear and unequivocal on this point when it provides that ARTICLE 1256. Even Esters actions belie her claim as she in fact even went to the PNB to collect the proceeds. among others. therefore. a stipulation forbidding the owner from alienating the immovable mortgaged is considered void. the debtor shall be released from responsibility by the consignation of the thing or sum due. When a creditor refuses the debtors tender of payment. Tender and consignation have the effect of payment. without giving her the accompanying authority. as by consignation. reason dictates that the lesser right to encumber his property with other liens must also be recognized. the mortgage in favor of the MTLC would have naturally been cancelled.. the junior encumbrancers in the order of their priority. we also cannot give credit to the claim that the SPA only allowed Ester to collect the proceeds of the PNB loan. Diaz Realty. could not validly require the spouses Go Cinco to first obtain her consent to the PNB loan and mortgage. Besides. Inc. In sum. although verbal. Beginning July 16. Given Manuels express intent of fully settling the MTLC loan and of paying through the PNB loan he would secure (and in fact secured). [17] Under Article 2130 of the Civil Code. If the creditor to whom tender of payment has been made refuses without just cause to accept it. the surrounding circumstances of the case simply do not support Esters position. to apply these proceeds to the MTLC loan. a refusal without just cause is not equivalent to payment. b. the law allows the consignation of the thing or the sum due. Ester. the law requires the companion acts of tender of payment and consignation. we cannot agree with Manuels position that this refusal had the effect of payment that extinguished his obligation to MTLC. If the mortgagor-owner is allowed to convey the entirety of his interests in the mortgaged property. together with the demand that the creditor accept the same.proceeds of sale after foreclosure actually requires the payment of the proceeds to. Manuel had already expressed intent to pay his loan with MTLC and thus requested for an updated statement of account. as defined in Far East Bank and Trust Company v. Unjust Refusal Cannot be Equated to Payment While Esters refusal was unjustified and unreasonable.[18] is the definitive act of offering the creditor what is due him or her.[19] . at the very least. the spouses Go Cinco duly established that they have legitimately secured a means of paying off their loan with MTLC. they were only prevented from doing so by the unjust refusal of Ester to accept the proceeds of the PNB loan through her refusal to execute the release of the mortgage on the properties mortgaged to MTLC. The trial court failed to consider the effects of a tender of payment and erroneously declared that MTLC can charge interest at the rate of only 18% per annum the same rate that PNB charged. Since payment was available and was unjustifiably refused. the equivalent of a tender of payment that cannot but have legal effect.[20] they would not have been liable for any interest from the time tender of payment was made if the payment had only been accepted. the RTC also awarded P100. and (2) to accept the proceeds.15. the spouses Go Cinco have undertaken. as the unjust refusal was effectively an abusive act contrary to the duty to act with honesty and good faith in the exercise of rights and the fulfillment of duty. We also find that under the circumstances. Under Article 19 of the Civil Code. to compel Ester to accept the loan proceeds and to prevent their mortgaged properties from being foreclosed.044. sufficient to cover the total amount of the loan to MTLC. Effects of Unjust Refusal Under these circumstances. the spouses Go Cinco found it necessary to institute the present case for specific performance and damages. the RTC awarded the difference in the interest rates as actual damages. which she unjustly refused to do. In other words. No reason exists under this legal situation why we cannot compel MTLC and Ester: (1) to release the mortgage to MTLC as a condition to the release of the proceeds of the PNB loan.63 per month) representing loss of savings on interests for lack of legal basis. they should likewise be entitled to damages. Hence. as PNB would not release the proceeds of the loan unless and until Ester had signed the deed of release/cancellation of mortgage. justice and equity demand that the spouses Go Cinco be freed from the obligation to pay interest on the outstanding amount from the time the unjust refusal took place. as payment for Manuels loan with MTLC. As part of the actual and compensatory damages. c. These amounts were computed based on the difference in the interest rates charged by the MTLC (36% per annum) and the PNB (17% to 18% per annum).A sad twist in this case for Manuel was that he could not avail of consignation to extinguish his obligation to MTLC. MTLC and Ester in fact prevented the spouses Go Cinco from the exercise of their right to secure payment of their loan. we delete the amounts awarded by the RTC to the spouses Go Cinco (P1. we hold that while no completed tender of payment and consignation took place sufficient to constitute payment. not the 36% interest rate that MTLC charged.00 to the spouses Go Cinco . plus P563.475.000. upon PNBs acknowledgment that the proceeds of the loan are ready and shall forthwith be released. from the date of tender of payment up to the time of the promulgation of the RTC decision. For these reasons. We affirm the grant of exemplary damages by way of example or correction for the public good in light of the same reasons that justified the grant of moral damages. 2001 of the Court of Appeals in CA-G. Her unjust refusal. job or occupation and the same must be sufficiently proved. with the following MODIFICATIONS: We agree. [22] We nevertheless reduce the P1.203. that there was basis for the award of moral and exemplary damages and attorneys fees. there would have been a balance of P132. thus. conjecture or guesswork as to the amount. we GRANT the petitioners petition for review on certiorari.] Esters act of refusing payment was motivated by bad faith as evidenced by the utter lack of substantial reasons to support it. they are entitled to payment of 10% of the total amount of awarded damages as attorneys fees and expenses of litigation. In Lucas v. this claim of expected profits is at best speculative and cannot be the basis for a claim for damages. Spouses Royo. which amount the spouses Go Cinco could have invested in their businesses that would have earned them a profit of at least P100. We find no factual basis for this award.00 as the originally awarded amount for moral damages is plainly excessive.685.17) had been applied to the MTLC loan (P1.000. otherwise. in her behalf and for the MTLC which she represents. Branch 25. as well as the resolution of January 25.000. and REVERSE the decision of June 22. Apparently. CV No. amounted to an abuse of rights. if the proof is flimsy and unsubstantiated. Actual and compensatory damages are those recoverable because of pecuniary loss in business. they acted in an oppressive manner and.62 left. are liable for moral and exemplary damages. if the proceeds of the PNB loan (P1. Maasin. (1) The respondents are hereby directed to accept the proceeds of the .representing unrealized profits.000. profession. 1994 of the Regional Trial Court.R.256.428. 47578. 2002 that followed. there was only their bare claim that the excess could have been invested in their other businesses.071.000. the Court cannot rely on speculation.00 to P100. property. trade. however. Without more. The spouses Go Cinco were unable to substantiate the amount they claimed as unrealized profits. WHEREFORE. As the spouses Go Cinco were compelled to litigate to protect their interests.[21] we declared that: In determining actual damages. Southern Leyte. [Emphasis supplied.00. no damages will be given. We REINSTATE the decision dated August 16.55). vs.: To avoid unjust enrichment to a party from resulting out of a substantially performed contract. premises considered. and (4) The awards for exemplary damages. 1993 of the Regional Trial Court. (2) The award for loss of savings and unrealized profit is deleted.00. sufficient to cover the total indebtedness to respondent Maasin Traders Lending Corporation computed as of June 20. FRANCISCO B. Branch 13. the principle of quantum meruit may be used to determine his compensation in the absence of a written agreement for that purpose. JR. the decision dated August 26. Petitioner.2 The proposal encompassed nine phases. attorneys fees. SO ORDERED. Respondents.1 disposing: WHEREFORE. Joaquin. R-82-2434 is AFFIRMED with Modification as to the amounts awarded as follows: defendant-appellant IHC is ordered to pay plaintiffappellant Joaquin P700.00. if still available. 2013 INTERNATIONAL HOTEL CORPORATION.00 and plaintiff-appellant SuarezP200. 1989. No. BERSAMIN. Jr.000. J.spouses Go Cincos PNB loan.000. 1969. The principle of quantum meruit justifies the payment of the reasonable value of the services rendered by him. shall forthwith be released. JOAQUIN. and expenses of litigation are retained. Antecedents G. DECISION On February 1. Manila in Civil Case No. both to be paid in cash.R. 2002. to be guaranteed by the Development Bank of the Philippines (DBP). 158361 April 10.000. (3) The award for moral damages is reduced to P100. The Case Under review is the decision the Court of Appeals (CA) promulgated on November 8. The awards under (3) and (4) above shall be deducted from the amount of the outstanding loan due the respondents as of June 20. 1989. namely: (1) the . Costs against the respondents. and to consent to the release of the mortgage on the property given as security for the loan upon PNBs acknowledgment that the proceeds of the loan. respondent Francisco B. and RAFAEL SUAREZ. submitted a proposal to the Board of Directors of the International Hotel Corporation (IHC) for him to render technical assistance in securing a foreign loan for the construction of a hotel. (7) the overall coordination in implementing the projections of the project study. 1969. While the negotiations with Barnes were ongoing.000.000 shares of stock previously issued to Joaquin and Suarez as payment for their services. DBP denied the application for guaranty for failure to comply with the conditions contained in its November 12.4 The IHC Board of Directors approved phase one to phase six of the proposal during the special board meeting on February 11. 1972.14 Due to Joaquin’s failure to secure the needed loan. allowing the payment for both Joaquin and Rafael Suarez for their services in implementing the proposal. 1970. 1969. with its principal. IHC entered into an agreement with Weston. (3) the preparation of papers necessary to the application for guaranty. to explore possible financing. and communicated this development to DBP on June 26. He recommended that the Board of Directors consider Materials Handling Corporation based on the more beneficial terms it had offered. Joaquin wrote to IHC to request the payment of his fees in the amount of P500. (4) the securing of a foreign financier for the project. 1971.000. shortly after submitting the application to DBP. Joaquin intimated his amenability to receive shares of stock instead of cash in view of IHC’s financial situation. His recommendation was accepted. IHC. 1971. but their request was rejected. (8) the preparation of the staff for actual hotel operations.preparation of a new project study. Joaquin presented to the IHC Board of Directors the results of his negotiations with potential foreign financiers.5 Anent the financing. and earmarked P2. The latter requested a reconsideration of the cancellation.7 On July 11. 1969 subject to several conditions. met with another financier. the Executive Director of IHC. IHC applied with DBP for a foreign loan guaranty. 1969. the stockholders of IHC met and granted Joaquin’s request.13 On December 13. He narrowed the financiers to Roger Dunn & Company and Materials Handling Corporation.9 On June 20. (5) the securing of the approval of the DBP Board of Governors.12As a result. (6) the actual follow up of the application with DBP3. DBP processed the application. IHC informed DBP that it would submit Weston for DBP’s consideration. later on.000. . However.8 On July 11. the Weston International Corporation (Weston).11 When Barnes failed to deliver the needed loan. 1971 letter. Barnes International (Barnes). canceled the 17.00 for the services that he had provided and would be providing to IHC in relation to the hotel project that were outside the scope of the technical proposal. and (9) the actual hotel operations. through its President Bautista. (2) the settlement of the unregistered mortgage prior to the submission of the application for guaranty for processing by DBP.10 Negotiations with Materials Handling Corporation and. DBP cancelled its previous guaranty through a letter dated December 6.6 and approved it on October 24. Joaquin and Jose Valero. ensued.00 for the project. Mario B. Julian.000 shares of the common stock plus cash of P1. that the said defendant IHC likewise pay the co-plaintiffs. Rustia. not future ones. filed an answer claiming that the shares issued to Joaquin and Suarez as compensation for their "past and future services" had been issued in violation of Section 16 of the Corporation Code. Sergio O. Danilo R. Joaquin and Suarez commenced this action for specific performance. namely. and that IHC had agreed to compensate their services with 17. and clarified that they were not directors of IHC.00). Reyes died and was substituted by Consorcia P. Ruling of the CA . Benjamin J. the administratrix of his estate. damages and injunction by a complaint dated December 6.17 On their part. attorney’s fees of P20. and had deprived them of their right to participate in the meetings and elections held by IHC.18 Similarly. 1973 in the Regional Trial Court in Manila (RTC).16 IHC.000.15 The complaint alleged that the cancellation of the shares had been illegal.00) and to pay plaintiff Rafael Suarez the amount of Fifty Thousand Pesos (P50. Julian and Benjamin J. that they had failed to meet their obligation because President Bautista and his son had intervened and negotiated with Barnes instead of Weston. and costs of suit. the Court hereby orders the defendant International Hotel Corporation to pay plaintiff Francisco B. law and jurisprudence. Felix Angelo Bautista. not by Joaquin. that DBP had canceled the guaranty because Barnes had failed to release the loan. and that the cancellation of the shares of stock had been proper under Section 68 of the Corporation Code. that Barnes had been recommended by IHC President Bautista. Rustia. Basilio L. Sergio O.21 The RTC found that Joaquin and Suarez had failed to meet their obligations when IHC had chosen to negotiate with Barnes rather than with Weston. Lirag. Mario B. Ephraim G. annulment. disposing thusly: WHEREFORE. Lirag and Lacerna denied any knowledge of or participation in the cancellation of the shares. Reyes. Bautista. Reyes. Bautista. impleading IHC and the members of its Board of Directors. in the light of the above facts. which allowed such transfer of shares to compensate only past services. that Joaquin and Suarez had not provided a foreign financier acceptable to DBP. Joaquin. Gochangco. Gochangco and Reyes denied any knowledge of or participation in the cancellation of the shares. and that they had already received P96.00 as payment for their services.350.00. the amount of Two Hundred Thousand Pesos (P200.Consequently.000.000.000. IT IS SO ORDERED.19 In the course of the proceedings.000.00. 1993.20 Ruling of the RTC Under its decision rendered on August 26. the financier that Joaquin had recommended. together with Felix Angelo Bautista. Lacerna and Hermenegildo R. the RTC held IHC liable pursuant to the second paragraph of Article 1284 of the Civil Code. 000. quoting defendantappellant IHC’s board resolutions which supposedly authorized the payment of such amount cannot be sustained. The resolutions are quite clear and when taken together show that said amount was only the "estimated maximum expenses" which defendantappellant IHC expected to incur in accomplishing phases 1 to 6. to wit: DESPITE HAVING CORRECTLY ACKNOWLEDGED THAT PLAINTIFFS-APPELLANTS FULLY PERFORMED ALL THAT WAS INCUMBENT UPON THEM.000.A. DEFENDANTS WERE UNJUSTIFIED IN CANCELLING THE SHARES OF STOCK PREVIOUSLY ISSUED TO PLAINTIFFS-APPELLANTS.00.00). 1969: "Incidentally.23 On the other hand. REPRESENTING THE TOTAL OBLIGATION DUE PLAINTIFFS-APPELLANTS. Anent how much was due to Joaquin and Suarez. INCLUDING INTEREST THEREON FROM 1973. 2002.000. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLANTS HAVE NOTBEEN COMPLETELY PAID FOR THEIR SERVICES. THE HONORABLE JUDGE ERRED IN NOT ORDERING THAT: A.22 THE LOWER COURT ERRED IN AWARDING PLAINTIFFSAPPELLANTS ATTORNEY’S FEES AND COSTS OF SUIT.This conclusion finds support in an unnumbered board resolution of defendant-appellant IHC dated July 11. AND B. AND IN ORDERING THE DEFENDANT-APPELLANT TO PAY TWO HUNDRED THOUSAND PESOS (P200. In its questioned decision promulgated on November 8. upholding IHC’s liability under Article 1186 of the Civil Code.700. RESPECTIVELY. Bautista. IHC attributed errors to the RTC.Both parties appealed.000. Plaintiff-appellant Joaquin’s letter to defendant-appellee F.00) AND FIFTY THOUSAND PESOS (P50. It ruled that in the context of Article 1234 of the Civil Code.000. 1969 considering that the . II. 24 Joaquin and Suarez assigned the following errors. the CA concurred with the RTC.00) TO PLAINTIFFS-APPELLANTS FRANCISCO B. it was also taken up the necessity of giving the Technical Group a portion of the compensation that was authorized by this corporation in its Resolution of February 11. JOAQUIN AND RAFAEL SUAREZ. and that the issuance of the shares of stock was ultra vires for having been issued as consideration for future services. Joaquin had substantially performed his obligations and had become entitled to be paid for his services. the CA explained thusly: This Court does not subscribe to plaintiffs-appellants’ view that defendant-appellant IHC agreed to pay themP2. DEFENDANTS PAY PLAINTIFFS-APPELLANTS TWO MILLION SEVEN HUNDRED PESOS (sic) (P2. not exclusively to plaintiffs-appellants’ compensation. as follows: I. 000.000. this Court nonetheless finds its award proper given defendant-appellant IHC’s actions.. still and all. Instead of shares of stock.00 in common stock to Francisco G. that it had no intention of preventing Joaquin from complying with his obligations when it adopted his recommendation to negotiate with Barnes.00 worth of Common Stock would be reasonable for the present accomplishments and to this effect. defendant-appellant IHC cannot now put up its own ultra vires act as an excuse to escape obligation to plaintiffs-appellants.000.00 either in cash or in stock or both. also a member of the Technical Group.000. On the same date. for they are without a doubt null and void. that Article 1234 of the Civil Code applied only if there was a merely slight deviation from the obligation. in fact. the ultimate goal of its contract with Joaquin and Suarez.000. and the omission or defect was technical and unimportant. as associate in the Technical Group. Although the lower court failed to explain why it was granting the attorney’s fees.00 was allocated exclusively to compensate plaintiffsappellants. that because the obligation was .assistance so far given the corporation by said Technical Group in continuing our project with the DBP and its request for guaranty for a foreign loan is 70% completed leaving only some details which are now being processed. the IHC raises as issues for our consideration and resolution the following: I WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING COMPENSATION AND EVEN MODIFYING THE PAYMENT TO HEREIN RESPONDENTS DESPITE NONFULFILLMENT OF THEIR OBLIGATION TO HEREIN PETITIONER II WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING ATTORNEY’S FEES TO RESPONDENTS26 IHC maintains that Article 1186 of the Civil Code was erroneously applied. Joaquin. Rather. the President is authorized to issue the same in the name of the Technical Group. It is apparent that not all of the P2.000. as follows: P200.00 in common stock to Rafael Suarez.25 Issues In this appeal. defendant-appellant IHC is ordered to pay plaintiff-appellant Joaquin a total of P700.00 and plaintiff-appellant Suarez P200. While this Court cannot decree that the cancelled shares be restored. it was intended to fund the whole undertaking including their compensation. Jr. that substantial compliance was unacceptable because the foreign loan was material and was. defendant-appellant IHC also authorized its president to pay-appellant Joaquin P500. It is estimated thatP400.000. both to be paid in cash. The amount awarded by the lower court was therefore less than what defendant-appellant IHC agreed to pay plaintiffs-appellants.000.00. and P200. namely: (a) the intent of the obligor to prevent the fulfillment of the condition. 2. the resolution of the issue must rest solely on what the law provides on the given set of circumstances. facts. IHC’s argument is meritorious. This provision refers to the constructive fulfillment of a suspensive condition.indivisible and subject to a suspensive condition. On the part of respondents. Article 1181 of the Civil Code27 applied.30 When there is no dispute as to the Article 1186. under which a partial performance was equivalent to non-performance. Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC’s obligation to pay respondents IHC argues that it should not be held liable because: (a) it was Joaquin who had recommended Barnes. only Joaquin filed a comment.32 whose application calls for two requisites.28 arguing that the petition was fatally defective for raising questions of fact. or to place ineffective obstacles to its compliance.29 Ruling We deny the petition for review on certiorari subject to the ensuing disquisitions. A question of law does not involve an examination of the probative value of the evidence presented by the litigants or by any of them. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.31 Considering that what IHC seeks to review is the CA’s application of the law on the facts presented therein. is insufficient. IHC raises questions of law Article 1186 of the Civil Code reads: We first consider and resolve whether IHC’s petition improperly raised questions of fact. without actually preventing the fulfillment.33 . Mere intention of the debtor to prevent the happening of the condition. in contrast. and that the suspensive condition was deemed fulfilled through IHC’s own actions. the question of whether or not the conclusion drawn from the facts is correct is a question of law. there is no doubt that IHC raises questions of law. but. and (b) the actual prevention of the fulfillment. A question of law exists when there is doubt as to what the law is on a certain state of facts. The basic issue posed here is whether the conclusions drawn by the CA were correct under the pertinent laws. a question of fact exists when the doubt arises as to the truth or falsity of the facts alleged. 1. that the obligation was divisible and capable of partial performance. and (b) IHC’s negotiation with Barnes had been neither intentional nor willfully intended to prevent Joaquin from complying with his obligations. and that the award of attorney’s fees should be deleted for lack of legal and factual bases. he recommended that the corporation entertain other offers. . he explained that the corporation accepted. the President called on Mr. the Directors present approved unanimously the recommendation of Mr. After a brief exchange of views on the part of the Directors present and after hearing the clarification and explanation made by Mr. Switzerland. Director Joaquin showed the advantages of the offer of Materials Handling Corporation. Bautista and Sergio O. M. Joaquin also informed the corporation that. to wit: xxxx At the meeting all the members of the Board of Directors of the International Hotel Corporation were present with the exception of Directors Benjamin J. to explain the different negotiations he had conducted relative to obtaining the needed financing for the hotel project in keeping with the authority given to him in a resolution approved by the Board of Directors. and until such time as the corporation’s negotiations with Roger Dunn is terminated. to wit: the foreign financier recommended by George Wright of the Roger Dunn & Company and the offer made by the Materials Handling Corporation.The error lies in the CA’s failure to determine IHC’s intent to pre-empt Joaquin from meeting his obligations. on one way or the other. Joaquin. to their financing. In that meeting. Joaquin to entertain the offer of Materials Handling Corporation. in principle. the bank confirmation of Roger Dunn & Company has not been received. The June 20. However. 1970 minutes of IHC’s special board meeting discloses that Joaquin impressed upon the members of the Board that Materials Handling was offering more favorable terms for IHC. It was decided by the Directors that. Rustia who asked to be excused because of previous engagements. IHC only relied on the opinion of its consultant in deciding to transact with Materials Handling and. Rudolph Meir of the Private Bank of Zurich. Francisco G. Mr. that the funds committed by Roger Dunn may be diverted to other borrowers of the Development Bank of the Philippines. per the corporation’s telegrams to Mr. Mr. at the same time as the offer of Materials Handling Corporation. With this condition. After explaining the advantages and disadvantages to our corporation of the two (2) offers specifically with regard to the terms and repayment of the loan and the rate of interest requested by them. C. we are committed.34 Evidently. the offer of Roger Dunn. as of this date. In view of the fact that the corporation is racing against time in securing its financing. he concluded that the offer made by the Materials Handling Corporation is much more advantageous because the terms and conditions of payment as well as the rate of interest are much more reasonable and would be much less onerous to our corporation. Joaquin presently explained that he contacted several local and foreign financiers through different brokers and after examining the different offers he narrowed down his choice to two (2). Jr. should the negotiations with Roger Dunn materialize. Javier who was present and who represented the Materials Handling Corporation. to wit: In order that there may be substantial performance of an obligation. the law deems the performance as substantial.39 Conversely. The non-performance of a material part of a contract will prevent the performance from amounting to a substantial compliance. willful or otherwise. but has through oversight. for which the other party may be adequately indemnified by an allowance and deduction from the contract price or by an award of damages. less damages suffered by the obligee. or technical and unimportant. cannot be permitted. and the omission or defect must be technical and unimportant. The deviation from the obligation must be slight. Although compelled to pay. to prevent Joaquin and Suarez from meeting their undertaking. or omits to perform a material part of it.later on. It is well to note that Article 1234 applies only when an obligor admits breaching the contract35 after honestly and faithfully performing all the material elements thereof except for some technical aspects that cause no serious harm to the obligee. which states: The party claiming substantial performance must show that he has attempted in good faith to perform his contract. the principle of substantial performance is inappropriate when the incomplete performance . and must not pervade the By reason of the inconsequential nature of the breach or omission. misunderstanding or any excusable neglect failed to completely perform in certain negligible respects.38 The compulsion of payment is predicated on the substantial benefit derived by the obligee from the partial performance. and does not affect the real purpose of the contract. But a party who knowingly and wilfully fails to perform his contract in any respect. Tolentino explains the character of the obligor’s breach under Article 1234 in the following manner. with Barnes. IHC had no intention. If the obligation has been substantially performed in good faith. to compel the other party. and the trend of the more recent decisions is to hold that the percentage of omitted or irregular performance may in and of itself be sufficient to show that there had not been a substantial performance. whole or be so material that the object which the parties intended to accomplish in a particular manner is not attained. making it the obligee’s duty to pay. Such absence of any intention negated the basis for the CA’s reliance on Article 1186 of the Civil Code. Nor do we agree with the CA’s upholding of IHC’s liability by virtue of Joaquin and Suarez’s substantial performance.37 Article 1234. the CA applied Article 1234 of the Civil Code. In negotiating with Barnes.36 IHC correctly submits that the provision refers to an omission or deviation that is slight. In so ruling. there must have been an attempt in good faith to perform. the obligor may recover as though there had been a strict and complete fulfillment. under the protection of this rule. without any willful or intentional departure therefrom. the obligee is nonetheless entitled to an allowance for the sum required to remedy omissions or defects and to complete the work agreed upon. 3. shall depend upon the happening of the event that constitutes the condition. Whatever benefits IHC gained from their services could only be minimal. both the RTC and the CA held that Joaquin and Suarez’s obligation was subject to the suspensive condition of successfully securing a foreign loan guaranteed by DBP. IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed conditional obligation Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code. and the extent that the nonperformance defeated the purposes of the contract. Joaquin himself admitted that his assistance was specifically sought to seek financing for IHC’s hotel project. IHC agrees with both lower courts. IHC was liable based on the nature of the obligation. In that instance. Article 1234 did not apply. as well as the extinguishment or loss of those already acquired. The primary objective of the parties in entering into the services agreement was to obtain a foreign loan to finance the construction of IHC’s hotel project. respectively the preparation of a new project study and the settlement of the unregistered mortgage. A contractual breach is material if it will adversely affect the nature of the obligation that the obligor promised to deliver. Consequently. so that the failure to completely satisfy such obligation could not be characterized as slight and unimportant as to have resulted in Joaquin and Suarez’s substantial performance that consequentially benefitted IHC. This objective could be inferred from IHC’s approval of phase 1 to phase 6 of the proposal. Considering that the agreement between the parties was not circumscribed by a definite period.41 Needless to say. Phase 1 and phase 2. and even argues that the obligation with a suspensive condition did not arise when the event or occurrence did not happen.40 Accordingly. and were even probably outweighed by whatever losses IHC suffered from the delayed construction of its hotel.42 The prevailing rule in conditional obligations is that the acquisition of rights. partial performance of the .43 To recall. for the principle embodied in Article 1234 to apply. would pave the way for Joaquin and Suarez to render assistance to IHC in applying for the DBP guaranty and thereafter to look for an able and willing foreign financial institution acceptable to DBP. finding the foreign financier that DBP would guarantee was the essence of the parties’ contract. the failure of Joaquin and Suarez to comply with their commitment should not defeat the ultimate purpose of the contract. its termination was subject to a condition – the happening of a future and uncertain event. In that regard. the benefits that the obligee expects to receive after full compliance.constitutes a material breach of the contract. All the steps that Joaquin and Suarez undertook to accomplish had a single objective – to secure a loan to fund the construction and eventual operations of the hotel of IHC. 000.00 for Joaquin andP200. 4.46 Considering that the respondents were able to secure an agreement with Weston.000.000. Joaquin claimed that aside from the approved P2.44 or of the obligor. Its conclusion was unquestionably borne out by the minutes of the February 11. Such third persons could not be legally compelled to act in a manner favorable to IHC. the CA rightly concluded that the full amount of P2.000. but was intended to be the estimated maximum to fund the expenses in undertaking phase 6 of the scope of services. There is no question that when the fulfillment of a condition is dependent partly on the will of one of the contracting parties.000.00. upon DBP’s approval of the plan now being studied and prepared. we rule that they thereby constructively fulfilled their obligation. Quantum meruit should apply in the absence of an express agreement on the fees The next issue to resolve is the amount of the fees that IHC should pay to Joaquin and Suarez. As such.45 The existing rule in a mixed conditional obligation is that when the condition was not fulfilled but the obligor did all in his power to comply with the obligation.00.000. but the CA revised the amounts to P700. the condition should be deemed satisfied. 1969 meeting. We have to disagree with IHC’s argument. Anent the P2.00 as payment for his services.e.000. and the DBP Board of Governors to guarantee the loan.00 could not be awarded to respondents because such amount was not allocated exclusively to compensate respondents. .contract subject to the suspensive condition was tantamount to no performance at all.000.00 for Suarez. and partly on chance. is somewhere around P2.00 fee to implement phase 1 to phase 6. viz: xxxx II The preparation of the necessary papers for the DBP including the preparation of the application.000.000. The RTC declared that he and Suarez were entitled to P200.000. conditioned on the DBP’s acceptance of the project as feasible. the obligation is mixed. the respondents were not entitled to any compensation. i. and subsequently tried to reverse the prior cancellation of the guaranty by DBP.000. To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will of the respondents because it required the action and discretion of third persons – an able and willing foreign financial institution to provide the needed funds. hazard or the will of a third person. the actual follow up with the different departments of the DBP which includes the explanation of the feasibility studies up to the approval of the loan.00 each. The estimated expenses for this particular phase would be contingent. the IHC Board of Directors had approved an additional P500. the presentation of the mechanics of financing. However. as it is hereby RESOLVED. 1969 and which you authorized us to do under Board Resolution of February 11. He had requested the payment of that amount to cover services rendered and still to be rendered to IHC separately from those covered by the first six phases of the scope of work. Gochangco.000. Inasmuch as my fees are contingent on the successful implementation of this project. in that it is not in a financial position to pay my services in cash. For my appointment as Consultant dated May 12. I am requesting this Body to consider payment of my fees even in the form of shares of stock. 1969 wherein I was appointed to the Technical Committee. the Board on motion duly made and seconded.After a brief discussion on the matter.00. thus: The Board of Directors International Hotel Corporation Thru: Justice Felix Angelo Bautista President & Chairman of the Board Gentlemen: I have the honor to request this Body for its deliberation and action on the fees for my services rendered and to be rendered to the hotel project and to the corporation. I realize the position of the corporation at present. unanimously adopted a resolution of the following tenor: RESOLUTION NO. These fees are separate from the fees you have approved in your previous Board Resolution.000. as you have done to the other technical men and for other services rendered to the corporation by other people. I believe said amount is reasonable since this is approximately only ¾ of 1% of the total project cost. . it now follows that I have been also authorized to implement part of Phases 7 & 8. Valero and Ephraim G. It is only Phase 6 which now remains to be implemented. 1969. there is no reason to hold IHC liable for that amount due to his failure to present sufficient proof of the services rendered towards that end. that if the Reparations allocation and the plan being negotiated with the DBP is realized the estimated maximum expenses of P2. Jose N. 1969 letter revealed that the additional services that he had supposedly rendered were identical to those enumerated in the technical proposal.000.000. I have accomplished Phases 1-5 of my report dated February 1. So far. therefore. ______ (Series of 1969) "RESOLVED. his July 11."47 (Emphasis supplied) Joaquin’s claim for the additional sum of P500. since my fees are separate. Furthermore. The fees which I consider reasonable for the services that I have rendered to the project up to the completion of its construction is P500.00 was similarly without factual and legal bases.00 for this phase is hereby authorized subject to the sound discretion of the committee composed of Justice Felix Angelo Bautista. I request that my fees be based on a percentage of the total project cost. 1969 and the Board Resolution dated June 23. All I have drawn from the corporation is the amount of P500.00 in equity from the corporation became unnecessary. making it bankable and feasible. requesting this Body for their approval of my fees.00. We have performed other services for the corporation which led to the cooperation and understanding of the different factions of this corporation. will take approximately another 2 ½ years. In view of the above. We have secured the approval of the DBP to process the loan application of this corporation as per its letter July 2. . I have presented the financial mechanics of the loan wherein the requirement of the DBP for an additional P19.000. 5. 6.000. When the corporation is in a better financial position. 1969. I have submitted to you several offers already of foreign financiers which are in your files. 4. I will request for a withdrawal of a monthly allowance. I have prepared the application papers acceptable to the DBP by means of an advance analysis and the presentation of the financial mechanics.00 dated May 12. I have seen to it that a registered mortgage with the Reparations Commission did not affect the application with the IBP for approval to processing. I have shown my good faith and willingness to render services to your corporation which is evidenced by my continued services in the past 6 months as well as the accomplishments above mentioned.A brief summary of my accomplished work has been as follows: 1. I believe that the final completion of this hotel. 3. I am. I have revised and made the new Project Study of your hotel project. to the present recommendation of the Real Estate Department which is for the approval of this project for proceeding. I again reiterate my request for your approval of my fees.000. 7. said amount to be determined by this Body.000. I have reduced the total cost of your project by approximately P24. 9. I have rendered services to your corporation for the past 6 months with no clear understanding as to the compensation of my services. 2. 8. which recommended disapproval of this application. We are presently arranging the said financiers to confirm their funds to the DBP for our project. therefore.735. The explanation of the financial mechanics and the justification of this project was instrumental in changing the original recommendation of the Investment Banking Department of the DBP. at least for the processing of the DBP up to the completion of the construction. which was accepted by the DBP.00. 1969 and personal payment advanced by Justice Felix Angelo Bautista in the amount ofP1. ___ (Series of 1969) "RESOLVED that Mr.50 It is notable that the confusion on the amounts of compensation arose from the parties’ inability to agree on the fees that respondents should receive. Jr. also a member of the Technical Group.00) Pesos for his past services and services still to be rendered in the future to the corporation up to the completion of the Incidentally. and P200. The minutes of the July 11. Project. the President is authorized to issue the same in the name of the Technical Group. Joaquin.00 in Common stock to Francisco G. Francisco G. 1969 considering that the assistance so far given the corporation by said Technical Group in continuing our project with the DBP and its request for guaranty for a foreign loan is 70% completed leaving only some details which are now being processed. Joaquin the manner of payment of said compensation..Very truly yours. the amount purportedly included services still to be rendered that supposedly extended until the completion of the construction of the hotel. there can be no payment unless the obligation has been completely rendered. Joaquin.) Francisco G.00 worth of Common Stock would be reasonable for the present accomplishments and to this effect. Considering the absence of an agreement. The approval apparently arose from the confusion between the supposedly separate services that Joaquin had rendered and those to be done under the technical proposal. that in obligations to do. Francisco G.000.000. however.000. it was also taken up the necessity of giving the Technical Group a portion of the compensation that was authorized by this corporation in its Resolution of February 11. 1969 board meeting (when the Board of Directors allowed the payment for Joaquin’s past services and for the 70% project completion by the technical group) showed as follows: III The Third order of business is the compensation of Mr.48 (Emphasis supplied) Joaquin could not even rest his claim on the approval by IHC’s Board of Directors. Jr. for his services in the corporation. After a brief discussion that ensued. Joaquin. upon motion duly made and seconded. It is basic. authorizing him to pay part in stock and part in cash. the stockholders unanimously approved a resolution of the following tenor: RESOLUTION NO. It is estimated that P400. Jr.. Jr." (Sgd. as follows: P200.1âwphi1 The President is given full discretion to discuss with Mr.49 Lastly. and in view . Joaquin. an associate in the Technical Group.000. be granted a compensation in the amount of Five Hundred Thousand (P500.00 in Common Stock to Rafael Suarez. 2002 in C.54 ACCORDINGLY. a contractor is allowed to recover the reasonable value of the services rendered despite the lack of a written contract. No costs of suit. CHICO-NAZARIO. the Court has to apply the principle of quantum meruit in determining how much was still due and owing to respondents.00 as attorney's fees is deleted. No.of respondents’ constructive fulfillment of their obligation..A. we deem the total amount of P200. pay Francisco G. Finally. Attorney’s fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. Chairperson. Present: YNARES-SANTIAGO. Being predicated on equity. G. Respondent. the Court DENIES the petition for review on certiorari. 2009 x-----------------------------------------------------------------------------------x . and AFFIRMS the decision of the Court of Appeals promulgated on November 8. Jr. 47094 subject to the MODIFICATIONS that: (a) International Hotel Corporation is ordered to. and no specific statutory provision was applicable.00 each as compensation for their services. and LEONARDO-DE CASTRO CENTRAL SURETY & INSURANCE COMPANY. and Rafael Suarez P100. the principle should only be applied if no express contract was entered into.000.52 The principle prevents undue enrichment based on the equitable postulate that it is unjust for a person to retain any benefit without paying for it.000. Joaquin. No.00 to be reasonable compensation for respondents’ services under the principle of quantum meruit.R. Promulgated: February 13. It is not enough justification for the award simply because respondents were compelled to protect their rights. .51 The measure of recovery under the principle should relate to the reasonable value of the services performed. PREMIERE DEVELOPMENT BANK. There should be factual or legal support in the records before the award of such fees is sustained.versus - AUSTRIA-MARTINEZ.000. 176246 Petitioner.-G.R.53 Under the established circumstances. NACHURA. INC. and (b) the award of P20. we sustain IHC’s position that the grant of attorney’s fees lacked factual or legal basis. Under the principle of quantum meruit. 2000. respectively. Central Surety had another commercial loan with Premiere Bank in the amount of P40. Castaeda.000. 1999. 714-Y and Deed of Assignment.R.: Before us is a petition for review on certiorari assailing the Court of Appeals (CA) Decision [1] in CA-G. and (3) unpaid balance of the principal. and Engracio T. In addition.000.00 loan with real estate mortgage was transacted by Constancio and Engracio Castaeda on behalf of Central Surety. 8804. PN No. 2001. 0051306.000. 217 representing its proprietary share in Wack Wack Golf and Country Club Incorporated (Wack Wack Membership). likewise. J. represented Central Surety and solidarily bound themselves to the payment of the obligation. the P40. should Central Surety fail to pay.00 from petitioner Premiere Development Bank (Premiere Bank) with a maturity date of August 14. to wit: .000.000. it would be liable to Premiere Bank for: (1) unpaid interest up to maturity date. Makati City. (2) unpaid penalties up to maturity date. Premiere Bank sent a letter to Central Surety demanding payment of the P6.000. evidenced by Promissory Note (PN) No.000.000. Central Surety executed in favor of Premiere Bank a Deed of Assignment with Pledge[4] covering Central Suretys Membership Fee Certificate No. 714-Y. In both PN No.00 loan. 367Z.000. 376-X was availed of through a renewal of Central Suretys prior loan. Branch 132. 2000. Parenthetically. evidenced by a PN numbered 376X[5] and secured by a real estate mortgage over Condominium Certificate of Title No.the loan. PN No. 714-Y provides for a penalty charge of 24% interest per annum based on the unpaid amortization/installment or the entire unpaid balance of To secure payment of the P6.00 maturing on October 10.00 loan. CV No.898. DECISION NACHURA.[6] As with the P6.898. In all. Jr. Castaeda.000. which reversed and set aside the decision of the Regional Trial Court (RTC).00 loan. Constancio T. This loan was.000.00 loan and the constituted pledge over the Wack Wack Membership. This P6. 85930. respondent Central Surety & Insurance Company (Central Surety) obtained an industrial loan of P6. [3] stipulates payment of 17% interest per annum payable monthly in arrears and the principal payable on due date.[2] On August 20. It appears that on August 22.000. Makati City in Civil Case No. then covered by PN No. president and vicepresident of Central Surety. Business Development Group . 217 with Serial No. Engracio T. No. Jr. to submit the required documents and come up with equity necessary to implement the restructuring scheme.) Gentlemen: IGNACIO R.Head[7] Posthaste. transferred in the name of Premiere Development Bank in accordance with the terms and conditions of the Deed of Assignment with Pledge executed in favor of Premiere Development Bank. we regret that unless the above loan is settled on or before five (5) days from the date hereof.0 Million. 2nd Floor Universalre Bldg. Inc. 2000: .August 22. Senior Asst. Castaneda We shall compliance. you have failed up to this time. appreciate your prompt Very truly yours. Legaspi Village Makati City In view thereof. 106 Paseo de Roxas. NEBRIDA. President Mr. Attention: Mr. Vice President ------------------------------------------------(sgd. We regret to inform you that despite efforts to restructure the same. JR. 2000 CENTRAL SURETY AND INSURANCE CO. Castaneda. 1793 duly issued by Wack Wack Golf and Country Club. Constancio T. Vice President/ This has reference to your overdue loan of P6. we shall exercise our option to have the Stock Certificate No. Central Surety responded and sent the following letter dated August 24. present conditions have been difficult for the insurance industry whose performance is so closely linked to the nations economic prosperity.898.00 loan which was originally covered by PN No. and we are now asking for some consideration and leeway on your very stiff and immediate demands. CASTANEDA Premiere Bank Vice-President[8] EDSA cor. 2000. Senior Asst.000.000. Accordingly. 08114 [9] dated September 22.00 loan. not just payment of the P6. should Central Surety fail to pay these within ten days from date. Central Surety issued Bank of Commerce (BC) Check No. 08114 to Central Surety.24 August 2000 Very truly yours.[11] In the same letter. as reflected in Central Suretys Disbursement Voucher. Mr. Premiere Bank threatened foreclosure of the loans respective securities. As of 14 August 2000 we made payment to your bank as per receipt attached. 367-Z. for undisclosed reasons. The check was received by Premiere Banks Senior Account Manager.000.0 Million loan account. by September 20. Magallanes Avenue Makati City Sir: With reference to this 6. Nebrida.) Business Development Group Head ENGRACIO T. Jr.00 and payable to Premiere Bank. thus: 28 Septem ber 2000 . Evangeline Veloira that we are intending to settle the account by the end of September. and in its letter dated September 28. demanded from the latter. Evangeline Veloira. the pledge and real estate mortgage. but also the P40.000. Ignacio R. As you may know. Kindly extend to us your favorable approval. 2000 in the amount of P6.[10] However. Premiere Bank returned BC Check No. with the notation full payment of loan-Wack Wack.000. Vice President/ (sgd. 2000. we have informed Ms. Castaeda Vice President 2nd Floor Universalre Bldg. please be advised that unless the outstanding balances of your loan accounts as of date plus interest. 106 Paseo de Roxas. Castaeda Jr. President Engracio T. penalties and other fees and charges are paid in full or necessary arrangements acceptable to our client is made by you within ten (10) days from date hereof.000. While our client has given you all the concessions. Premiere Development Bank. Makati City RE: YOUR COMMERCIAL OF P40.898. No.00 WITH DEVELOPMENT BANK LOAN PREMIERE UNDER ACCOUNT NOS. in connection with your above-captioned loan account. COM-367-Z AND COM 714-Y ********************************************* ***** Dear Sirs: We write on behalf of our client. to file foreclosure proceedings against the collateral of the loan mortgaged to the Bank or pursue such action necessary in the premises. .CENTRAL SURETY & INSURANCE CO. we shall be constrained much to our regret. In view of the foregoing and to protect the interest of our client.000. By: Constancio T. facilities and opportunities to service your loans. Legaspi Village.00 & P6.000. we regret to inform you that you have failed to settle the same despite their past due status. for unexplained reasons the cheque was returned to us. which was received by your Senior Account Manager. Jr. Please accept the cheque and issue the corresponding receipt thereof.000. then I shall advise my client to deposit it in court for proper disposition.000. 08114 payable to Premiere Bank in the amount of SIX MILLION PESOS (P6. Ms. Nebrida. Should you again refuse to accept this cheque.) PACITA M. in payment of PN#714Y. Sir: (sgd. (italics supplied) The very next day.000.00). informing you that it would settle its account by the end of September 2000.000. therefore. that you will give this matter your preferential attention. through its counsel. 2000. Evangeline Veloira. However. Ignacio R. Business Development Group Head Re : Promissory Note No. Central Surety. . ARAOS[12] This is further to our clients letter to you dated 24 August 2000. Vice President/ Please be advised that on 20 September 2000 our client delivered to your bank BC cheque no. We are again tendering to you the said cheque of SIX MILLION PESOS (P6.We trust. on September 29. 714-Y Very truly yours.00). wrote Premiere Bank and retendered payment of the check: 29 September 2000 PREMIERE BANK EDSA cor. Magallanes Avenue Makati City Attention: Mr. Senior Asst. . Thank you. 2/F Universalre Condominium 106 Paseo de Roxas Very truly yours, Legaspi Village, Makati City (sgd.) Dear Atty. Cua: EPIFANIO E. CUA Counsel for Central Surety & Insurance Company[13] (italics supplied) On even date, a separate letter with another BC Check No. 08115 in the amount of P2,600,000.00 was also tendered to Premiere Bank as payment for the Spouses Engracio and Lourdes Castaedas (Spouses Castaedas) personal loan covered by PN No. 717-X and secured by Manila Polo Club, Inc. membership shares. On October 13, 2000, Premiere Bank responded and signified acceptance of Central Suretys checks under the following application of payments: 13 October 2000 Thank you for your two (2) letters dated 29 September 2000 on behalf of clients with the enclosed check 0008114 and 0008115 for the of P8,600,000.00. both your nos. total As previously relayed to your client, Premiere Bank cannot accept the two (2) checks as full settlement of the obligation under Account Nos. PN #714-Y and PN # 717-X, as the amount is insufficient. In accordance with the terms and conditions of the Promissory Notes executed by your clients in favor of Premiere Development Bank, we have applied the two (2) checks to the due obligations of your clients as follows: 1) Account No.: COM 235-Z[14] P1,044,939.45 2) Account No.: IND 717-X P1,459,693.15 ATTY. EPIFANIO E. CUA 3) Account No.: COM 367-Z[15] P4,476,200.18 4) Account No.: COM 714-Y P1,619,187.22 TOTAL P8,600,000.00 We are enclosing Xerox copy each of four (4) official receipts covering the above payments. The originals are with us which your clients or their duly authorized representative may pick-up anytime during office hours. We shall appreciate the settlement in full of the accounts of your client or necessary arrangements for settlement thereof be made as soon as possible to put the accounts on up to-date status. Thank you. Significantly, the P8,600,000.00 check payments were not applied in full to Central Suretys P6,000,000.00 loan under PN No. 714-Y and the Spouses Castaedas personal loan of P2,600,000.00 under PN No. 717-X. Premiere Bank also applied proceeds thereof to a commercial loan under PN No. 235-Z taken out by Casent Realty and Development Corporation (Casent Realty),[17] and to Central Suretys loan originally covered by PN No. 367-Z, renewed under PN No. 376-X, maturing on October 20, 2001. Strongly objecting to Premiere Banks application of payments, Central Suretys counsel wrote Premiere Bank and reiterated Central Suretys demand for the application of the check payments to the loans covered by PN Nos. 714-X and 714-Y. Additionally, Central Surety asked that the Wack Wack Membership pledge, the security for the P6,000,000.00 loan, should be released. In the final exchange of correspondence, Premiere Bank, through its SAVP/Acting Head-LGC, Atty. Pacita Araos, responded and refused to accede to Central Suretys demand. Premiere Bank insisted that the PN covering the P6,000,000.00 loan granted Premiere Bank sole discretion respecting: (1) debts to which payments should be applied in cases of several obligations by an obligor and/or debtor; and (2) the initial application of payments to other costs, advances, expenses, and past due interest stipulated thereunder. Very truly yours, (sgd.) MS. ELSA M. SAPAPO Manager Loans Accounting and Control Department[16] As a result, Central Surety filed a complaint for damages and release of security collateral, specifically praying that the court render judgment: (1) declaring Central Suretys P6,000,000.00 loan covered by PN No. 714-Y as fully paid; (2) ordering Premiere Bank to release to Central Surety its membership certificate of shares in Wack Wack; (3) ordering Premiere Bank to pay Central Surety compensatory and actual damages, exemplary damages, attorneys fees, and expenses of litigation; and (4) directing Premiere Bank to pay the cost of suit. connection with one another. Therefore, [Premiere Bank] cannot apply the payment tendered by Central Surety to the other two entities capriciously and expressly violating the law and pertinent Central Bank rules and regulations. Hence, the application of the payment to the loan of Casent Realty (Account No. COM 236-Z) and to the loan of Mr. Engracio Castaeda (Account No. IND 717-X) is void and must be annulled. On July 12, 2005, the RTC rendered a decision dismissing Central Suretys complaint and ordering it to pay Premiere Bank P100,000.00 as attorneys fees. The RTC ruled that the stipulation in the PN granting Premiere Bank sole discretion in the application of payments, although it partook of a contract of adhesion, was valid. It disposed of the case, to wit: As to the issue of whether or not [Central Surety] is entitled to the release of Membership Fee Certificate in the Wack Wack Golf and Country Club, considering now that [Central Surety] cannot compel [Premiere Bank] to release the subject collateral. Now that the issue as to the validity of the stipulation is settled, [Premiere Bank] was right in contending that it had the right to apply [Central Suretys] payment to the most onerous obligation or to the one it sees fit to be paid first from among the several obligations. The application of the payment to the other two loans of Central Surety namely, account nos. COM 367-Z and IND 714-Y was within [Premiere Banks] valid exercise of its right according the stipulation. However, [Premiere Bank] erred in applying the payment to the loan of Casent Realty and to the personal obligation of Mr. Engracio Castaeda despite their With regard to the issue of damages and attorneys fees, the court finds no basis to grant [Premiere Banks] prayer for moral and exemplary damages but deems it just and equitable to award in its favor attorneys fees in the sum of Php 100,000.00. WHEREFORE, judgment is hereby rendered dismissing the complaint and ordering [Central Surety] to pay [Premiere Bank] Php 100,000.00 as attorneys fees. [18] (emphasis supplied) On appeal by Central Surety, the CA reversed and set aside the trial courts ruling. The appellate court held that with Premiere Banks letter dated August 22, 2000 specifically demanding payment of Central Suretys P6,000,000.00 loan, it was deemed to have waived the stipulation in PN No. 714-Y granting it the right to solely determine application of payments, and was, consequently, estopped from enforcing the same. In this regard, with the holding of full settlement of Central SuretysP6,000,000.00 loan under PN No. 714Y, the CA ordered the release of the Wack Wack Membership pledged to Premiere Bank. Hence, this recourse by Premiere Bank positing the following issues: WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE AND PALPABLE ERROR WHEN IT APPLIED THE PRINCIPLE OF WAIVER AND ESTOPPEL IN THE PRESENT CASE INSOFAR AS THE DEMAND LETTER SENT TO [CENTRAL SURETY] IS CONCERNED NULLIFYING THE APPLICATION OF PAYMENTS EXERCISED BY [PREMIERE BANK] WHETHER OR NOT THERE IS A VALID TENDER OF PAYMENT AND CONSIGNATION OF THE SUBJECT TWO CHECK PAYMENTS BY [CENTRAL SURETY]. WHETHER OR NOT, AS CORRECTLY FOUND BY THE COURT A QUO [CENTRAL SURETY] IS ESTOPPED FROM CONTESTING THE STIPULATIONS OR PROVISIONS OF THE PROMISSORY NOTES AUTHORIZING [PREMIERE BANK] TO MAKE SUCH APPLICATION OF PAYMENTS WHETHER OR NOT THE FINDING OF WAIVER AND ESTOPPEL BY THE HONORABLE COURT OF APPEALS COULD PREVAIL OVER THE CLEAR AND UNMISTAKABLE STATUTORY AND CONTRACTUAL RIGHT OF [PREMIERE BANK] TO EXERCISE APPLICATION OF PAYMENT AS WARRANTED BY THE PROMISSORY NOTE WHETHER OR NOT AS CORRECTLY FOUND BY THE LOWER COURT [PREMIERE BANK] IS ENTITLED TO AN AWARD OF DAMAGES AS OCCASIONED BY THE MALICIOUS FILING OF THIS SUIT.[19] EVEN ASSUMING EX GRATIA THAT THE 6 MILLION SHOULD BE APPLIED TO THE SUBJECT LOAN OF RESPONDENT, WHETHER OR NOT THE SUBJECT WACK-WACK SHARES COULD BE RELEASE[D] DESPITE THE CROSS DEFAULT AND CROSS GUARANTEE PROVISIONS OF THE DEED OF ASSIGNMENT WITH PLEDGE AND RELEVANT REAL ESTATE MORTGAGE CONTRACTS EXECUTED BY [CENTRAL SURETY], CASENT REALTY AND SPS. CASTAEDA. At the outset, we qualify that this case deals only with the extinguishment of Central Suretys P6,000,000.00 loan secured by the Wack Wack Membership pledge. We do not dispose herein the matter of the P2,600,000.00 loan covered by PN No. 717-X subject of BC Check No. 08115. We note that both lower courts were one in annulling Premiere Banks application of payments to the loans of Casent Realty and the Spouses Castaeda under PN Nos. 235-Z and 717-X, respectively, thus: It bears stressing that the parties to PN No. 714-Y secured by Wack Wack membership certificate are only Central Surety, as debtor and [Premiere Bank], as creditor. Thus, when the questioned stipulation speaks of several obligations, it only refers to the obligations of [Central Surety] and nobody else. [I]t is plain that [Central Surety] has only two loan obligations, namely: 1.) Account No. 714-Y secured by Wack Wack membership certificate; and 2.) Account No. 367-Zsecured by Condominium Certificate of Title. The two loans are secured by separate and different collaterals. The collateral for Account No. 714-Y, which is the Wack Wack membership certificate answers only for that account and nothing else. The collateral for Account No. 367-Z, which is the Condominium Certificate of Title, is answerable only for the said account. The fact that the loan obligations of [Central Surety] are secured by separate and distinct collateral simply shows that each collateral secures only a particular loan obligation and does not cover loans including future loans or advancements. As regards the loan covered by Account No. 235-Z, this was obtained by Casent Realty, not by [Central Surety]. Although Mr. Engracio Castaeda is the vice-president of [Central Surety], and president of Casent Realty, it does not follow that the two corporations are one and the same. Both are invested by law with a personality separate and distinct from each other. Thus, [Central Surety] cannot be held liable for the obligation of Casent Realty, absent evidence showing that the latter is being used to defeat public convenience, justify wrong, protect fraud or defend crime; or used as a shield to confuse the legitimate issues, or when it is merely an adjunct, a business conduit or an alter ego of [Central Surety] or of another corporation; or used as a cloak to cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or for the protection of creditors. Likewise, [Central Surety] cannot be held accountable for the loan obligation of spouses Castaeda under Account No. IND 717-X. Settled is the rule that a corporation is invested by law with a personality separate and distinct from those of the persons composing it. The corporate debt or credit is not the debt or credit of the stockholder nor is the stockholders debt or credit that of the corporation. The mere fact that a person is a president of the corporation does not render the 2.000. 08114. and the corporation are separate entities. as an individual. whether the release of the Wack Wack Membership pledge is in order. Corollarily.00 loan of Central Surety was extinguished by the encashment of BC Check No.000.property he owns or possesses the property of the corporation.000. 3. to surreptitiously include the validity of its application of payments concerning the loans to Casent Realty and the Spouses Castaeda. Whether Premiere Bank waived its right of application of payments on the loans of Central Surety. . We shall take the first and the second issues in tandem. whether the P6. The Petition is meritorious. through this petition. Premiere Bank cannot be allowed.00 check payment to the respective loans of Casent Realty and the Spouses Castaeda. Premiere Bank did not appeal or question the RTCs ruling specifically annulling the application of the P6. Thus. to wit: 1. we sift through the issues posited by Premiere Bank and restate the same. Undoubtedly.000. In the alternative.[20] In fact. since that president. to which of the same must be applied. may declare at the time of making the payment. the former cannot complain of the same. the right passes to the creditor. unless the waiver is contrary to law.: If the debtor accepts from the creditor a receipt in which an application of payment is made. in making a voluntary payment. par.[23] A debtor. Unless the parties so stipulate. [21] following this Courts earlier pronouncement that the ordinary acceptation of the terms may and shall may be resorted to as guides in ascertaining the mandatory or directory character of statutory provisions. unless he has assigned or waived that right. This is obvious in Art. 2. public order. public policy. Rights may be waived. who may make such .[22] Article 1252 gives the right to the debtor to choose to which of several obligations to apply a particular payment that he tenders to the creditor. This is clear from the use of the word may rather than the word shall in the provision which reads: He who has various debts of the same kind in favor of one and the same creditor. If the debtor does not do so. But likewise granted in the same provision is the right of the creditor to apply such payment in case the debtor fails to direct its application. may at the time of payment direct an application of it to whatever account he chooses. or prejudicial to a third person with a right recognized by law. 1252. to which of them the same must be applied. viz. If the debtor accepts from the creditor a receipt in which an application of the payment is made. may declare at the time of making the payment. It is the directory nature of this right and the subsidiary right of the creditor to apply payments when the debtor does not elect to do so that make this right. unless there is a cause for invalidating the contract. application shall not be made as to debts which are not yet due.Creditor given right to apply payments At the hub of the controversy is the statutory provision on application of payments. and not mandatory. He who has various debts of the same kind in favor of one and the same creditor. or when the application of payment is made by the party for whose benefit the term has been constituted.: Article 1252. the debtors right to apply payment has been considered merely directory. morals or good customs. the former cannot complain of the same. viz. waivable. The debtors right to apply payment is not mandatory. Indeed. specifically Article 1252 of the Civil Code. like any other right. the debtor cannot vary this agreement. I/We hereby empower [Premiere Bank] to apply without notice and in any manner it sees fit. the debtors right to apply payment can be waived and even granted to the creditor if the debtor so agrees.[27] In the case at bench. Hence. Planters was entitled to apply the Hi-Plains payments as it saw fit. Thus the trial court erred. thus: In case I/We have several obligations with [Premiere Bank]. thus: The following are some limitations on the right of the debtor to apply his payment: xxxx 5) when there is an agreement as to the debts which are to be paid first. Central Surety expressly agreed to grant Premiere Bank the authority to apply any and all of Central Suretys payments. Planters refused.[25] This was explained by former Senator Arturo M. securities by way of pledges. 376-X. Planters notes it was expressly provided in the security agreement on the 1981 loan that Planters had a legal right to direct application of payments in its sole discretion. the records show that Premiere Bank and Central Surety entered into several contracts of loan. it was held that: The debtor requested Planters apply the payments to the 1981 loan rather than to the 1978 loan. in a Decision of the Supreme Court of Kansas in a case with parallel facts. In at least two (2) promissory notes between the parties. and . This proviso is representative of all the other Promissory Notes involved in this case.S. which applies only in absence of a statute or specific agreement. an acknowledged expert on the Civil Code. the debtors had no right by agreement to direct the payments. Rule.application as he chooses.[24] Verily. the court will apply the payment according to the justice and equity of the case. This also precludes the application of the U. and suretyship agreements. It is in the exercise of this express authority under the Promissory Notes. Appellees do not refute this. Any such application of deposits or payments shall be conclusive and binding upon us.[26] Relevantly.Tolentino. taking into consideration all its circumstances. 714-Y and Promissory Note No. But if neither party has exercised its option. any or all of my/our deposits and payments to any of my/our obligations whether due or not. Promissory Note No. the courts must indulge every reasonable presumption against the existence and validity of such waiver. including the situation where the law or the obligations expressly declare it unnecessary. especially in light of the legal requirement that demand is a prerequisite before default may set in. this Court may take judicial notice that the standard practice in commercial transactions to send demand letters has become part and parcel of every collection effort. demand. which cannot be equated with a waiver of the right to demand payment of all the matured obligations of Central Surety to Premiere Bank. a diligent creditor should not needlessly be interfered with in the prosecution of his legal remedies. shall operate as a waiver thereof. protest or notice of any kind.[28] Neither can it be said that Premiere Bank waived its right to apply payments when it specifically demanded payment of the P6. and with sufficient awareness of the relevant circumstances and likely consequences. There was no waiver on the part of petitioner Undoubtedly.000. as creditor. but must have been made knowingly. in the amount ofP6. in the face of both the express provisions of the law and the agreements entered into by the parties. merely a superfluity.After all. Moreover. 714-Y dated August 20. that Premiere Bank applied payments made by Central Surety. Promissory Note No. to the several debts of the latter. It is an elementary rule that the existence of a waiver must be positively demonstrated since a waiver by implication is not normally countenanced.000. without need of presentment. 714-Y. Premiere Bank was entitled to declare said Note and all sums payable thereunder immediately due and payable.00 and secured by the pledge of the Wack Wack Membership. The subsequent demand made by Premiere Bank was. in this case.000. and no delay in exercising any right hereunder.000.000. Thus.00. was past the due and demand stage. we find it unnecessary to rule on the applicability of the equitable principle of waiver that the Court of Appeals ascribed to the demand made by Premiere Bank upon Central Surety to pay the amount of P6.[29] Besides. 1999. All debts were due. The norm is that a waiver must not only be voluntary.[30] .000. right to apply payments is eschewed by the express provision of the Promissory Note that: no failure on the part of [Premiere Bank] to exercise. By its terms. therefore. There must be persuasive evidence to show an actual intention to relinquish the right. any inference of a waiver of Premiere Banks. as it deemed fit. at the time of conflict between the parties material to this case.following Bangko Sentral ng Pilipinas Regulations. Mere silence on the part of the holder of the right should not be construed as a surrender thereof. intelligently. subject to certain well-known exceptions.00 loan under Promissory Note No. respondent is justified in invoking the acceleration clause declaring the entire obligation immediately due and payable.000. it follows that the obligation under Promissory Note 367-Z had become past due and demandable. viz.[31] Obviously.[34] we held that: that Considering that the contract is the law between the parties. ostensibly because there was.[32] by virtue of which. the date fixed by respondent.898 Million.That clause obliged petitioners to pay the entire loan on January 29.000.When Central Surety directed the application of its payment to a specific debt. in Selegna Management and Development Corporation v. (iii) My/Our failure to pay money due under any other document or agreement evidencing obligations for borrowed money x x x. It is worth noting that after the delayed payment of P6. Obviously. it knew it had another debt with Premiere Bank. I/We hereby empower [Premiere Bank] to apply without notice and in any manner it sees fit. Any such application of deposits or payments shall be conclusive and binding upon us. in the amount of P40. Premiere Bank returned the amount as insufficient. Central Surety is aware that Promissory Note 367-Z (or 376-X) contains the same provision as in Promissory Note No 714-Y which grants the Premiere Bank authority to apply payments made by Central Surety. which had been renewed under Promissory Note 376-X. with further notice expressly waived. protest or notice of nay kind. Court of Appeals[33] forecloses any doubt that an acceleration clause is valid and produces legal effects. all of which I/We hereby expressly waive. In fact.00 was tendered by Central Surety. 714-Y. Central Surety is also cognizant Promissory Note 367-Z contains the proviso that: the bank shall be entitled to declare this Note and all sums payable hereunder to be immediately due and payable. at least. in its demand of 28 . upon occurrence of any of the following events: x x x (ii) My/Our failure to pay any amortization or installment due hereunder.: In case I/We have several obligations with [Premiere Bank]. United Coconut Planters Bank. demand. that covered by Promissory Note 367-Z. without need of presentment. when Central Surety defaulted on its obligations under Promissory Note No. Mendoza v. any or all of my/our deposits and payments to any of my/our obligations whether due or not. 1999. another account that was likewise due. September 2000. Were these accounts due already when you made this application. Court: This was stipulated? Atty. Only on the rebuttal stage did Central Surety present a witness. Central Surety did not present any witness to testify on the payment of its obligations.000.00. Premiere Bank cannot be faulted for exercising the authority granted to it under the Promissory Notes. and applying payment to the obligations as it deemed fit. and upon the second issue. the record shows that after marking its evidence. distribution of payments? Witness: A.000. Opinion: Q. as the transcript of stenographic notes on the testimony of Atty. there is already stipulation that we confirm that those are the applications of payments made by the defendant Bank on those loan accounts.000.00) later on when together with this was paid another check for 1. Atty. In fact.[35] Atty. which were insufficient to cover its more onerous obligations. no evidence was adduced of payment of any other obligation.00 by Central Surety.000.000. and thus. Central Surety proceeded to offer its evidence immediately. but of all these past due accounts. But you accepted this payment of Six Million (P6.8 Million? Witness: A. not just of the P6. In fact. In this light. Conversely. Yes sir. Opinion: Q. Being in receipt of amounts tendered by Central Surety.000. Araos reveals: Atty. There is extant testimony to support this claim. the tender of the amount of P6. the Court is constrained to rule that all obligations of Central Surety to Premiere Bank were due. Tagalog: Yes. petitioner sought payment. Opinion: Q. the Court will not disturb the finding of the lower court that Premiere Bank rightly applied the payments that Central Surety had tendered. and the . Is that correct? Atty. but even then. We accepted. Subject to the caveat that our ruling herein shall be limited only to the transactions entered into by the parties to this case. in its evidence-in-chief. Your Honor. Corollary thereto. And you applied this to four (4) other accounts three (3) other accounts or to four (4) accounts mentioned in Exhibit J. the application of payments was warranted. Your Honor. Tagalog: We can stipulate on that. As found by the lower court: Contract of Adhesion To the extent that the subject promissory notes were prepared by the Premiere Bank and presented to Central Surety for signature. if he adheres. the [Premiere Bank] was right in assuming that the [Central Surety] could not have been cheated or misled in agreeing thereto. Central Surety does not appear so weak as to be placed at a distinct disadvantage vis--vis the bank.[36] Thus.encashment of BC Check No. It is therefore absurd that an established company such as the [Central Surety] has no knowledge of the law regarding bank practice in loan transactions. mental weakness. 714-Y. Contracts of adhesion. these agreements were. courts are expected to observe greater vigilance in order to shield the unwary or weaker party from deceptive schemes contained in ready-made covenants. Article 24 of the Civil Code pertinently states: In all contractual. indigence. But contracts of adhesion are not invalid per se. The Dragnet Clause. ignorance. he gives his consent. The factual circumstances of this case showing the chain of transactions and long-standing relationship . property or other relations. contracts of adhesion. indeed. it could have negotiated with the bank on a more favorable term considering that it has already established a certain reputation with the [Premiere Bank] as evidenced by its numerous transactions. In interpreting such contracts. in reality. when one of the parties is at a disadvantage on account of his moral Considering that [Central Surety] is a known business entity. tender age or other handicap. where one party imposes a ready-made form of contract on the other. free to reject it entirely. 08114 did not totally extinguish the debt covered by PN No. The one who adheres to the contract is. Release of the pledged Wack Wack Membership But in this case. the courts must be vigilant for his protection. are not entirely prohibited. however. dependence. A tally of the facts shows the following transactions between Premiere Bank and Central Surety: . the security attached to Promissory Note 714-Y.between Premiere Bank and Central Surety militate against the latters prayer in its complaint for the release of the Wack Wack Membership. 1996 in the name of the ASSIGNOR. Deed of P 15 M Assignme nt with Pledge Stipulation P6M As security for PN 714-Y and/or such Promissory Note/s which the ASSIGNOR / PLEDGOR shall hereafter execute in favor of the ASSIGNEE/PLEDGEE From these transactions and the proviso in the Deed of Assignment with Pledge.Date Instrume nt Amoun t covere d August 1999 20.) Then. Thus. 1793 duly issue by Wack Wack Golf and Country Club Incorporated on August 27.000. the said deed is explicit: As security for the payment of loan obtained by the ASSIGNOR/PLEDGOR from the ASSIGNEE/PLEDGEE in the amount of FIFTEEN MILLION PESOS (15. conveys. PN 714-Y August 1999 29.00) Philippine Currency in accordance with the Promissory Note attached hereto and made an integral part hereof as Annex A and/or such Promissory Note/s which the ASSIGNOR/PLEDGOR shall hereafter execute in favor of the ASSIGNEE/PLEDGEE. the ASSIGNOR/PLEDGOR hereby transfers.00 (notably greater than the amount of the promissory note it secured). encumbers and delivers by way of first pledge unto the ASSIGNEE/PLEDGEE. was intended to guarantee not just the obligation under PN 714-Y. its successors and assigns.000. assigns. 217 with Serial No. endorses. it is clear that the security.000. (Emphasis made in the Petition. that certain Membership fee Certificate Share in Wack Wack Golf and Country Club Incorporate covered by Stock Certificate No. a Continuing Guaranty/Comprehensive Surety Agreement was later executed by Central Surety as follows: . which peculiarly specified an amount atP15.000. but also future advances. Promissory Note P40. to serve as security for an obligation in .000 376-X (PN 367-Z) . on August 29.00 1999 nsive Surety Agreement Stipulation August 29.898.000 Guaranty/Comprehe . 22. 1999.00 Stipulation From the foregoing. a renewal of the prior Promissory Note 367-Z. thusly: Date Instrument August 20. the parties executed the Deed of Assignment with Pledge (of the Wack Wack Membership).898. will extend to Sept. Guaranty/Comprehe .000 Sept. Deed of Assignment P 15 M 1999 with Pledge In consideration of the loan and/or any credit accommodatio n which you (petitioner) have extended and/or Notarized. 22. Promissory Note 376-X was entered into.00 nsive Surety Agreement As secur 714-Y such Pr Note/s w ASSIGNO PLEDGO hereafte in favor ASSIGNE EE In cons of th and/or a accomm which (petition extende will ex Central and I Co. PN 714-Y 1999 Amount covered P6M October 10.00.000. it is more than apparent that when.898. 2000 Continuing P40. Continuing P40.Date Instrument Amount Notarized. In all.898. the transactions that transpired between Premiere Bank and Central Surety manifest themselves. in the amount of P40. 2000. And on October 10. Central Surety 1999 and Insurance Co. 000. The subsequent loan was nothing more than a fulfillment of the intention of the parties. and they avoid the expense and inconvenience of executing a new security on each new transaction. It is a valid and legal undertaking. the intent to secure future and other indebtedness can be gathered. thereby saving time. The above-quoted provision in the Deed of Assignment.00 (when the actual loan covered by PN No.898. in addition to the Wack Wack Membership. if from the four corners of the instrument. Such clauses are carefully scrutinized and strictly construed. also known as a dragnet clause in American jurisprudence. travel. et cetera. costs of extra legal services. it became necessary to put up another security. overdraft and other credit accommodations obtained from the Mortgagee by the Mortgagor and/or . like the Wack Wack Membership. is one which is specifically phrased to subsume all debts of past or future origins.00).00). 367-X were. the nature or extent of which may not be known or anticipated at the time.000. would subsume all debts of respondent of past and future origins. Indeed. Thus. 714-Y was only P6. A pledge or mortgage given to secure future advancements is a continuing security and is not discharged by the repayment of the amount named in the mortgage until the full amount of all advancements shall have been paid. Of course.[37] Our ruling instructive: in Prudential Bank v. the subsequent surety agreement and the specific security for PN No. it has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts.000. the intent of the parties was for the Wack Wack Membership to serve as security also for future advancements. A dragnet clause operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents. The blanket mortgage clause in the instant case states: Alviar[38] is A blanket mortgage clause.the amount of P15. Mortgages of this character enable the parties to provide continuous dealings. meant to secure the ballooning debt of the Central Surety. and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.000. and the amounts specified as consideration in the contracts do not limit the amount for which the pledge or mortgage stands as security. also known as the dragnet clause in American jurisprudence.000. because the subsequent loan was for a much greater amount (P40. That for and in consideration of certain loans. recording fees. loan closing costs. the subsequent loans obtained by respondents were secured by other securities. of which the Mortgagor declares that he/it is the absolute owner free from all liens and incumbrances. irrespective of number. principal or secondary as appears in the accounts. and to secure the payment of the same and those that may hereafter be obtained. Under American jurisprudence. the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee. whether direct or indirect. Valencia and Co. was secured by Clean-Phase out TOD CA 3923 and eventually by a deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A. Thus. the critical issue is whether the blanket mortgage clause applies even to subsequent advancements for which other securities were intended.the principal or all of which is hereby fixed at Two Hundred Fifty Thousand (P250. Philippine Currency.00) Pesos. at least to anything other than a . xxxx In the case at bar.000. One school advocates that a dragnet clause so worded as to be broad enough to cover all other debts in addition to the one specifically secured will be construed to cover a different debt. to PN BD#76/C-345. as DEBTOR. as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR. its successors or assigns. and by a chattel mortgage on various heavy and transportation equipment. and/or appended hereto.U. including interest and expenses or any other obligation owing to the Mortgagee.. books and records of the Mortgagee. executed by Don Alviar was secured by a hold-out on his foreign currency savings account. together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon. while PN BD#76/C-430. The matter of PN BD#76/C-430 has already been discussed. . The contrary thinking maintains that a mortgage with such a clause will not secure a note that expresses on its face that it is otherwise secured as to its entirety. executed by respondents for Donalco Trading. the parcels of land which are described in the list inserted on the back of this document. . although such other debt is secured by another mortgage. . thus: PN BD#76/C-345.________________ hereinafter referred to. or particularly.. two schools of thought have emerged on this question. Inc. that it relied on the security of the real estate mortgage in making the advance. The parties having conformed to the blanket mortgage clause or dragnet clause. and (4) there was no allegation by the bank. so it was held. But of course. was that the dragnet clause in the first security instrument constituted a continuing offer by the borrower to secure further loans under the security of the first security instrument. and apparently no proof. when the mortgagor takes another loan for which another security was given it could not be inferred that such loan was made in reliance solely on the original security with the dragnet clause. In other words. Thus. as in the mortgage contract in issue. and the clause therein stated that the note was secured by such chattel mortgage.deficiency after exhausting the security specified therein. such deficiency being an indebtedness within the meaning of the mortgage. there is no prohibition. This is the reliance on the security test. Thus. The latter school represents the better position. . (2) there was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and the advance. as the subsequent loans will be secured by the first mortgage. it was concluded that the offer was not accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles. Hence. and that when the lender accepted a different security he did not accept the offer. based on the reliance on the security test. the sufficiency of the first security is a corollary component of the dragnet clause. against contractually requiring other securities for the subsequent loans. in the absence of a special contract excluding it from the arrangement. The rationale involved. Accordingly. it is reasonable to conclude that they also agreed to an implied understanding that subsequent loans need not be secured by other securities. (3) the mortgagor signed the real estate mortgage by her name alone. on the new security given. the California court in the cited case made an inquiry whether the second loan was made in reliance on the original security containing a dragnet clause. whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name. but rather. In another case. finding a different security was taken for the second loan no intent that the parties relied on the security of the first loan could be inferred. it was held that a mortgage with a dragnet clause is an offer by the mortgagor to the bank to provide the security of the mortgage for advances of and when they were made. the court said. 000. 1793 duly issue by Wack Wack Golf and Country Club Incorporated on August 27.000. This is recognition that while the dragnet clause subsists.Indeed. The foreclosure of the mortgaged property should only be for the P250. endorses. there is a need to respect the existence of the other security given for PN BD#76/C-345. the ASSIGNOR/ PLEDGOR hereby transfers. its successors and assigns. 1996 in the name of the ASSIGNOR.: . by its terms: As security for the payment of loan obtained by the ASSIGNOR/PLEDGOR from the ASSIGNEE/PLEDGEE in the amount of FIFTEEN MILLION PESOS (15. and for any amount not covered by the security for the second promissory note. notwithstanding the giving of the special security. a balance due on a note. conveys.00 loan covered by PN BD#75/C-252. after exhausting the special security given for the payment of such note. that certain Membership fee Certificate Share in Wack Wack Golf and Country Club Incorporated covered by Stock Certificate No. in some instances. The security clause involved in the case at bar shows that. It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of nonpayment of all the three promissory notes. within the protection of the mortgage. 217 with Serial No. While the existence and validity of the dragnet clause cannot be denied. the security specifically executed for subsequent loans must first be exhausted before the mortgaged property can be resorted to. viz. a mortgage containing a dragnet clause will not be extended to cover future advances unless the document evidencing the subsequent advance refers to the mortgage as providing security therefor.00) Philippine Currency in accordance with the Promissory Note attached hereto and made an integral part hereof as Annex A and/or such Promissory Note/s which the ASSIGNOR/PLEDGOR shall hereafter execute in favor of the ASSIGNEE/PLEDGEE. encumbers and delivers by way of first pledge unto the ASSIGNEE/PLEDGEE. As held in one case. was in the absence of a special agreement to the contrary. assigns. supportive evidence of a contrary intention. it is comparable with the security clause in the case of Prudential. it has been held that in the absence of clear. where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently become due.000. a balance due on a note. after exhausting the special security given for the payment of such note. was. the principal or all of which is hereby fixed at Two Hundred Fifty Thousand (P250. We then declared that the special security for subsequent loans must first be exhausted in a situation where the creditor desires to foreclose on the subsequent loans that are due. as DEBTOR. . as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR. we disallowed the petitioners attempt at multiple foreclosures. the parcels of land which are described in the list inserted on the back of this document. To recall. This is recognition that while the dragnet clause subsists.That for and in consideration of certain loans. . This Court then laid down the rule. including interest and expenses or any other obligation owing to the Mortgagee. its successors or assigns. . notwithstanding the giving of the special security. as it foreclosed on all of the mortgaged properties serving as individual securities for each of the three loans. the security specifically executed for subsequent loans must first be exhausted before the mortgaged property can be resorted to. Philippine Currency. of which the Mortgagor declares that he/it is the absolute owner free from all liens and incumbrances. In Prudential. books and records of the Mortgagee.00) Pesos. the critical issue resolved in Prudential was whether the blanket mortgage clause applies even to subsequent advancements for which other securities were intended. whether direct or indirect.000. and/or appended hereto. However. within the protection of the mortgage. together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon. in the absence of a special agreement to the contrary. and to secure the payment of the same and those that may hereafter be obtained. the dragnet clause allows the creditor to hold on to the first security in case of deficiency after foreclosure on the special security for the subsequent loans. the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee. and there is no substantive difference between the terms utilized in both clauses securing future advances. principal or secondary as appears in the accounts. thus: where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently become due. overdraft and other credit accommodations obtained from the Mortgagee by the Mortgagor and/or ________________ hereinafter referred to. irrespective of number. . even without this Courts prescription in Prudential. which stood as security for Promissory Note 714-Y.00 loan. Both the Court of Appeals and the trial court found that respondents have not yet paid the P250. the pledge is extinguished. Its return to Central Surety upon pretext that Central Surety is entitled to pay only obligation in Promissory Note No.000. and which also stands as security subsequent debts of Central Surety. the mortgaged property could still be properly subjected to foreclosure proceedings for the unpaid P250. In any event. upon the honest belief that it had the prerogative to choose to which loan its payments should be applied. in the case at bench. Hence. is not without recourse. security for PN BD#76/c-345. courts cannot intervene to save parties from disadvantageous provisions of their contracts if they consented to the same freely and voluntarily. Premiere Bank has the right to foreclose on the Wack Wack Membership. will result in extinguishment of the pledge. because Article 2110 of Civil Code provides: for the the the the the the (I)f the thing pledged is returned by the pledgor or owner. something which Central Surety wants this Court to undo. This conforms to the doctrine in Prudential. for any deficiency after D/A SFDX#129. We find no malice on the part of Central Surety. acknowledged in the decisions penultimate paragraph. This is contrary to the express agreement of the parties. the release of the Wack Wack Membership as the pledged security for Promissory Note 714-Y cannot yet be done as sought by Central Surety.[39] Attorneys Fees The final issue is the propriety of attorneys fees. indeed.However.000. and as mentioned earlier. the security corresponding to the first promissory note.00 and gave no credence to their claim that they paid the said amount when they paid petitioner P2. subject of course to defenses which are available to respondents. The chain of contracts concluded between Premiere Bank and Central Surety reveals that the Wack Wack Membership. viz. We reiterate that.000. has been exhausted. even with respect to subsequent obligations. Any stipulation to the contrary is void. .00. we are convinced that Central Surety filed the case in the lower court in good faith. as a rule. however. because there is nothing in law that prohibits the exercise of that right. with the deed of assignment that originated the dragnet clause. Thus. The trial court based its award on the supposed malice of Central Surety in instituting this case against Premiere Bank. this does not prevent the creditor from foreclosing on the security for the first loan if that loan is past due. 714-Y.000.: Petitioner. as. in fact. is a security in form of a pledge. CV No. NENITA NG. is REINSTATED with the MODIFICATION that the award of attorneys fees to petitioner is DELETED.. for the law could not have meant to impose a penalty on the right to litigate..... knowing that the charge was false and baseless. FGR REALTY AND DEVELOPMENT WHEREFORE. Moreover. No pronouncement as to costs.. dated July 12. 172577 RESOLUTION Petitioner.. and FLORA R. J.. . DAYRIT Promulgated: or FLORA REGNER. 2006.R.. FELIX NG. Chairperson.---------------x SOLEDAD DALTON.. The Decision of the Regional Trial Court of Makati City.. CARPIO. CORPORATION.R. January 19... the mere filing of what turns out to be an unsuccessful suit does not render a person liable for malicious prosecution. in Civil Case No.: . Branch 132. both in criminal and civil cases.... Hence. requires the presence of two elements. Present: CARPIO. and that it was initiated deliberately. to wit: (a) malice and (b) absence of probable cause. 85930 dated July 31. and MENDOZA... 2011 x.Malicious prosecution. 2005.. which we find wanting in this case... NACHURA. 00-1536... there must be proof that the prosecution was prompted by a sinister design to vex and humiliate a person. the instant petition is PARTIALLY GRANTED.PERALTA..... are REVERSED and SET ASIDE.[40] Malice must be proved with clear and convincing evidence.. No... JJ. as well as its Resolution dated January 4.versus . ABAD.. G... Respondents. 2007.. The assailed Decision of the Court of Appeals in CA-G. J.. Angel Ponce. Bonifacio Cabajar. CV No. Miguela Villarente. FGR and Sasam. they agreed to abandon all claims against each other. Aniceta Fuentes. In June 1985. P erla Pormento. They failed to notify Dayrit and FGR about the consignation. In their motions. Cebu City. Mary Cabanlit. consigned the rental payments with the RTC. PedroQuebedo. in Civil Case No.6 10 November 1987. The RTCs Ruling . Pedro Regudo. Dayrit. Clemente Sasam. Judicial Region 7. Carmencita Yuson. Petitioner Soledad Dalton (Dalton). et al. et al. In August 1985. The Court of Appeals affirmed the 26 February 2002 Decision4 of the Regional Trial Court (RTC). The Facts Flora R.811-square meter parcel of land located at the corner of Rama Avenue and Velez Street in Cebu City. In a complaint5 dated 11 September 1985. et al. Marciana Encabo and Dolores Lim (Sasam. et al. Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR).11 In the compromise agreements. entered into compromise agreements dated 25 March 199710 and 20 June 1997. Dayrit and FGR reserved the right to question the validity of the consignation. The petition challenges the 9 November 2005 Decision2 and 10 April 2006 Resolution3 of the Court of Appeals in CA-G.9 Dayrit and FGR withdrew the rental payments. Branch 13.8 and 28 November 1994.R.7 8 July 1988. Dalton and Sasam. In motions dated 27 March 1987. CEB 4218. Dayrit (Dayrit) owned a 1. 76536. Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton and Sasam.The Case This is a petition1 for review on certiorari under Rule 45 of the Rules of Court.) leased portions of the property. Romulo Villalonga. Dalton did not enter into a compromise agreement with Dayrit and FGR. She vacated the premises when her children got married. It is very clear that there were no prior notices of consignation (before deposit) and subsequent notices of consignation (after deposit) Besides. she did not present evidence of payment in 1999. She transferred her residence near F. At the time Dalton testified on December 22. defendants have established that plaintiff was no longer residing at Eskina Banawa at the time she testified in court. Prior notice of consignation (before deposit) 4. 3 and 5 are absent or were not complied with. When defendants refused to accept rental and demanded vacation of the premises. 1999. the RTC dismissed the 11 September 1985 complaint and ordered Dalton to vacate the property. She had not. therefore. 2. The last monthly rental was P69. she consignated [sic] her monthly rentals in court. Requisite Nos. 3.In its 26 February 2002 Decision. unless tender is excuse [sic]. Ramos Public Market. xxxx It is very clear from the facts that there was no valid consignation made. 1988. The existence of a valid debt. the courts appointed . the last deposit was made on December 21. Valid prior tender. She constructed the 20 feet by 20 feet floor area house sometime in 1973. She vacated her house and converted it into a store or business establishment. The requisites of consignation are as follows: 1. Subsequent notice of consignation. 5.00. Actual consignation (deposit). The RTC held that: Soledad Dalton built a house which she initially used as a dwelling and store space. By clear preponderance of evidence. This is buttressed by the testimony of Rogelio Capacio. religiously paid her monthly obligation. Cebu City. Two witnesses who were former sub-lessees testified and clearly established that Mrs. The Court of Appeals Ruling In its 9 November 2005 Decision.12 REPORT AND/OR OBSERVATION Dalton appealed to the Court of Appeals. the full text of which reads as follows: Soledad Dalton did not take exception to the said report. Mrs. The store and/or dwelling subject to ocular inspection is stuated [sic] on the left portion of the road which is about fifty-five (55) meters from the corner of Banawa-Guadalupe Streets. we find no basis for overturning the decision of the lower court dismissing plaintiffsappellants complaint. if travelling from the Capitol Building. I observed that when we arrived at the ocular inspection site. the Court of Appeals affirmed the RTCs 26 February 2002 Decision. She claimed that it was a part of the dwelling which she occupies and was utilized as a store. . There were few saleable items inside said space. when turning right heading towards the direction of Guadalupe Church. Dalton use the house for business purposes and not for dwelling. Soledad Dalton with the use of a key opened the lock of a closed door. as we find that no valid consignation was made by the plaintiff-appellant. The Court of Appeals held that: After a careful review of the facts and evidence in this case. who submitted a report.commissioner. In addition. and (5) after the consignation had been made the person interested was notified thereof. All interested parties are to be notified of the consignation. 166-167 [1983]).Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and generally requires a prior tender of payment. Diaz. In order that consignation may be effective. or because he was absent or incapacitated. We do not agree with such contention. the debtor must show that: (1) there was a debt due.e. The prevailing rule is that substantial compliance with the requisites of a valid consignation is not enough. It had been consistently held that compliance with these requisites is mandatory. (4) the amount due was placed at the disposal of the court. Consignation is made by depositing the proper amount to the judicial authority. (2) the consignation of the obligation had been made because the creditor to whom tender of payment was made refused to accept it. however. (3) previous notice of the consignation had been given to the person interested in the performance of the obligation. Failure in any of these requirements is enough ground to render a consignation ineffective. the Supreme Court had the occasion to rule thus: No error. can be attributed to the lower court when it held that the consignation made by Plaintiff-appellant failed to notify defendantsappellees of her intention to consign the amount due to them as rentals. reiterating the ruling in Soco vs. previous notice of the consignation given to the person interested in the performance of the obligation and. this Court ruled that the codal provisions . Militante (123 SCRA 160. justifies such failure by claiming that there had been substantial compliance with the said requirement of notice upon the service of the complaint on the defendants-appellees together with the summons. the person interested was notified thereof). In Licuanan vs. before whom the tender of payment and the announcement of the consignation shall be proved. She. the plaintiff-appellant was invalid for failure to meet requisites 3 and 5 of a valid consignation (i.. after the consignation had been made. or because several persons claimed to be entitled to receive the amount due or because the title to the obligation has been lost. therefore. it must be stated that in the case of Soco v. Militante. further lends support to the lower courts findings. the consignation as a means of payment is void. Substantial compliance is not enough for that would render only directory construction of the law. On the other hand. we hold that the ruling of the lower court on such issues is supported by the evidence adduced in this case. is amply supported by the testimony of two of plaintiff-appellants sublessees.. who was commissioned by the lower court to conduct an ocular inspection of the leased premises. That these Articles must be accorded a mandatory construction is clearly evident and plain from the very language of the codal provisions themselves which require absolute compliance with the essential requisites therein provided. As to the other issues raised by the plaintiffappellant in her second and third assigned errors. The use of the words shall and must [sic] which are imperative. plaintiffappellant only has her self-serving claims that she is residing at the leased premises in Eskina Banawa to prove her continued use of the leased premises as dwelling place. operating to impose a duty which may be enforced. That plaintiff-appellant is not residing at the leased premises in Eskina Banawa and that she is using the same for business purposes. Clearly then. not as dwelling place.. New Civil Code. The Commissioners Report submitted by Rogelio Capacio.of the Civil Code dealing with consignation (Articles 1252-1261) should be accorded mandatory construction We do not agree with the questioned decision. The lower court acted within its authority in ordering the plaintiff-appellant to vacate the leased premises. no valid consignation was made by the plaintiff-appellant for she did not give notice to the defendants-appellees of her intention to so consign her rental payments. positively indicated that all the essential requisites of a valid consignation must be complied with. There is thus no merit to plaintiff-appellants fourth assigned error. The evidence shows . Articles 12561261. The Civil Code Articles expressly and explicitly direct what must be essentially done in order that consignation shall be valid and effectual. Without any announcement of the intention to resort to consignation first having been made to persons interested in the fulfillment of the obligation. We hold that the essential requisites of a valid consignation must be complied with fully and strictly in accordance with the law. that plaintiff-appellant had failed to continuously pay the rentals due to the defendants-appellees. It was therefore within the powers of the lower court to grant such other relief and remedies equitable under the circumstances. In sum, there having been no valid consignation and with the plaintiff-appellant having failed to pay the rentals due to the defendants-appellees, no error can be attributed to the lower court in rendering its assailed decision.13 Hence, the present petition. Dalton raises as issues that the Court of Appeals erred in ruling that (1) the consignation was void, and (2) Dalton failed to pay rent. The Courts Ruling The petition is unmeritorious. Dalton claims that, the issue as to whether the consignation made by the petitioner is valid or not for lack of notice has already been rendered moot and academic with the withdrawal by the private respondents of the amounts consigned and deposited by the petitioner as rental of the subject premises.14 The Court is not impressed. First, in withdrawing the amounts consigned, Dayrit and FGR expressly reserved the right to question the validity of the consignation. InRiesenbeck v. Court of Appeals,15 the Court held that: A sensu contrario, when the creditors acceptance of the money consigned is conditional and with reservations, he is not deemed to have waived the claims he reserved against his debtor. Thus, when the amount consigned does not cover the entire obligation, the creditor may accept it, reserving his right to the balance (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p. 317, citing 3 Llerena 263). The same factual milieu obtains here because the respondent creditor accepted with reservation the amount consigned in court by the petitioner-debtor. Therefore, the creditor is not barred from raising his other claims, as he did in his answer with special defenses and counterclaim against petitioner-debtor. As respondent-creditors acceptance of the amount consigned was with reservations, it did not completely extinguish the entire indebtedness of the petitioner-debtor. It is apposite to note here that consignation is completed at the time the creditor accepts the same without objections, or, if he objects, at the time the court declares that it has been validly made in accordance with law.16 (Emphasis supplied) Second, compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the requisites will render the consignation void. Substantial compliance is not enough. In Insular Life Assurance Company, Ltd. v. Toyota BelAir, Inc.,17 the Court enumerated the requisites of a valid consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to accept the payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to collect, or the title of the obligation was lost; (3) the person interested in the performance of the obligation was given notice before consignation was made; (4) the amount was placed at the disposal of the court; and (5) the person interested in the performance of the obligation was given notice after the consignation was made. Articles 1257 and 1258 of the Civil Code state, respectively: Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof. (Emphasis supplied) The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the performance of the obligation will render the consignation void. In Ramos v. Sarao,18 the Court held that, All interested parties are to be notified of the consignation. Compliance with [this requisite] is mandatory.19 In Valdellon v. Tengco,20 the Court held that: Under Art. 1257 of our Civil Code, in order that consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. In said Article 1258, it is further stated that the consignation having been made, the interested party shall also be notified thereof.21 (Emphasis supplied) essential requisites therein provided. Substantial compliance is not enough for that would render only a directory construction to the law. The use of the words shall and must which are imperative, operating to impose a duty which may be enforced, positively indicate that all the essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and explicitly direct what must be essentially done in order that consignation shall be valid and effectual.23 (Emphasis supplied) Dalton claims that the Court of Appeals erred in ruling that she failed to pay rent. The Court is not impressed. Section 1, Rule 45 of the Rules of Court states that petitions for review on certiorari shall raise only questions of law which must be distinctly set forth. In Pagsibigan v. People,24 the Court held that: In Soco v. Militante, et al.,22 the Court held that: We hold that the essential requisites of a valid consignation must be complied with fully and strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a mandatory construction is clearly evident and plain from the very language of the codal provisions themselves which require absolute compliance with the A petition for review under Rule 45 of the Rules of Court should cover only questions of law. Questions of fact are not reviewable. A question of law exists when the doubt centers on what the law is on a certain set of facts. A question of fact exists when the doubt centers on the truth or falsity of the alleged facts. There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of the evidence. The issue to be resolved must be limited to determining what the law is on a certain set of facts. Once the issue invites a review of the evidence, the question posed is one of fact.25 WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 9 November 2005 Decision and 10 April 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 76536. B.E. SAN DIEGO, INC., G.R. No. 169501 Petitioner, Whether Dalton failed to pay rent is a question of fact. It is not reviewable. Present: QUISUMBING, J., Chairperson, - versus - CARPIO, The factual findings of the lower courts are binding on the Court. The exceptions to this rule are (1) when there is grave abuse of discretion; (2) when the findings are grounded on speculation; (3) when the inference made is manifestly mistaken; (4) when the judgment of the Court of Appeals is based on a misapprehension of facts; (5) when the factual findings are conflicting; (6) when the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of the parties; (7) when the Court of Appeals overlooked undisputed facts which, if properly considered, would justify a different conclusion; (8) when the facts set forth by the petitioner are not disputed by the respondent; and (9) when the findings of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.26Dalton did not show that any of these circumstances is present. CARPIO MORALES, TINGA, and VELASCO, JR., JJ. Promulgated: ROSARIO T. ALZUL, Respondent. June 8, 2007 x----------------------------------------------------------------------------------------x DECISION VELASCO, JR., J.: The Case This Petition for Review on Certiorari[1] under Rule 45 questions the February 18, 2005 Decision [2] of the Court of Appeals (CA) in CA-G.R. SP No. 81341, which granted respondent Alzul the right to pay the balance of the purchase price within five (5) days from receipt of the CA Decision despite the lapse of the original period given to said party through the final Resolution of this Court in an earlier case. The CA ruling reversed the September 18, 2003 Resolution[3] and December 2, 2003 Order[4] of the Office of the President (OP) in O.P. Case No. 01-1-097, which upheld the dismissal of respondent Alzuls complaint for consignation and specific performance before the Housing and Land Use Regulatory Board (HLURB) in HLURB Case No. REM-A99097-0167. Likewise challenged is the August 31, 2005CA Resolution[5] rejecting petitioners Motion for Reconsideration. The Facts The facts culled by the CA are as follows: On February 10, 1975, [respondent] Rosario T. Alzul purchased from [petitioner] B.E. San Diego, Inc. four (4) subdivision lots with an aggregate area of 1,275 square meters located at Aurora Subdivision, Maysilo, Malabon. These lots, which are now subject of this petition, were bought through installment under Contract to Sell No. 867 at One Hundred Pesos (₧100.00) per square meter, with a downpayment [sic] of Twelve Thousand Seven Hundred Fifty Pesos (₧12,750.00), and monthly installments of One Thousand Two Hundred Forty-Nine Pesos (₧1,249.50). The interest agreed upon was 12 percent (12%) per annum until fully paid, thus, the total purchase price was Two Hundred Thirty Seven Thousand Six Hundred Sixty Pesos (₧237,660.00). [Respondent] took immediate possession of the subject property, setting up a perimeter fence and constructing a house thereon. On July 25, 1977, [respondent] signed a Conditional Deed of Assignment and Transfer of Rights which assigned to a certain Wilson P. Yu her rights under the Contract to Sell. [Petitioner] was notified of the execution of such deed. Later on, the Contract to Sell in [respondents] name was cancelled, and [petitioner] issued a new one in favor of Yu although it was also denominated as Contract to Sell No. 867. On July 4, 1979, [respondent] informed [petitioner] about Yus failure and refusal to pay the amounts due under the conditional deed. She also manifested that she would be the one to pay the installments due to respondent on account of Yus default. On August 25, 1980, [respondent] commenced an action for rescission of the conditional deed of assignment against Yu before the Regional Trial Court of Caloocan City . Subsequently, on September 30, 1985, [respondent] caused the annotation of notices of lis pendens on the titles covering the subject lots. The trial court ruled in [respondents] favor in the rescission case. The decision was even affirmed by this [appellate] Court. Yu brought his cause before the Supreme Court in a Petition for Review, but this was likewise denied. On February 17, 1989, [petitioner] notified [respondent] that Contract to Sell No. 867 was declared rescinded and cancelled. On April 28, 1989, the subject lots were sold to spouses Carlos and Sandra Ventura who were allegedly surprised to find the annotation of lis pendens in their owners duplicate title. On May 8, 1990, the Ventura spouses filed an action for Quieting of Title with Prayer for Cancellation of Annotation and Damages before the Regional Trial Court of Malabon. The trial court ruled in favor of the Ventura spouses. On appeal before this [appellate] Court, however, the decision was reversed on November 27, 1992, as follows: WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE, and the complaint therein is ordered dismissed. Transfer Certificates of Title Nos. N-1922, N-1923, N1924, and N-1925, all of the Register of Deeds of Metro Manila, District III, Malabon Branch, in the names of plaintiffs-appellees Carlos N. Ventura and Sandra L. Ventura are hereby declared null and void, and the titles of ownership reinstated in the name of B.E. San Diego, Inc. with the corresponding notices of lis pendens therein annotated in favor of defendant-appellant until such time that ownership of the subject parcels of land is transferred to herein defendantappellant Rosario Alzul. Costs against plaintiff-appellees. SO ORDERED. ordering. 1996.Upon filing of an appeal to the Supreme Court docketed as GR No. 1996. 1996. as follows: On November 11. refused to accept [her] payment of the balance in the amount of ₧187. Alzul is hereby given a non-extendible period of thirty (30) days from entry of judgment. 1998. 1996. however. On January 29. 109078 informing the Supreme Court that [petitioner]. To rectify such oversight. 1996. We. on three (3) occasions. San Diego.) On July 12. A motion for reconsideration was filed. On all these dates. private respondent Rosario T. On October 21. a resolution was issued by the Supreme Court. a reply was sent by [petitioner] through a certain Flora San Diego. 109078. On January 14. a Resolution was issued by the Supreme Court referring the case to the court of origin for appropriate action. [respondents] counsel wrote a letter to [petitioner] citing the latters refusal to accept her payment on several occasions.00. [respondent] filed a Manifestation in GR No. [petitioner] allegedly refused to accept payment from [respondent]. xxx (Emphasis supplied. August 30. Inc. 1996 and September 28. 1995. an Entry of Judgment was issued. within which to make full payment for the properties in question. agree with the observation made by movants that no time limit was set by the respondent Court of Appeals in its assailed Decision for the private respondent herein. [Respondents] request was rejected on account of the following: . but this was denied by the Highest Tribunal on February 5. It was also mentioned therein that due to its refusal. 1996. however. In an attempt to comply with the Supreme Courts directive. Rosario Alzul.E. herein [respondent] tried to serve payment upon [petitioner] on August 29. on account of [respondents] manifestation. 1997. to pay B. On June 17.380. [respondent] would just consign the balance due to [petitioner] before the proper judicial authority. the original owner of the properties in litigation. 1997. the above decision was affirmed on December 26. prayed that a) [respondent] be considered to have fully paid the total purchase price of the subject properties. Inc. San Diego. N-155545 to 48 which were declared void in CA GR No. xxx Thinking that an action for consignation alone would not be sufficient to allow for the execution of a final judgment in her favor. 3. 1998. and d) [petitioner] be ordered to reimburse [respondent] the sum of Fifty Thousand Pesos (₧50. such consignation is still ineffective and void for having . In any event. The complaint. thus: The purported consignation in this case is thus of no moment. It was held. 2655 MN of the Malabon RTC Branch entitled Spouses Carlos Ventura and Sandra Ventura vs. too. [respondent] decided to file an action for consignation and specific performance against [petitioner] before the Housing and Land Use Regulatory Board on March 12.1. docketed as REM-03129810039. b) TCT Nos. San Vicente. We have long legally rescinded the sale in her favor in view of her failure to pay the monthly amortization as per contract. B.E. She sold her rights to Mr. inasmuch as the amount allegedly due was not even deposited or placed at the disposal of this Office by the complainant. we agree with [petitioner] that even if the complainant had actually made the consignation of the amount.000. Wilson Yu who failed to pay his monthly amortizations. 1999.00) as attorneys fees and litigation expenses. On July 12. 2. We are not and have never been a part of the case you are alluding to hence we cannot be bound by the same. 4. The property in question is now under process to be reconveyed to us as ordered by the court by virtue of a compromised (sic) agreement entered into in Civil Case No. c) new certificates of title over the subject properties be issued in the name of [respondent]. a decision was rendered by the HLURB through Housing and Land Use Arbiter Dunstan T. L-109078 be cancelled. The single question resolved was whether or not [respondents] offer of consignation was correctly denied by the HLURB. Cost against complainant. 2003 for having been filed out of time. [Respondent] then filed an appeal to the Office of the President. The 30-day non-extendible period set forth in the 17 June 1996 resolution had already expired on 20 September 1996. dismissed on June 2. but this was denied on July 31. [respondent] moved for its reconsideration. On March 17. and resolved the motion according to its merits. and affirming the decision dated July 12. Premises Considered. Aggrieved by the above decision. it is evident that there was no valid consignation of the balance of the purchase price. 2000. This was. A valid consignation is effected when there is an actual consignation of the amount due within the prescribed period (St. xxx WHEREFORE. WHEREFORE. [respondent] filed a Petition for Review before the HLURBs First Division. the Office of the President gave due course to [respondents] motion. The HLURB is therefore justified in refusing the consignation. Dominic Corporation vs. IT (sic) SO ORDERED. otherwise it would be accused of extending the period beyond that provided by the Supreme Court. x x x . a decision was rendered dismissing the petition for lack of merit. premises considered. a judgment is hereby rendered DISMISSING the complaint. and We quote: From the foregoing. Again. 2003. 138 SCRA 242). Intermediate Appellate Court. On September 18. Said office ruled in the affirmative. however. the appeal is hereby DISMISSED for lack of merit. 1999.been done long after the expiration of the non-extendible period set forth in the 17 June 1996 Supreme Court Resolution that expired on 20 September 1996. 2001. [Respondent] filed a Motion for Reconsideration. in the higher interest of justice. 2003. San Diego. 2003 Order of the OP. Accordingly. are hereby REVERSED and SET ASIDE. 2003 Resolution and December 2.[Respondent] filed a Motion for Reconsideration [of] the above Resolution. 2000. REM-A-990907-0167.] the balance due for the sale of the subject four parcels of land within five (5) days from receipt of this decision. but this was denied with finality on December 2. SO ORDERED. such may be disregarded in the interest of justice. albeit belatedly. respectively.E. Moreover. the fallo of which reads: WHEREFORE.[6] The Ruling of the Court of Appeals Respondent Alzul brought before the CA a petition for certiorari docketed as CA-G. nonetheless. 2003 and December 2. Inc. 2000 Decision [7] and July 31. It considered the failure of respondents counsel to avail of the remedy of consignation as a procedural lapse. 2005. Case No. 67637. . the corresponding Deed of Sale must be issued. citing the principle that where a rigid application of the rules will result in a manifest failure or miscarriage of justice. 2003. the CA rendered its assailed Decision reversing the September 18.]. would amount to a grave injustice.[9] The CA agreed with the HLURB that no valid consignation was made by respondent but found that justice would be better served by allowing respondent Alzul to effect the consignation.E. is ordered to accept such payment from [respondent Alzul]. 2001 Resolution[8] of the HLURB First Division in HLURB Case No. It cited the respondents right over the disputed lots as confirmed by this Court in G.P. [respondent Alzul] is hereby ordered to pay [petitioner B. 2005. 109078. SP No. 01-1-097 and affirming the March 17. September 18. which. On February 18. the CA pointed out that respondents counsel concededly lacked the vigilance and competence in defending his clients right when he failed to consign the balance on time. ascribing grave abuse of discretion to the OP in dismissing her appeal in O. No.R. technicalities can be ignored. on the other hand. Inc. [Petitioner B. if taken away on account of the delay in completing the payment. San Diego. Resolution and Order dated March 17. after which. A copy of the February 18. the assailed Decision.R. 2005 CA Decision was received by respondent Alzul through her counsel on February 24. R. and finding that respondent duly exerted efforts to comply with its Decision and a valid consignation was made by respondent. for being contrary to law and jurisprudence. 2005 Resolution. Inc. Whether or not the Court of Appeals committed patent grave abuse of discretion and/or acted without or in excess of jurisdiction in granting respondent Alzuls subsequent motion for extension of time to comply with the 18 February 2005 decision and motion for consignation. has decided questions of law in a way not in accord with law and with the applicable decisions of the Honorable Court. 2005 to comply with the CA Decision. [12] Hence. 81341.R. the motion for extension to comply with the Decision is hereby GRANTED. and 3.[11] Through its assailed August 31. petitioner filed its Motion for Reconsideration with Opposition to Petitioners Motion for Extension of Time to Comply with the Decision of the [CA]. it granted the requested 10-day extension of time to comply with the February 18. the corresponding Deed of Sale. respondent filed a Compliance and Motion for Extension of Time to Comply with the Decision of the [CA][10] praying that she be given an extension of ten (10) days or from March 2 to 11. in issuing the assailed 18 February 2005 Decision and 31 August 2005 Resolution in CA-G. on March 8. On the other hand. Alzul and to issue.E. Whether or not the 18 February 2005 Decision and 31 August 2005 Resolution of the Court of Appeals in CA-G. 2005. in her favor.The Issues On March 4. Whether or not the Court of Appeals. [Petitioner] B. The fallo of said Resolution reads: IN VIEW OF THE FOREGOING. is hereby ordered to receive the payment of [respondent] Rosario T. SP No. San Diego. 2. the CA denied petitioners Motion for Reconsideration. before us is the instant petition with the following issues: 1.[13] . 2005 Decision and her motion for consignation. the motion for reconsideration is DENIED and the motion for consignation is GRANTED. 2005. SP No. 81341 ought to be annulled and set aside. ) The above proviso explicitly requires the following to be appended to a petition: 1) clearly legible duplicate original or a certified true copy of the award. To prevent premature dismissals. 2) certified true copies of such material portions of the record referred to in the petition. assails the sufficiency of respondent Alzuls CA petition as the latter. The attachment of all essential and necessary papers and documents is mandatory. resolutions.E. transcripts. 6 on the contents of the petition have to be elucidated. and the contents of and the documents which should accompany the petition shall be sufficient ground for the dismissal thereof.The Courts Ruling On the procedural issue. final order. x x x (Emphasis supplied. San Diego. 1997 Rules of Civil Procedure pertinently provides: SEC. petitioner B. thus the resulting delay in the review of the petition. final order or resolution appealed from. and 3) other supporting papers. It is a fact that it takes several months before the records are elevated to the higher court. 7 of Rule 43 of the Rules of Court. the requirements under Sec. judgment. otherwise. Section 6 of Rule 43.The petition for review shall x x x (c) be accompanied by a clearly legible duplicate original or a certified true copy of the award. proof of service of the petition. together with certified true copies of such material portions of the record referred to therein and other supporting papers. Contents of the petition. Inc. which provides: Effect of failure to comply with requirements. the main reason for the prescribed attachments is to facilitate the review and evaluation of the petition by making readily available to the CA all the orders. or resolution appealed from. and pieces of evidence that are material and relevant to the issues presented in the petition without relying on the case records of the lower court. decisions. documents. Obviously. pleadings. allegedly lacked the essential and relevant pleadings filed with the HLURB and the OP.The failure of the petitioner to comply with any of the foregoing requirements regarding the payment of the docket and other lawful fees. 6. The rule is the reviewing court can determine the merits of the petition solely on the basis of the submissions by the parties[14] without the use of the records of the court a quo. in violation of the rules. the petition can be rejected outright under Sec. judgment. the deposit for costs. . 6 of Rule 43. cumbersome. Rule 46 on original cases to this Court only requires plain copies of the material portions of the records. Moreover. having influence or effect. or important in whatever way to be able to reach the resolution of the issues of the petition. the rule to require attachment of certified true copies of the material portions will surely make the preparation of the petition more tedious.First. Finally. having to do with matter. more or less necessary. Rule 41 of course does not require attachment of the pertinent records since the entire records are elevated to the CA.Thus. The rules on the different modes of appeal from the lower courts or quasi-judicial agencies to the CA reveal that it is only Rule 43 that specifically states that the material portions to be appended to the petition should be certified true copies. as distinguished from form. material portions of the records are those parts of the records that are relevant and directly bear on the issues and arguments raised and discussed in the petition. Rule 42 on petition for review from the trial court in aid of its appellate jurisdiction to the CA speaks of plain copies of the material portions of the record as would support the allegations of the petition. It would be prudent however for the petitioner to attach all parts of the records which are relevant.[16] Even Rule 45 on appeal by certiorari from the CA to this Court simply speaks of material portions of the records without indicating that these should be certified true copies. . Rule 65 on special civil actions requires only copies of relevant and pertinent pleadings and documents. Lastly. thereby obviating intolerable delays.[15]Thus. transcripts of testimonial evidence. documentary evidence. judgment. The attachment of the material portions is subject to the qualification that these are referred to or cited in the petition. the processing time for the review and resolution of the petition is greatly abbreviated. The second set of attachments refers to the certified true copies of such material portions of the record referred to therein. and parts of the records pertinent and relevant to the grounds supporting the petition. It should therefore be construed that merely clear and legible copies of the material portions will suffice. only the material parts specified in the petition have to be appended and that would be sufficient compliance with the rule as to form. If strictly required. Material is defined as important. or final order or resolution issued by the lower court or agency and appealed from has to be certified as true. and expensive. it has to be explained whether the material portions of the records have to be certified as true by the clerk of court or his/her duly authorized representative as provided in Sec.They may include any of the pleadings that are subject of any issue. The availability of such documents to the ponente and members of a Division can easily provide the substance and support to the merits of the grounds put forward by the petitioner. going to the merits. necessary. there can be no question that only the award. From the foregoing premises. petitioner was not able to convince the CA that the alleged missing attachments deprived said court of the full opportunity and facility in examining and resolving the petition. SP No. Apparently. Thus. Sec. it is only in Rule 43 that we encounter the requirement of annexing supporting papers to the petition. Petitioners postulation must fail.[17] There is no plausible reason why a different treatment or stricter requirement should be applied to petitions under Rule 43. otherwise. This can be interpreted to mean other documents. Again. and pieces of evidence not forming parts of the records of the lower court or agency that can bolster and shore up the petition. it is inarguable that said papers must also be relevant and material to the petition. It prays that the CA petition should have been dismissed under Sec. the inescapable conclusion is that only plain and clear copies of the material portions of the records are required under Sec. the Chief of the Judicial Records Division shall require the petitioner to complete the annexes or file the necessary number of copies of the petition before docketing the case. 7 of Rule 43 does not prescribe outright rejection of the petition if it is not accompanied by the required documents but simply gives the discretion to the CA to determine whether such breach constitutes a sufficient ground for dismissal. it was noted in Cusi-Hernandez v. While not so specified in Sec.[18] . pictures. where it was held that only judgments or final orders of the lower courts are needed to be certified true copies or duplicate originals. The last requirement is the attachment of other supporting papers.R. Diaz that the CA Revised Internal Rules provide certain flexibility in the submission of additional documents: When a petition does not have the complete annexes or the required number of copies. CA. 3 of Rule 43. Such pleadings could have been attached to the comment of respondent and hence. no prejudice would be suffered. 7 of Rule 43 due to the lack of needed attachments. Pleadings improperly filed in court shall be returned to the sender by the Chief of the Judicial Records Division. Petitioner claims respondents petition in CA-G.This finding is buttressed by our ruling in Cadayona v. It has not been satisfactorily shown that the pleadings filed by petitioner with the quasi-judicial agencies have material bearing or importance to the CA petition. 3 of Rule 43. 81341 failed to attach material documents of the records of the HLURB and the OP. In addition. the CA did not exercise its discretion in an arbitrary or oppressive manner by giving due course to the petition. the attachments would be mere surplusages and devoid of use and value. They cry foul that none of the pleadings filed with the HLURB and the OP found their way into the CA petition. Court of Appeals. speedy and inexpensive disposition of every action and proceeding. [22] petitioner strongly asserts that upon its refusal to accept the tendered payment. liberty. Respondent Alzul received through counsel a copy of the entry of judgment on August 21. Petitioner stresses the fact that respondent Alzul did not comply with this Courts June 17. 1996. Respondent failed to do this as she waited for a year and a half before instituting the instant action . 1995 Resolution[21] in G. Construction. As expressed in Alberto vs. Intermediate Appellate Court. (w)hat should guide judicial action is the principle that a partylitigant is to be given the fullest opportunity to establish the merits of his complaint or defense rather than for him to lose life. honor or property on technicalities. must always be eschewed. the Court preferred the determination of cases on the merits over technicality or procedural imperfections so that the ends of justice would be served better. Baldado.These Rules shall be liberally construed in order to promote their objective of securing a just. Judge Ismael O. After three (3) unsuccessful tenders of payment. 1996. v. the Rules of Court encourage a reading of the procedural requirements in a manner that will help secure and not defeat justice. The entry of judgment shows that the December 26. respondent ought to have consigned it with the court of origin also within the 30-day period or within a reasonable time thereafter.[19] Now we will address the main issuewhether respondent Alzul is still entitled to consignation despite the lapse of the period provided by the Court in G. respondent had until September 20. thus: At the same time. No. No. respondent Alzul made no consignation of the amount to the court of origin. Dominic Corporation v.R. 1998 or about a year and a half later that respondent offered to consign said amount in an action for consignment before the HLURB. Their strict and rigid application. et al. [20] 1996 Resolution which gave a non-extendible period of thirty (30) days from entry of judgment within which to make full payment for the subject properties. x x x (T)he rules of procedure should be viewed as mere tools designed to facilitate the attainment of justice.In Rosa Yap Paras.. Thus. 109078 became final and executory on July 2. It was only on March 12. Court of Appeals. 1996 within which to make the full payment. Relying on the case of St. Thus: Section 6. which would result in technicalities that tend to frustrate rather than promote substantial justice. et al. 109078 entitled Yu v.R. Petitioner further contends that even if the action before the HLURB was made on time. 109078 granting her proprietary rights over the subject lots has long become final and executory. within the 30-day period.R. 1996 Resolution in G. we find the petition meritorious. that is. Anent the issue of laches and estoppel. On the other hand. and contrived grounds. respondent strongly contends that such do not apply in the instant case as incontrovertible circumstances show that she has relentlessly pursued the protection and enforcement of her rights over the disputed lots for over a quarter of a century. Respondent underscores that within the 30-day period. still it is fatally defective as respondent did not deposit any amount with the HLURB which violated the rules for consignment which require actual deposit of the amount allegedly due with the proper judicial authority. she repeatedly attempted to effect the payment to no avail.R.for specific performance and consignment before the HLURB. 109078. HLURB First Division. applicable laws. 1995 Resolution in G. Moreover. No. . No. petitioner argues that respondents delay of a year and a half to pursue full payment must be regarded as a waiver on her part to claim whatever residual remedies she might still have for the enforcement of the June 17. Premised upon these considerations. and the OP of respondents action. 1996 Resolution of this Court should not be construed against her inability to effect payment due to the obstinate and unjust refusal by petitionera supervening circumstance beyond her control. and jurisprudence. she argues that the December 26. the much delayed response of petitioner embodied in its January 14. Moreover. petitioner faults the appellate court for its grant of respondents petition for review which nullified the denial by the HLURB Arbiter. [23] 1998 letter confirming its refusal was based on untenable. Moreover. After a careful study of the factual milieu. baseless. respondent contends that the June 17. to pay B.E. but such is conditioned on the payment of the balance of the purchase price. respondent has inchoate proprietary rights over the disputed lots. we clearly specified thirty (30) days from entry of judgment for respondent to promptly effect the full payment of the balance of the purchase price for the subject properties. San Diego. San Diego. with the corresponding notices of lis pendens annotated on them in favor of respondent until such time that ownership of the subject parcels of land is transferred to respondent Rosario Alzul. private respondent Rosario T. we denied Wilson P. San Diego. thus: Respondent Alzul was accorded legal rights over subject properties In G.E.[24] (Emphasis supplied. Rosario Alzul. respondent failed to effect such full payment of the balance of the purchase price for the subject properties. petitioner B. respondent had the obligation to pay the remaining balance to vest absolute title and rights of ownership in his name over the subject properties.R. We upheld the CA ruling declaring as null and void the titles issued in the name of the Ventura spouses and reinstating them in the name of B. Yus petition and affirmed the appellate courts ruling that as between Wilson P. . Inc. It is thus clear that we accorded respondent Alzul expectant rights over the disputed lots. Alzul is hereby given a non-extendible period of thirty (30) days from entry of judgment. and respondent Alzul. Yu. the original owner of the properties in litigation. 1996 Resolution is fatal to respondent Alzuls action for consignation and specific performance Unfortunately.In our June 17.E.) The non-compliance with our June 17. within which to make full payment for the properties in question. Having been conceded such rights.. We however agree with the observation made by movants that no time limit was set by the respondent Court of Appeals in its assailed Decision for the private respondent herein. 109078. 1996 Resolution. Inc.. No. To rectify such oversight. finding no reversible error on the part of the CA.. Inc. the Ventura spouses. Tender is the antecedent of consignation. Tender of payment may be extrajudicial. an act preparatory to the consignation. thus: Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment.R. Dominic Corporation involving the payment of the installment balance for the purchase of a lot similar to the case at bar. We ruled as follows: . we distinguished consignation from tender of payment and reiterated the rule that both must be validly done in order to effect the extinguishment of the obligation. Tender and consignation. It must be borne in mind however that a mere tender of payment is not enough to extinguish an obligation. CV No. 33619 nor the December 26. and September 28. and the fact that respondent has forfeited her rights to the lots because of her failure to pay the monthly amortizations. In Meat Packing Corporation of the Philippines v. Absent however a valid consignation. She received a copy of the entry of judgment on August 21.R. and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation. August 30.No consignation within the 30-day period or at a reasonable time thereafter It is clear as day that respondent did not attempt nor pursue consignation within the 30-day period given to her in accordance with the prescribed legal procedure. 109078. No.) There is no dispute that a valid tender of payment had been made by respondent. In St. It should be distinguished from tender of payment. produces the effect of payment and extinguishes the obligation. 1996. She made a tender of payment on August 29. where validly made. and from which are derived the immediate consequences which the debtor desires or seeks to obtain. [25] (Emphasis supplied. which is the principal. 1992 Decision in CA-G. 1996. 1996. 1996 to pay the balance of the purchase price to petitioner. 1996 and had 30 days or until September 20. Sandiganbayan. and it generally requires a prior tender of payment. while consignation is necessarily judicial. where a period has been judicially directed to effect the payment. the Court held that a valid consignation is made when the amount is consigned with the court within the required period or within a reasonable time thereafter. that is. 1995 Resolution in G. mere tender will not suffice to extinguish her obligation and consummate the acquisition of the subject properties. all of which were refused by petitioner possibly because the latter is of the view that it is not bound by the November 27. they had up to December 29. the Court resolved to REFER the case to the court of origin. Hence. is quite clear when it ordered the payment of the balance of the purchase price for the disputed lot within 60 days from receipt hereof meaning from the receipt of the decision by the respondents. Inc. This is already inexcusable neglect on the part of respondent. the proper procedure was for the respondent to consign the same with the court also within the 60-day period or within a reasonable time thereafter. it would still not accord . 1996. stating that private respondent tendered to B. Instead of consigning the amount with the court of origin. San Diego. we have accorded respondent. thus: Considering the manifestation.00 representing the balance of the purchase price of the properties which are the subject of this litigation. all the opportunity to pursue consignation with the court of origin and yet. 1998 or over a year after the Court issued its January 28. 1981. Indeed. Alzul. 1981. respondent failed to make a valid consignation. Undoubtedly. refused to accept the same. pursuing the action for consignation on March 12..) The records also reveal that respondent failed to effect consignation within a reasonable time after the 30-day period which expired on September 20. the payment of the sum of P187. 1996 Manifestation informing this Court of petitioners unjust refusal of the tender of payment. [26] (Emphasis supplied.E. respondent filed her November 11. No valid consignation made We agree with petitioners assertion that even granting arguendo that the instant case for consignation was instituted within the 30-day period or within a reasonable time thereafter.First of all. Inc. dated November 11. 1996. Upon refusal by the petitioner to receive such payment. It is an admitted fact that the respondents received a copy of the decision on October 30. San Diego. We acted favorably to it by issuing our January 28. 1981 to make the payment. but B. filed by counsel for private respondent Rosario T. for appropriate action. the decision of the then Court of Appeals which was promulgated on October 21.[27] Respondent still failed to take the cue by her inaction to consign the amount with the court of origin.380. 1997 Resolution which ordered. 1997 Resolution is way beyond a reasonable time thereafter. through said Resolution.E. consignation is the remedy for an unjust refusal to accept payment. Petitioner is of the view that there was no jurisdiction acquired over its person and hence. 109078. And even in the face of the refusal by petitioner to accept tender of payment. and the announcement of the consignation in other cases (emphasis supplied). and respondent.380 [28] on August 29 and 30. Indeed. with the aid of her counsel. the records show that there was no valid consignation made by respondent before the HLURB as she did not deposit the amount with the quasi-judicial body as required by law and the rules. 1996 Resolution. Petitioner was not impleaded as a party by the Ventura spouses in the Malabon City RTC case for quieting of title against Wilson Yu nor in the appealed case to the CA nor in G. which shall judicially pronounce the validity of the consignation and declare the debtor to be released from his/her responsibility. in a proper case. 109078.respondent relief as no valid consignation was made. It is true likewise that petitioner refused to accept it but not without good reasons. 1146 in the amount of PhP 187. It is basic that consignation is an available remedy. consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment. shall extinguish the corresponding obligation. 1996. Pertinently. As cited earlier. The first paragraph of Art. Certainly.R. No.[29] It is of no moment if the refusal to accept payment be reasonable or not. The proper and valid consignation of the amount due with the court of origin. the first paragraph of Article 1258 of the Civil Code provides that [c]onsignation shall be made by depositing the things due at the disposal of judicial authority. respondent is not left without a remedy. No. 1996 and September 28. could have easily availed of such course of action sanctioned under the Civil Code.R. . Considering the tenor of our June 17. respondent ought to have consigned the amount with the court of origin within the non-extendible period of 30 days that was accorded her or within a reasonable time thereafter. 1256 of the Civil Code precisely provides that [i]f the creditor to whom tender of payment has been made refuses without just cause to accept it. the debtor shall be released from responsibility by the consignation of the thing or sum due (emphasis supplied). 1996 Resolution in G. before whom the tender of payment shall be proved. Secondly. petitioner believed that respondent Alzul has lost her rights over the subject lot by the rescission of the sale in her favor due to the latters failure to pay the installments and also as a result of her transferees failure to pay the agreed amortizations. it is not bound by the final judgment and June 17. It is true enough that respondent tendered payment to petitioner three (3) times through a Solidbank Managers Check No. with the corresponding notices of lis pendens therein annotated in favor of defendantappellant until such time that ownership of the subject parcels of land is transferred to herein defendantappellant Rosario Alzul. . 109078 entitled Yu v.[30] Respondent did not comply with the provisions of law particularly with the fourth and fifth requirements specified above for a valid consignation. 1996. (2) the consignation of the obligation had been made because the creditor to whom tender of payment was made refused to accept it. San Diego.R. CV No. Alzul. and (5) after the consignation had been made. this Court issued the Resolution in G. Inc. Costs against plaintiff-appellees.. and the complaint therein is ordered dismissed. No. 1995. Verily. In her complaint for consignation and specific performance. Transfer Certificates of Title Nos. the fallo of which reads: WHEREFORE.R. 109078 wherein it found no reversible error in the actions of the CA in its aforequoted disposition in CA-G. Ventura and Sandra L. 33619 entitled Carlos N. SO ORDERED. 1995 Resolution rendered in G. On February 5. in order that consignation may be effective. 1992 Decision rendered in CA-G.Moreover.R. and N1925. (3) previous notice of the consignation had been given to the person interested in the performance of the obligation. the debtor must show that: (1) there was a debt due. all of the Register of Deeds of Metro Manila. No.R.275 square meter lot subject of this petition will be determined by the significance and effects of the December 26. Ventura are hereby declared null and void. District III. N-1923. N-1922. or because s/he was absent or incapacitated. (4) the amount due was placed at the disposal of the court. Rosario T. respondent only prayed that she be allowed to make the consignation without placing or depositing the amount due at the disposal of the court of origin. Court of Appeals.[31] The subject matter of G. 33619.. the person interested was notified of the action. et al. respondent made no valid consignation. 109078 is the November 27.E. and resolved to deny the petition for lack of merit. No. CV No. in the names of plaintiffsappellees Carlos N. this Court denied with finality the Motion for Reconsideration filed by petitioner Wilson Yu.[32] On December 26. Malabon Branch. The rights of petitioner and respondent over the 1. Ventura and Sandra L. Ventura v. N-1924. and the titles of ownership reinstated in the name of B. the appealed decision is hereby REVERSED AND SET ASIDE. or because several persons claimed to be entitled to receive the amount due or because the title to the obligation had been lost.R. CA-G.R. No. there is no order for petitioner to accept the payment.R. No. The dispositive or fallo of the decision is what actually constitutes the judgment or resolution of the court that can be the subject of execution.R. 1996 Resolution in G. 33619. CV No. the CA. nor in G. the reinstatement of said titles to the name of petitioner. within which to make full payment for the properties in question. What were determined and decided in the CA Decision in CA-G. 1996. and the declaration that the ownership of the lots subject of said titles will be transferred to respondent. this Court. Pursuant to this Resolution. The reason is that petitioner was not impleaded as a party in the Malabon City RTC civil case. The lacuna in the CA Decision was sought to be corrected in its June 17. Where there is a conflict between the dispositive portion of the decision and its body.[33] The question iscan the Court.However. they cannot. There is no directive to respondent granting her the right to pay the balance of the price to petitioner and. 1995 Resolution in G. to accept the tender of payment made by respondent Alzul? Definitely. or the Malabon City RTC order petitioner B. 109078. on June 17. the query iscan this Court. CV No.[34] Such being the case. or the trial court compel petitioner to accept the tender of payment from respondent? . Again. within which to make full payment for the properties in question. San Diego. petitioner is not duty bound to accept any tender of payment from respondent precisely because such diktat is absent in the fallo of the CA Decision which was affirmed by this Court in its December 26. 109078 where respondent was given a non-extendible period of thirty (30) days from entry of judgment. more importantly.R. in resolving the Motion for Reconsideration of private respondents Spouses Carlos and Sandra Ventura. 33619 were the annulment of the titles of spouses Carlos and Sandra Ventura. granted respondent Alzul a non-extendible period of thirty (30) days from entry of judgment. the dispositive portion controls irrespective of what appears in the body of the decision. No. the CA. 109078 and hence is not under the jurisdiction of said courts.R.E. what was established was the right of respondent to pay the balance of the purchase price within 30 days. Inc. strictly speaking. petitioner is not bound by the dispositions in the CA Decision in CA-G. 33619 and the Resolutions of this Court in G. 108 So. It is the settled doctrine that a writ of execution must conform to the judgment and if it is different from or exceeds the terms of the judgment. vesting title. 109078. The action for quieting of title is characterized as quasi in rem. It is for this reason that respondent cannot ask for a writ of execution from the trial court where the complaint was originally instituted as said court has no jurisdiction over the person of petitioner. 820 [1926]. the court in lieu of directing a conveyance thereof may by an order divest the title of any party and vest it in others.) The judgment in such proceedings is conclusive only between the parties. and the fallo of the CA Decision does not impose the duty or obligation on the part of petitioner to accept the payment from respondent. it was held that: Suits to quiet title are not technically suits in rem. Execution of judgments for specific act. (Emphasis supplied. Even if a writ is issued. In Realty Sales Enterprise.)[35] Not being impleaded as a necessary or indispensable party. these proceedings are characterized as quasi in rem. nor are they. 10. there is no explicit and clear directive for petitioner to accept the payment of the balance of the price. . v. Inc.The answer is no. which shall have the force and effect of a conveyance executed in due form of law. delivery of deeds. or to perform any other specific act in connection therewith.[36] In addition. the court may direct the act to be done at the cost of the disobedient party by some other person appointed by the court and the act when so done shall have like effect as if done by the party. Rule 39 provides the procedure for execution of judgments for specific acts.If a judgment directs a party to execute a conveyance of land or personal property. The reason is obvious as jurisdiction was never acquired over the person of petitioner. but being against the person in respect of the res. No. in personam. it should conform to the judgment. and the party fails to comply within the time specified.(a) Conveyance. then it is a nullity. If real or personal property is situated within the Philippines. Moreover.R.R. Intermediate Appellate Court. McElvy. Sec. or to deliver deeds or other documents. (McDaniel v. CV No. 10. thus: Sec. or other specific acts. the proper procedure was for the respondent to consign the same with the court also within the 60-day period or within a reasonable time thereafter. Otherwise. the decision of the then Court of Appeals which was promulgated on October 21. The date of a finality of a decision is entirely distinct from the date of its entry and the delay in the latter does not affect the effectivity of the former as such is counted from the expiration of the period to appeal. 1996 or immediately thereafter. In the case at bar. petitioner should have been impleaded as a party so as to compel it to accept payment and execute the deed of sale over the disputed lots in favor of respondent. Secondly. 1998. 1981. 109078 cannot be enforced against it. It is therefore essential that the person tasked to perform the specific act is impleaded as a party to the case.The rule mentions the directive to a party.[37] x x x . 33619 as affirmed in G. thus: First of all. CV No. which is substantially similar to the case at bar. This was clearly emphasized in the order of the appellate court on May 6. 1981 to make the payment. Dominic Corporation. her rights to buy the disputed lots have been forfeited. we explained the procedure when a party is directed to pay the balance of the purchase price based on a court decision. which was the date the decision became final as indicated in the entry of judgment and not from August 26. they had up to December 29. Hence. No. The fact that efforts were made by the petitioner to reach an agreement with the respondents after the promulgation of the decision did not in anyway affect the finality of the judgment. such finality should be counted from March 5. The cause of action available to respondent is to file an action for consignation against petitioner which she did by registering a complaint for consignation before the HLURB on March 12. 1981. even if we reckon the 60-day period from the date of the finality of the decision as interpreted by the appellate court. and extinguished. is quite clear when it ordered the payment of the balance of the purchase price for the disputed lot within 60 days from receipt hereof. lost. Because of the failure of respondent to effect payment to petitioner within the 30-day period or soon thereafter. then the CA Decision in CA-G. 1982. Upon refusal by the petitioner to receive such payment. 1982 which is the date the entry was made. Unfortunately. In St. the judgment cannot be executed. It is an admitted fact that the respondents received a copy of the decision on October 30. As petitioner was not impleaded as a party.R. it was filed way beyond the 30-day period which lapsed on September 20. meaning from the receipt of the decision by the respondents. 1982.R. the CA ruling will not prevail over the established axiom that equity is applied only in the absence of and never against statutory law or judicial rules of procedure. 81341 to pay the balance due for the sale of the four lots. we find that the grant of respondents petition in CA-G. Petitioner is DECLARED to be . SP No. respondent had made payments over the subject properties based on her agreement with petitioner. [38] While we commiserate with the plight of respondent. the February 18. San Diego. Dominic Corporation and consign the money with the court of origin. if respondent is in possession of the subject properties.In the aforecited case. though not a party in the complaint for quieting of title. Even assuming arguendo that petitioner B. respondents rights over the subject property are now lost and forfeited.R.[41] In the light of the foregoing considerations. Petitioner to reimburse payments However. the petition is GRANTED. the lot owner was made a party to the case and the judgment of the court was for the plaintiff to pay to the lot owner the balance of the purchase price within 60 days from receipt of the Decision. nor may it be used to reward. [39] For all its conceded merits. she and all persons claiming under her should surrender the possession to petitioner. Plainly. the indolent. in guise of equity. 2003 Order of the OP are hereby REINSTATED. So as not to enrich itself at the expense of respondent. 867. Petitioner is ORDERED to reimburse respondent whatever amount the latter has paid for the subject properties per the Contract to Sell No. On the other hand. 2005 Resolution of the CA are REVERSED and SET ASIDE.E. 2003 Resolution and December 2. still. Having failed in this respect. This Court will not allow a party. WHEREFORE. the refusal to receive the money requires respondent Alzul to follow the procedure in St. can be compelled to receive the purchase price. equity is available only in the absence of law and not as its replacement. The CA relied on justice and equity in granting an additional period of five (5) days from receipt of the February 18. rule. petitioner is obliged to reimburse respondent whatever amount was paid by her in form of monthly amortizations. 81341 and the recognition of the belated consignation of the amount find no support nor basis in law. the Court sees no further need to discuss the remaining issues raised in the petition. [40] Equity as an exceptional extenuating circumstance does not favor. 2005 Decision and August 31. SP No. or jurisprudence.. respondents rights to the property have been forfeited as a result of non-payment within the prescribed time frame. to benefit from respondents own negligence. The CAs holding that the nonconsignation of the amount due is merely a procedural lapse on the part of respondents counsel is misplaced and is contrary to settled jurisprudence. Having resolved the core issue on the validity of the consignation. and the September 18. 2005 Decision in CA-G. Inc.R. Block 18. Andales & Associates Law Office for petitioner. District III is DIRECTED to CANCEL said lis pendens. Ventura and register the same in the name of petitioner. Soledad Soco in the case for illegal detainer originally filed in the City Court of Cebu City. No. 6.. FRANCIS MILITANTE. J. the law provides: . District III. Regino Francisco. The lis pendens in favor of respondent annotated on the Transfer Certificates of Title over the subject properties is hereby LIFTED.00 and the further sum of P3. Ventura and Sandra L. Substantial compliance is not enough for that would render only a directory construction to the law. declaring the payments of the rentals valid and effective. We do not agree with the questioned decision. and N-1925 in the names of spouses Carlos N. New Civil Code. N-1924. respondents. and the Register of Deeds for Metro Manila. and 8. petitioner. positively indicate that all the essential requisites of a valid consignation must be complied with. The Register of Deeds of Manila. Malabon City Branch is ORDERED to cancel Transfer Certificates of Title Nos.: The decision subject of the present petition for review holds the view that there was substantial compliance with the requisites of consignation and so ruled in favor of private respondent.000. No pronouncement as to costs.the true and legal owner of Lots Nos. Branch XII.R. dismissed the complaint and ordered the lessor to pay the lessee moral and exemplary damages in the amount of P10. 5. 1983 SOLEDAD SOCO. We hold that the essential requisites of a valid consignation must be complied with fully and strictly in accordance with the law. GUERRERO. Aurora Subdivision. Jr. JR. 7. Maysilo. vs. L-58961 June 28. Chua & Associates Law Office (collaborating counsel) and Andales. Thus. The Civil Code Articles expressly and explicitly direct what must be essentially done in order that consignation shall be valid and effectual.00 as attorney's fees. G. Malabon City.000. That these Articles must be accorded a mandatory construction is clearly evident and plain from the very language of the codal provisions themselves which require absolute compliance with the essential requisites therein provided. Francis M. The use of the words "shall" and "must" which are imperative. N-1922. Cebu City and REGINO FRANCISCO. HON. N-1923. Incumbent Presiding Judge of the Court of First Instance of Cebu. operating to impose a duty which may be enforced. lessee of the building owned by petitioner lessor.. Articles 1256 to 1261. Zosa for private respondent. Respondent and all persons claiming under her are ORDERED to vacate the subject properties and surrender them to petitioner within sixty (60) days from finality of this judgment. to Francisco for a monthly rental of P 800. In order that the consignation of the thing due may release the obligor. whereby Soco leased her commercial building and lot situated at Manalili Street. the interested parties shall also be notified thereof. The decision appealed from must. Consignation shall be made by depositing the things due at the disposal of judicial authority. and if it is not possible to deliver such currency. It can readily be discerned from Exhibit "A" that paragraphs 10 and 11 appear to have been cancelled while in Exhibit "2" only paragraph 10 has been cancelled.00 for a period of 10 years renewable for another 10 years at the option of the lessee. The payment of debts in money shall be made in the currency stipulated. Claiming that paragraph 11 of the Contract of Lease was in fact not part of the contract because it was cancelled. for brevityentered into a contract of lease on January 17. The consignation having been made. therefore. then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order.1257. 1249. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. as follows: It appears from the evidence that the plaintiff-appellee-Soco. it must first be announcedto the persons interested in the fulfillment of the obligation. in a proper case. before whom the tender of payment shall be proved. The antecedent facts are substantially recited in the decision under review. the action derived from the original obligation shall be held in abeyance. and the announcement of the consignation in other cases. The terms of the contract are embodied in the Contract of Lease (Exhibit "A" for Soco and Exhibit "2" for Francisco). or when through the fault of the creditor they have been impaired. In the meantime. We have a long line of established precedents and doctrines that sustain the mandatory nature of the above provisions. 1973. Cebu City. R-16261 in the Court of First Instance of Cebu seeking the . for short-and the 'defendant-appellant-Francisco. 1258. be reversed. Art. or bills of exchange or other mercantile documentsshall produce the effect of payment only when they have been cashed. Art. Soco filed Civil Case No. In view of this alleged non-payment of rental of the leased premises beginning May.. . the latter felt that she was on the losing end of the lease agreement so she tried to look for ways and means to terminate the contract. 1977. 1975 (Exhibit "5"). at a monthly rental of more than P3.000. 1977 he (meaning Francisco) stopped . 1978 (Exhibit "B") to Francisco serving notice to the latter 'to vacate the premises leased.. 1975 (Exhibit "3") which the latter received as shown in Exhibit "3-A".. Pursuant to his letter dated February 7..' In answer to this letter. . 1975(Exhibit"3") and for reasons stated therein. these payments by checks through Comtrust were received by Soco from June. On May 13. This situation prompted Francisco to write Soco the letter dated February 7. Despite this explanation.. Francisco through his lawyer informed Soco and her lawyer that all payments of rental due her were in fact paid by Commercial Bank and Trust Company through the Clerk of Court of the City Court of Cebu (Exhibit " 1 ").annulment and/or reformation of the Contract of Lease. defendant had been religiously paying the rental. The factual background setting of this case clearly indicates that soon after Soco learned that Francisco sub-leased a portion of the building to NACIDA.. R-16261 Francisco noticed that Soco did not anymore send her collector for the payment of rentals and at times there were payments made but no receipts were issued. obviously for payment of his monthly rentals. Obviously.00 which is definitely very much higher than what Francisco was paying to Soco under the Contract of Lease. Sometime before the filing of Civil Case No. 1977 because Soco admitted that an rentals due her were paid except the rentals beginning May. Cebu Branch (Exhibit "4") requesting the latter to issue checks to Soco in the amount of P 840. . Obviously. 1975 to April. 1977. 1. 1975.. 1977. .00 every 10th of the month. Soco through her lawyer sent a letter dated November 23. After writing this letter. Francisco paid his monthly rentals to Soco by issuing checks of the Commercial Bank and Trust Company where he had a checking account.. Francisco wrote the Vice-President of Comtrust. 2.. Soco filed this instant case of Illegal Detainer on January 8. 1979. While Soco alleged in her direct examination that 'since May. Francisco sent his payment for rentals by checks issued by the Commercial Bank and Trust Company. This request of Francisco was complied with by Comtrust in its letter dated June 4. these payments in checks were received because Soco admitted that prior to May. . . Cebu Branch. (b) Exhibit"7"-Debit Memo dated June l5. Taking into account the factual background setting of this case. 1977. Hearing of October 24. This allegation of Soco is denied by Francisco because per his instructions. July and August. 1977 for P1926. Francisco for the months of May. June.' (TSN-Palicte. yet on cross examination she admitted that before the filing of her complaint in the instant case. 1977 were made by Francisco to Soco thru Comtrust and deposited with the Clerk of Court of the City Court of Cebu. (d) Exhibit "9"-Debit Memo dated August 10. in fact. 10 as payment for August. These payments are further bolstered by the certification issued by Comtrust dated October 29. 1977 as shown in Debit Memorandum issued by Comtrust as follows: (a) Exhibit "6"-Debit Memo dated May 11. p. July and August. 1979). July and August. Francisco did not pay for the reason that he had no funds available at that time.. 28. culminating in the filing of Civil Case R-16261. 1977 for P926. (c) Exhibit "8"-Debit Memo dated July 11.10 as payment for May. . 1977. July and August.. by all means. June. the Commercial Bank and Trust Company. 1979 (Exhibit "13"). Francisco was impelled to deposit the rentals with the Clerk of Court of the . she knew that payments for monthly rentals were deposited with the Clerk of Court except rentals for the months of May. There is no need to determine whether payments by consignation were made from September. 1979 because as earlier stated Soco admitted that the rentals for these months were deposited with the Clerk of Court. Hearing October 24. but Engr. the Court holds that there was in fact a tender of payment of the rentals made by Francisco to Soco through Comtrust and since these payments were not accepted by Soco evidently because of her intention to evict Francisco. 1977 for P926. issued checks in favor of Soco representing payments for monthly rentals for the months of May. Soco alleged that 'we personally demanded from Engr.10 as payment for June. 1977. 1979). 197 7for P926.10 as payment for July. June. 6. 1977 up to the filing of the complaint in January. 1977.. 1977. Palicte. Indeed the Court is convinced that payments for rentals for the months of May. Pressing her point. June. p.paying the monthly rentals' (TSN. Branch 11..000.076 and an additional amount of 5 per cent of said amount. Regino Francisco.072. Pampio Abarientos dated July 6. Pampio Abarientos dated June 9. 1980. Soco was notified of this deposit by virtue of the letter of Atty.City Court of Cebu.. . Jr. (3) To pay to the plaintiff the sum of P9. 1977 (Exhibit " 12") as well as in the answer of Francisco in Civil Case R-16261 (Exhibit "14") particularly paragraph 7 of the Special and Affirmative Defenses..: (1) To vacate immediately the premises in question. Cebu City. Philippines.000. 1980. Francisco cannot be ejected from the leased premises for non-payment of rentals. covering the period from May. 1980. the above decision of the Court of First Instance reversed the judgment of the City Court of Cebu. to pay to the plaintiff for one (1) year a monthly rental of P l. SOORDERED.00 for attorney's fee. Menchavez dated November 28. She was further notified of these payments by consignation in the letter of Atty. (4) To pay to the plaintiff the sum of P5. judgment is hereby rendered in favor of the plaintiff. and for so much amount every month thereafter equivalent to the rental of the month of every preceding year plus 5 percent of same monthly rental until the defendant shall finally vacate said premises and possession thereof wholly restored to the plaintiff-all plus legal interest from date of filing of the complaint. As indicated earlier. Cebu City. and starting with the month of September.46 for the rentals.00 for damages and incidental litigation expenses. (2) To pay to the plaintiff the sum of P40. the dispositive portion of the latter reading as follows: WHEREFORE.) MONTE Acting According to the findings of fact made by the City Court. 1977 (Exhibit "10") and the letter of Atty. ordering the defendant. the defendant Francisco had religiously paid to the plaintiff Soco the corresponding rentals according to the .490. consisting of a building located at Manalili St. There was therefore substantial compliance of the requisites of consignation. November 21. (SGD. Consequently. and (5) To pay the Costs. hence his payments were valid and effective. 1977 to August. 1978 (Exhibit " 1 "). Let us examine the law and consider Our jurisprudence on the matter. but the plaintiff refused to accept them and because of such refusal. the defendant has not made valid payments of rentals to the plaintiff who. hence there could never be any tender of payment.. that in 1975. According to Article 1256. that beginning with the month of May. if the creditor to whom tender of payment has been made refuses without just cause to accept it. but plaintiff refused to accept it without any reason. or any other form of note of value. he notified the plaintiff thereof. that defendant contended that payments of rental thru checks for said four months were made to the plaintiff but the latter refused to accept them. The City Court further found that there is no showing that the letter allegedly delivered to the plaintiff in May. that for the months of May to August. Vilma Arong. 1979. evidence shows that the plaintiff through her daughter. Notwithstanding the contradictory findings of fact and the resulting opposite conclusions of law by the City Court and the Court of First Instance. aside from the codal provisions already cited herein. messenger of the FAR Corporation contained cash money. for the payment of said rentals. on the other hand. New Civil Code. the debtor shall be released from responsibility by the consignation of the . defendant instructed said bank to make consignation with the Clerk of Court of the City Court of Cebu as regard said rentals for May to August. held that there was substantial compliance with the requisites of the law on consignation. has not received any rental payment from the defendant or anybody else. 1977 until at present. still no consignation for May. 1977 and of the succeeding months. The Court of First Instance. The City Court ruled that the consignation was not valid. defendant authorized the Commercial Bank and Trust Company to issue checks to the plaintiff chargeable against his bank account. 1977 rental could be considered in favor of the defendant unless evidence is presented to establish that he actually made rental deposit with the court in cash money and prior and subsequent to such deposit. check. however.terms of the Least Contract while enjoying the leased premises until one day the plaintiff had to demand upon the defendant for the payment of the rentals for the month of May. and the delivery of said checks was coursed by the bank thru the messengerial services of the FAR Corporation. This issue in turn revolves on whether the consignation of the rentals was valid or not to discharge effectively the lessee's obligation to pay the same. both are agreed. that the case presents the issue of whether the lessee failed to pay the monthly rentals beginning May. 1977 by Filomeno Soon. Cebu City. went to the office or residence of defendant at Sanciangko St. The plaintiff also demanded upon the defendant to vacate the premises and from that time he failed or refused to vacate his possession thereof. as a consequence. Teolita Soco and salesgirl. on various occasions to effect payment of rentals but were unable to collect on account of the defendant's refusal to pay. money order. 1977 and for subsequent months. 1977 up to the time the complaint for eviction was filed on January 8. 1977. and even granting that there was. (3) When. an act preparatory to the consignation. The Mechanics of Consignation by Atty.thing or sum due. 90 Phil. 1177. Sept. (Limkako vs. and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation. 1178. May 25. 74 Phil. (5) When the title of the obligation has been lost. (Limkako vs. Teodoro. Civil Code). 104 SCRA 174-179. which is the principal. Civil Code). Tender of payment must be distinguished from consignation. or because he was absent or incapacitated. and from which are derived the immediate consequences which the debtor desires or seeks to obtain. (8 Manresa 325). While payment in check by the debtor may be acceptable as valid. de Mortera. Teodoro. the tender of payment must be made in lawful currency. 30. and (5) that after the consignation had been made the person interested was notified thereof (Art. while consignation is necessarily judicial. (Jose Ponce de Leon vs. Santiago Syjuco. 1178. In order to be valid. supra). 1176. that is. 313). Inc. (4) When two or more persons claim the same right to collect. Tender of payment may be extrajudicial. (2) When he is incapacitated to receive the payment at the time it is due. Failure in any of these requirements is enough ground to render a consignation ineffective. 1956) the fact that in previous years payment in check was accepted does not place its creditor in estoppel from requiring the debtor to pay his obligation in cash (Sy vs. Vda. Civil Code). Eufemio. without just cause. Thus. Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment. L-10572. if no prompt objection to said payment is made (Desbarats vs. Tender is the antecedent of consignation. or because several persons claimed to be entitled to receive the amount due (Art. the debtor must first comply with certain requirements prescribed by law. Reviewing carefully the evidence presented by respondent lessee at the trial of the case to prove his compliance with all the requirements of a valid tender of payment and consignation and from which the . 311). the tender of a check to pay for an obligation is not a valid tender of payment thereof (Desbarats vs. the consignation as a payment is void. In order that consignation may be effective. Civil Code). Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown. Tabios. Vda. (3) that previous notice of the consignation had been given to the person interested in the performance of the obligation (Art.. L-4915. The debtor must show (1) that there was a debt due. S. 74 Phil. (2) that the consignation of the obligation had been made because the creditor to whom tender of payment was made refused to accept it. or does not appear at the place of payment. (4) that the amount due was placed at the disposal of the court (Art. 313). See Annotation. de Mortera. Without the notice first announced to the persons interested in the fulfillment of the obligation. 1958). he refuses to give a receipt. Pampio Abarintos dated July 6. we remain... of your building situated at Manalili St. 1977: Exhibit 12. Cebu City. Regino Francisco. the letter of Atty. 17.. Eric Menchavez dated November 28. and Exhibit 1. Gullas St.. Sanciangko St. within three (3) days from receipt hereof otherwise we would be constrained to make a consignation of the same with the Court in accordance with law. All these evidences. Hoping for your cooperation on this matter. Cebu City Dear Miss Soco: This is in connection with the payment of rental of my client. Records) June 9. Jr. letter of Atty. It appears further that my client had called your office several times and left a message for you to get this payment of rental but until the present you have not sent somebody to get it. (S GD . (1) Exhibit 10 reads: (see p. Cebu City. letter of Atty. according to respondent Judge.respondent Judge based his conclusion that there was substantial compliance with the law on consignation. We have analyzed and scrutinized closely the above exhibits and We find that the respondent Judge's conclusion is manifestly wrong and based on misapprehension of facts. Pampio Abarintos dated June 9. 1978. 1977 Miss Soledad Soco Soledad Soco Retazo P. Exhibit 14. Ver y tru ly yo urs . In this connection. particularly paragraph 7 of the Special and Affirmative Defenses. Engr. 1977. therefore. proved that petitioner lessor was notified of the deposit of the monthly rentals. We note from the assailed decision hereinbefore quoted that these evidences are: Exhibit 10.) . in behalf of my client. Thus- It appears that twice you refused acceptance of the said payment made by my client. the Answer of respondent Francisco in Civil Case R16261. you are hereby requested to please get and claim the rental payment aforestated from the Office of my client at Tagalog Hotel and Restaurant. City Court of Cebu. 1977 respectively and payable to your order. . dated May 11. Neither is it proof that notice of the actual deposit or consignation was given to the lessor. Miss Soledad Soco Soledad Soco Reta P. Jr. Jr. Cebu City.852. Cebu City at any time. which is the first notice. City Court of Cebu. under Official Receipt No.. Records) states: July 6. (2) Exhibit 12 (see p. 237. This amount represents payment of the rental of your building situated at Manalili St. however. 478439 and 47907 issued by the Commercial Bank and Trust Company (CBTC) Cebu City Branch. Engr. it is no proof of tender of payment of other or subsequent monthly rentals. is renting. 1977 and June 15. AB ARI NT OS Co un sel for En gr. Please be further notified that all subsequent monthly rentals will be deposited to the Clerk of Court. Jr. as evidenced by cashier's checks No. Gullas St.. Regino Francisco. City Court of Cebu. Cebu City which my client. Cebu City.20. Regino Francisco. 0436936 dated July 6. You can withdraw the said amount from the Clerk of Court. We may agree that the above exhibit proves tender of payment of the particular monthly rental referred to (the letter does not.PA MP IO A. Cebu City Dear Miss Soco: This is to advise and inform you that my client.1977. has consigned to you. RE GI NO FR AN CIS CO . indicate for what month and also the intention to deposit the rental with the court. through the Clerk of Court. But certainly.. which is the second notice required by law.. Engr. the total amount of Pl. of course. (S GD . It is not even proof of the tender of payment that would have preceded the consignation. The above evidence is. Records) alleges: 7. For the months of June and . But surely. 246. That ever since. paragraph 7 of the Answer (see p. JR.Ver y tru ly yo urs . at no small expense by the defendant. proof of notice to the lessor of the deposit or consignation of only the two payments by cashier's checks indicated therein. however. AB ARI NT OS Co un sel for EN GR . defendant had authorized his bank to issue regularly cashier's check in favor of the plaintiff as payment of rentals which the plaintiff had been accepting during the past years and even for the months of January up to May of this year. This. To preserve defendant's rights and to show good faith in up to date payment of rentals. (3) Exhibit 14. it does not prove any other deposit nor the notice thereof to the lessor. the plaintiff had in so many occasions refused to accept obviously in the hope that she may declare nonpayment of rentals and claim it as a ground for the cancellation of the contract of lease. defendant had been religiously paying his rentals without any delay which. RE GI NO FR AN CIS CO .) PA MP IO A. 1977 way past plaintiff's claim of lease expiration. after seeing the improvements in the area which were effected. has been referred to me for reply. 1978 which is dated November 16. Cebu City Dear Compañero: Your letter dated November 23. 15. We hold that the best evidence of the rental deposits with the Clerk of Court are the official receipts issued by the Clerk of Court. It is no proof of tender of payment to the lessor. Luis V. The above exhibit which is lifted from Civil Case No. R16261 between the parties for annulment of the lease contract. These events only goes to show that the wily plaintiff had thought of this mischievous scheme only very recently and filed herein malicious and unfounded complaint.) MENCH Couns Regino Francis 377-B Junque Cebu C (new a . no single official receipt (SGD. Regino Francisco. It is not true that my client has not paid the rentals as claimed in your letter. Jr. Exhibit 1 merely proves rental deposit for the particular month of November. Cebu City. 1978 Atty. Again. (4) Exhibit 1 (see p. he has been religiously paying the rentals in advance. The statements therein are mere allegations of conclusions which are not evidentiary. Regards. plaintiff again started refusing to accept the payments in going back to her previous strategy which forced the defendant to consign his monthly rental with the City Clerk of Court and which is now the present state of affairs in so far as payment of rentals is concerned. Diores Suite 504.July. not even proof of notice to consign. Records) is quoted thus: November 28. As pointed out in petitioner's Memorandum. 1978 and no other. Payment was made by Commercial Bank and Trust Company to the Clerk of Court. You can check this up with the City Clerk of Court for satisfaction. Jones Avenue. SSS Bldg. however. 1978 which was addressed to my client. Engr. 1978. is self-serving. Attached herewith is the receipt of payment made by him for the month of November. These the respondent lessee utterly failed to present and produce during the trial of the case. As a matter of fact. Second. it was the lessee's duty to send someone to get the cashier's check from the bank and logically. 163-164. Summing up Our review of the above four (4) exhibits. In this connection. 104 Phil. 1980. 8-9. We note that the certification. We hold that the respondent lessee has utterly failed to prove the following requisites of a valid consignation: First. This the lessee failed to do. 117. But scrutinizing carefully Exhibit 4. Limkako vs. except the payment referred to in Exhibit 10. as well as Exhibit 5. 1977 under Official Receipt No. 1977. which is fatal to his defense. respondent lessee likewise failed to prove the second notice. Calo. see p. Exhibit 11 of Filemon Soon.00 every 10th of each month and to deduct the full amount and service fee from his current account. pp. attempting to prove compliance with the requisites of valid consignation. 1058. 230. letter of the Vice President agreeing with the request.was presented in the trial court as nowhere in the formal offer of exhibits for lessee Francisco can a single official receipt of any deposit made be found (pp. p. Memorandum for Petitioner. 231. Original Records) Evidently. certifying that the letter of Soledad Soco sent last May 10 by Commercial Bank and Trust Co. 1977 and June 15. the purpose of the notice is in order to give the creditor an opportunity to reconsider his unjustified refusal and to accept payment thereby avoiding consignation and the subsequent litigation. this is what the lessee also wrote: "Please immediately notify us everytime you have the check ready so we may send somebody over to get it. thru his bank. the lessee has the obligation to make and tender the check to the lessor. that is after consignation has been made. from this arrangement. was marked RTS (return to sender) for the reason that the addressee refused to receive it. 313). Third. respondent lessee also failed to prove the first notice to the lessor prior to consignation. Teodoro. l977 Letter. irrelevant and impertinent per its Order dated November 20. In the original records of the case. Respondent lessee. This previous notice is essential to the validity of the consignation and its lack invalidates the same. CFI Records).. Original Records. " And this is exactly what the bank agreed: "Please be advised that we are in conformity to the above arrangement with the understanding that you shall send somebody over to pick up the cashier's check from us. was rejected by the court for being immaterial. citing the lessee's letter (Exh. tender of payment of the monthly rentals to the lessor except that indicated in the June 9. Exhibit 5. to the lessor except the consignation referred to in Exhibit 12 which are the cashier's check Nos. 74 Phil." (Exhibit 4. . Records). (Cabanos vs. Exhibit 10. messenger of the FAR Corporation. There is no factual basis for the lower court's finding that the lessee had tendered payment of the monthly rentals. 478439 and 47907 CBTC dated May 11. (See p. 4) requesting the bank to issue checks in favor of Soco in the amount of P840. 04369 dated July 6. presented the representative of the Commercial Bank and Trust Co. Q You mean you were issued. dated September 8. 1977. you first delivered the check to the Clerk of Court. who unfortunately belied respondent's claim. 1977 and now to the Clerk of Court? Did you or did you not? A Well. Q You were issued the receipts of those checks? ATTY. we delivered the check direct to the City Clerk of Court. after you deposited the manager's check for that month with the Clerk of Court. or you were not issued any official receipt? My question is whether you were issued any official receipt? So. or you were not issued? A We were not issued. based on his request. Q What date.Edgar Ocañada.? A We started September 12. we only act on something upon the request of our client. From that time on. as follows: A Yes. did you serve notice upon Soledad Soco that the deposit was made on such amount for the month of September. 1977. you delivered the cashier's check to the City Clerk of Court? A Well. 1977. were you issued. LUIS DIORES: Q What month did you say you made . We quote below excerpts from his testimony. Jr.you started making the deposit? When you first deposited the check to the Clerk of Court? A The payment of cashier's check in favor of Miss Soledad Soco was coursed thru the City Clerk of Court from the letter of request by our client Regino Francisco. Bank Comptroller. . we have an acknowledgment letter to be signed by the one who received the check.. what month was that. Q On September. Q September 1977 up to the present time. February.Q Please answer my question. jr. 1978. Q I am not asking whether you are bound to or not. I'masking whether you did or you did not? A I did not. I know that you are acting upon instruction of your client. and Mrs. you did not also serve notice upon Soledad Socco of the deposit in the Clerk of Court. to make also serve notice upon Soledad Soco of the Manager's check which you said you deposited to the Clerk of Court? A I did not. Regino Francisco. Q Now. Q Alright. 1977. so also from January. Q You did not also notify Soledad Soco for the month December. did you notify Miss Soledad Soco that the deposit was in the Clerk of Court? A No. after having made a deposit for that particular month. June. you did not instructed by your client Mr. March. is that correct? A Yes. Q So also in January 1980 up to this month 1980. 1977. My question was-after you made the deposit of the manager's check whether or not you notified Soledad Soco that such manager's check was deposited in the Clerk of Court from the month of September. we did not. for October. did you notify Soledad Soco that you deposited the manager's check to the City Clerk of Court for that month? A I did not. May. on November. July until December. you did not also notify Miss Soledad Soco all the deposits of the manager's check which you said you deposited with the Clerk of Court in every end of the month? So also from each and every month from January 1979 up to December 1979. . 1977. 1977? A We are not bound to. April. namely. I did not. you did not make such notices because you were not such notices after the deposits you made. that is June 3. the lessee. to enable the creditor to withdraw the goods or money deposited. Regino Francisco. Q Now. did you serve notice to Soledad Soco that a deposit was going to be made in each and every month? A Not. you did not notify Soledad Soco that you were going to make the deposit with the Clerk of Court. is that correct? A Yes. and this lack of notices started from September. 1058. October 30. Hearing on June 3. September up to the present time. sir. Recapitulating the above testimony of the Bank Comptroller. Jr. The reason for this is obvious. depreciation or loss of such goods or money by reason of lack of knowledge of the consignation. 1977 to the time of the trial. (Testimony of Ocanada pp. is stated in Cabanos vs. it would be unjust to make him suffer the risk for any deterioration. L-10927. from 1977. A No. is that correct? that such notification should be made before the deposit and after the deposit was made. 104 Phil. Indeed. 1980). Q In other words." . thus: "There should be notice to the creditor prior and after consignation as required by the Civil Code. G. from September 1977 up to the present time. is that correct? A Yes Q And the reason was because you were not instructed by Mr. that a deposit has been made in each and every month during that period. 32-41. and Mrs. before the deposit was made with the Clerk of Court. to this effect.Q Now. No.R. and you did not also notify Soledad Soco after the deposit was made. 1958. 1980. the bank did not send notice to Soco that the checks were in fact deposited (the second notice) because no instructions were given by its depositor. it is clear that the bank did not send notice to Soco that the checks will be deposited in consignation with the Clerk of Court (the first notice) and also. which is separate and distinct from the notification which is made prior to the consignation. The reason for the notification to the persons interested in the fulfillment of the obligation after consignation had been made. Calo. CFI Original Records) as well as in the Motion for Reconsideration of the CFI decision.And the fourth requisite that respondent lessee failed to prove is the actual deposit or consignation of the monthly rentals except the two cashier's checks referred to in Exhibit 12. for the lessee to tender the same to the lessor. defendant had to make a hurried deposit on the following month to repair his failure. 150-194. 170. to prove payment of the monthly rentals. Thus.". 1977. the lessee miserably failed to present any proof that he complied with the arrangement. and logically. two years late and after the filing of the complaint for illegal detainer. 7. he has failed to prove the second notice after consignation except the two made in Exh. under Official Receipt No. And for the months of July and August. Original CFI Records) and under Official Receipt No. is very significant because on 24 October 1979. 10. marked Annex "E ") the allegation that "there was no receipt at all showing that defendant Francisco has deposited with the Clerk of Court the monthly rentals corresponding to the months of May and June. 1977 in cashier's check No. 10. The deposits of these monthly rentals for July and August. 12. But these Debit Memorandums are merely internal banking practices or office procedures involving the bank and its depositor which is not binding upon a third person such as the lessor. p. 479647 was deposited on November 20.. reference to some 45 copies of official receipts issued by the Clerk of Court marked Annexes "B-1 " to "B-40" to the Motion for Reconsideration of the Order granting execution pending appeal filed by defendant Francisco in the City Court of Cebu (pp. 43-44. the Debit Memorandum issued by Comtrust Bank deducting the amounts of the checks therein indicated from the account of the lessee. these two rental deposits were made on November 20. he has failed to prove the first notice to the lessor prior to consignation except that given in Exh. Original CFI Records). We find. On this vital point. 169. 1979. 1977 as of the . therefore. We. 1979 (Annex "B-15". 502782 dated 8-10-77 was deposited on November 20. and he has failed to pay the rentals for the months of July and August. 8 and 9. We have verified the truth of the above claim or allegation and We find that indeed. What is important is whether the checks were picked up by the lessee as per the arrangement indicated in Exhibits 4 and 5 wherein the lessee had to pick up the checks issued by CBTC or to send somebody to pick them up. plaintiff Soco had testified before the trial court that defendant had not paid the monthly rentals for these months. Indeed. p. 39-50. find and rule that the lessee has failed to prove tender of payment except that in Exh.. 1979 (Annex "B-16". As indicated earlier. 1977 on 20 November 1979. not a single copy of the official receipts issued by the Clerk of Court was presented at the trial of the case to prove the actual deposit or consignation. Records. 1697159Z. the rental deposit for July under Check No. filed by plaintiff lessor (pp. The decision under review cites Exhibits 6. 1977. 1697161Z. however. the rentals were only deposited with the Clerk of Court on 20 November 1979 (or more than two years later). Records). the rental deposit for August. " (pp. if it finds that their consideration is necessary in arriving at a just decision of the case. 76 Phil. although it was not specifically assigned by appellants. L20274. Lufthansa German Airlines. Both Petition and Memorandum of the petitioner contain the summary statement of facts. the appellate court is authorized to consider a plain error. competent and convincing showing that the lessee has violated the terms of the lease contract and he may. The other matters raised in the appeal are of no moment. the errors in the appealed decision are sufficiently stated and assigned. The motion to dismiss filed by respondent on the ground of "want of specific assignment of errors in the appellant's brief. his grave abuse of discretion which." (Cabrera vs. 30. 29 SCRA 760-773. Oct. Belen. "has so far departed from the accepted and usual course of judicial proceeding in the matter of applying the law and jurisprudence on the matter. 64 SCRA 610) Under Section 5 of Rule 53. 649) Appellants need not make specific assignment of errors provided they discuss at length and assail in their brief the correctness of the trial court's findings regarding the matter." (Ortigas. intended merely to compel the appellant to specify the questions which he wants to raise and be disposed of in his appeal. We hold that the evidence is clear. . 95 Phil.time the complaint was filed for the eviction of the lessee. vs. Heirs of Resurreccion. Miguel vs Court of Appeals." The Memorandum further cites other basis for petitioner's plea. will be considered by the appellate court notwithstanding the failure to assign it as an error. L-28773. Also. 1975." (Dilag vs. Rule 51 of the Revised Rules of Court. 1969. even if they are not assigned as errors in the appeal. 54. the petitioner argues. June 30. be judicially ejected. therefore. or of page references to the records as required in Section 16(d) of Rule 46." is without merit. The petition itself has attached the decision sought to be reviewed. Jr. We have stated that: This Court is clothed with ample authority to review matters. In Our mind. the erroneous conclusion of the respondent Judge in reversing the decision of the City Court. A clear discussion regarding an error allegedly committed by the trial court accomplishes the purpose of a particular assignment of error. they discuss the essential requisites of a valid consignation. Moreover. an unassigned error closely related to an error properly assigned or upon which the determination of the questioned raised by the error properly assigned is dependent. under Our rulings. Said discussion warrants the appellate court to rule upon the point because it substantially complies with Section 7. Petitioner.Replace aircon belt.Replace battery[2] Private respondent undertook to return the vehicle on July 21. J. IN VIEW OF ALL THE FOREGOING. [G. Comments on the Rules of Court. distribution and repair of motor vehicles . Left with no option. 1990. the latter could not release the vehicle as its battery was weak and was not yet replaced. the decision of the Court of First Instance of Cebu. due to legal technicalities. Inc.. petitioner entrusted his Nissan pick-up car 1988 model[1] to private respondent . But came July 21. 124922. and . vs.: On July 18. 1990 fully serviced and supplied in accordance with the job contract. WHEREFORE. 534).Adjust valve tappet. doing business under the name & style DRAGON METAL MANUFACTURING.Bleed injection pump and all nozzles. . Respondents. 1990 or three (3) days later. ..Change oil and filter. Vol. and that a possible denial of substantial justice. The Payatas Estate Improvement Co. When petitioner sought to reclaim his car in the afternoon of July 24. with costs in favor of the petitioner.397. the battery was not installed and the delivery of the car was rescheduled to July 24. may be avoided.Open up and service four wheel brakes. petitioner himself bought a new battery nearby and delivered it to private respondent for installation on the same day. Branch II is hereby reinstated. .Lubricate accelerator linkages. 103 Phil. 11. vs. clean and adjust.for the following job repair services and supply of parts: . 1970 ed. After petitioner paid in full the repair bill in the amount of P1. June 22. 14th Judicial District. However.which is engaged in the sale. p.[3] private respondent issued to him a gate pass for the release of the vehicle on said date. No. 1998] JIMMY CO.R. COURT OF APPEALS and BROADWAY MOTOR SALES CORPORATION. Pleadings as well as remedial laws should be construed liberally in order that the litigants may have ample opportunity to prove their respective claims. et al. . 10 17). . 1990." (Concepcion. and the derision of the City Court of Cebu. he was told that it was carnapped earlier that morning while .00. Branch XII is hereby REVERSED and SET ASIDE. 1990.cited in Moran.. DECISION MARTINEZ. [8] is inapplicable to this case. [6] On appeal.000. Petitioners imputation of negligence to private respondent is premised on delay which is the very basis of the formers complaint. it was unavoidable for the court to resolve the case.397. First.[4] They likewise agreed that the sole issue for trial was who between the parties shall bear the loss of the vehicle which necessitates the resolution of whether private respondent was indeed negligent. Contrary to the CAs pronouncement.000. petitioner filed a suit for damages against private respondent anchoring his claim on the latters alleged negligence. Manila. except those that may involve privilege or impeaching matter. though not specifically mentioned as an issue at the pre-trial may be tackled by the court considering that it is necessarily intertwined and intimately connected with the principal issue agreed upon by the parties.the carnapping.00 which amount was received and duly receipted by the defendant company. Thus. who will bear the loss and whether there was negligence. particularly the question of negligence without . the rule that the determination of issues at a pre-trial conference bars the consideration of other issues on appeal. For its part. the Court of Appeals (CA) reversed the ruling of the lower court and ordered the dismissal of petitioners damage suit. It is agreed that the vehicle was lost on July 24. stereo speaker. During pre-trial. In a petition for review to this Court. The question of delay. [5] After trial. 1990 in the amount of P1. Private respondent said that the incident was reported to the police. hence it cannot pass on the issue of delay.e. amplifier which amount all in all to P20.[7] The CA ruled that: (1) the trial court was limited to resolving the issue of negligence as agreed during pre-trial.00. It was agreed that the plaintiff paid the defendant the cost of service and repairs as early as July 21. 1990 `approximately two (2) years and five (5) months from the date of the purchase. on the technical aspect involved.500. the principal query raised is whether a repair shop can be held liable for the loss of a customers vehicle while the same is in its custody for repair or other job services? The Court resolves the query in favor of the customer.00 without accessories. the parties agreed that: (T)he cost of the Nissan Pick-up four (4) door when the plaintiff purchased it from the defendant is P332. and (2) the vehicle was lost due to a fortuitous event. i. private respondent contended that it has no liability because the car was lost as a result of a fortuitous event . the court a quo found private respondent guilty of delay in the performance of its obligation and held it liable to petitioner for the value of the lost vehicle and its accessories plus interest and attorneys fees. It was also agreed that the present value of a brand new vehicle of the same type at this time is P425.00 excluding accessories which were installed in the vehicle by the plaintiff consisting of four (4) brand new tires.being road-tested by private respondents employee along Pedro Gil and Perez Streets in Paco. Having failed to recover his car and its accessories or the value thereof. magwheels. private respondent was already in delay as it was supposed to deliver petitioners car three (3) days before it was lost. To be considered as such. Moreover.considering whether private respondent was guilty of delay in the performance of its obligation. Consequently. the exempting circumstances . the burden shifts to the possessor who needs to present controverting evidence sufficient enough to overcome that presumption. A police report of an alleged crime. Assuming further that there was no delay.when the presumption of fault is . the burden of proving that the loss was due to a fortuitous event rests on him who invokes it [10]. The vehicle owner has no duty to show that the repair shop was at fault. does not suffice to established the carnapping. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation.earthquake. [12] This presumption is reasonable since he who has the custody and care of the thing can easily explain the circumstances of the loss. Even assuming arguendo that carnapping was duly established as a fortuitous event. private respondents possession at the time of the loss is undisputed. Carnapping per se cannot be considered as a fortuitous event.which in this case is the private respondent. However. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties agreement at the pre-trial that the car was carnapped.[9] In accordance with the Rules of evidence. to which only private respondent is privy. no other evidence was presented by private respondent to the effect that the incident was not due to its fault. On the merits. petitioner had no option but to leave it. is the simple fact that private respondent was in possession of the vehicle at the time it was lost. In this case. The fact that a thing was unlawfully and forcefully taken from anothers rightful possession. Moreover. does not automatically give rise to a fortuitous event. Article 1165 [11] of the New Civil Code makes an obligor who is guilty of delay responsible even for a fortuitous event until he has effected the delivery. carnapping entails more than the mere forceful taking of anothers property. flood. still private respondent cannot escape liability. still working against private respondent is the legal presumption under Article 1265 that its possession of the thing at the time it was lost was due to its fault. In this case. other than the police report of the alleged carnapping incident. such accession cannot be construed as waiver of petitioners right to hold private respondent liable because the car was unusable and thus. Petitioners agreement to the rescheduled delivery does not defeat his claim as private respondent had already breached its obligation. as in cases of carnapping. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent. as claimant. All that petitioner needs to prove. It is a not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. storm or other natural calamity . An owner who cannot exercise the seven (7) juses or attributes of ownership the right to possess. repair shops are required to first register with the Department of Trade and Industry (DTI)[15] and to secure an insurance policy for the shop covering the property entrusted by its customer for repair. One last thing. private respondent is obliged not only to repair the vehicle but must also provide the customer with some form of security for his property over which he loses immediate control. For just as the owner is exposed to that risk so is the repair shop since the car was entrusted to it. With respect to the value of the lost vehicle and its accessories for which the repair shop is liable. having failed to rebut the presumption and since the case does not fall under the exceptions. It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code. to use and enjoy. to recover or vindicate and to the fruits -[18] is a crippled owner. the decision of the Court Appeals is REVERSED and SET ASIDE and the decision of the court a quo is REINSTATED. then it would be unjustly enriched if it will not compensate petitioner to whom no fault can be attributed.[16] Violation of this statutory duty constitutes negligence per se. [17] Having taken custody of the vehicle. to abuse or consume. liability attaches even if the loss was due to a fortuitous event if the nature of the obligation requires the assumption of risk. Moreover. Such recoverable value is fair and reasonable considering that the value of the vehicle depreciates. That is why. WHEREFORE.not applicable[13] do not concur in this case. it should be based on the fair market value that the property would command at the time it was entrusted to it or such other value as agreed upon by the parties subsequent to the loss. premises considered. then the presumption of negligence applies. Accordingly. on the assumption that private respondents repair business is duly registered. service or maintenance as a prerequisite for such registration/accreditation. private respondent is answerable for the loss. Otherwise. to accessories. If private respondent can recover from its insurer. This value may be recovered without prejudice to such other damages that a claimant is entitled under applicable laws. . if the shop is not registered. Failure of the repair shop to provide security to a motor vehicle owner would leave the latter at the mercy of the former. it presupposes that its shop is covered by insurance from which it may recover the loss.[14] Carnapping is a normal business risk for those engaged in the repair of motor vehicles. to dispose or alienate. 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