List of Cases

Ang Yu Association vs. CA [238 SCRA 602]

Chaves vs. Gonzalez [32 SCRA 547]

Barzaga vs. CA [268 SCRA 105]

Tanguilig vs. CA [266 SCRA 78]

Reyes vs. Sisters of Mercy Hospital

NPC vs. CA

CPU vs. CA [246 SCRA 511]

Heirs of Dimaculangan vs. IAC [170 SCRA 393]

Nazareno v. CA

PNCC v. CA

Security Bank and Trust Co. v. Cuenca

Fortune Motors v. CA [267 SC RA 653]

Licaros v. Gatmaitan

DKC Holdings Corp. v. CA

Mandarin Villa, Inc. v. CA [257 SCRA 538]

Dalion v. CA [182 SCRA 872]

Borromeo v. Rulloda

Felipe v. Heirs of Maximo Aldon [120 SCRA 628]

Siguan v. Lim

Malabanan v. Gaw Ching

Limketkai Sons Milling Inc. v CA

De Leon v. CA[186 SCRA 345]

EN BANC

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs. THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; that since defendants failed to specify the terms and conditions of the offer to sell and because of information received that defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them.

Defendants filed their answer denying the material allegations of the complaint and interposing a special defense of lack of cause of action.

After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the

defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision states:

WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily dismissing the complaint subject to the aforementioned condition that if the defendants subsequently decide to offer their property for sale for a purchase price of Eleven Million Pesos or lower, then the plaintiffs has the option to purchase the property or of first refusal, otherwise, defendants need not offer the property to the plaintiffs if the purchase price is higher than Eleven Million Pesos.

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with modification the lower court's judgment, holding:

In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is sold for a purchase price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos. No pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D,

Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation, subject to the following terms and conditions:

1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of which in full is hereby acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs, executors, administrators or assigns, the above-described property with all the improvements found therein including all the rights and interest in the said property free from all liens and encumbrances of whatever nature, except the pending ejectment proceeding;

2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and other expenses incidental to the sale of above-described property including capital gains tax and accrued real estate taxes.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises.

On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.

On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:

Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in today's consideration of the motion as evidenced by the rubber stamp and signatures upon the copy of the Motion for Execution.

The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of Appeals in its decision in CA G.R. CV-21123, and elevated to the Supreme Court upon the petition for review and that the same was denied by the highest tribunal in its resolution dated May 6, 1991 in G.R. No. L-97276, had now become final and executory. As a consequence, there was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid modified decision had already become final and executory.

It is the observation of the Court that this property in dispute was the subject of the Notice of Lis Pendens and that the modified decision of this Court promulgated by the Court of Appeals which had become final to the effect that should the defendants decide to offer the property for sale for a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market economy today, the same right of first refusal to herein plaintiffs/appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos or more.

WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer.

All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, is hereby set aside as having been executed in bad faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the dispositive portion of which reads:

WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of Execution ordering the defendants among others to comply with the aforesaid Order of this Court within a period of one (1) week from receipt of this Order and for defendants to execute the necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to cancel and set aside the title already issued in favor of Buen Realty Corporation which was previously executed between the latter and defendants and to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.

SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was issued. 1

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without force and effect the above questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as the right of first refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental precepts that may find some relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. 3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .

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. (1451a) 6

Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or an offer would require, among other things, 10 a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object

might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property, without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed:

Finally, the questioned writ of execution is in variance with the decision of the trial court as modified by this Court. As already stated, there was nothing in said decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against petitioners.

SO ORDERED.

Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Mendoza, JJ., concur.

Kapunan, J., took no part.

Feliciano, J., is on leave.

#Footnotes

1 Rollo, pp. 32-38.

2 Roque vs. Lapuz, 96 SCRA 741; Agustin vs. CA, 186 SCRA 375.

3 See People's Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777.

4 Delta Motor Corporation vs. Genuino, 170 SCRA 29.

5 See Art. 1459; Atkins, Kroll and Co., Inc. vs. Cua Hian Tek, 102 Phil. 948.

6 It is well to note that when the consideration given, for what otherwise would have been an option, partakes the nature in reality of a part payment of the purchase price (termed as "earnest money" and considered as an initial payment thereof), an actual contract of sale is deemed entered into and enforceable as such.

7 Enriquez de la Cavada vs. Diaz, 37 Phil. 982.

8 Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil. 948.

9 Article 1319, Civil Code, provides:

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. (Emphasis supplied.)

10 It is also essential for an option to be binding that valuable consideration distinct from the price should be given (see Montilla vs. Court of Appeals, 161 SCRA 167; Sps. Natino vs. IAC, 197 SCRA 323; Cronico vs. J.M. Tuason & Co., Inc., 78 SCRA 331).

11 See Article 1315 and 1318, Civil Code; Madrigal & Co. vs. Stevenson & Co., 15 Phil. 38; Salonga vs. Ferrales, 105 SCRA 359).

12 Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

13 The decision referred to reads:

In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award.

Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision, gave the plaintiffs — considering the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos. No pronouncement as to costs.

EN BANC

[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where the time for compliance had expired and there was breach of contract by non-performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the performance of the contract before filing his complaint. 2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE PHILIPPINES.— Where the defendant virtually admitted non-performance of the contract by returning the typewriter that he was obliged to repair in a non-working condition, with essential parts missing, Article 1197 of the Civil Code of the Philippines cannot be invoked. The fixing of a period would thus be a mere formality and would serve no purpose than to delay. 3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-appellee contravened the tenor of his obligation because he not only did not repair the typewriter but returned it "in shambles,’’ he is liable for the cost of the labor or service expended in the repair of the typewriter, which is in the amount of P58.75, because the obligation or contract was to repair it. In addition, he is likewise liable under Art. 1170 of the Code, for the cost of the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in the same condition it was when he received it. 4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT CASE.— Claims for damages and attorney’s fees must be pleaded, and the existence of the actual basis thereof must be proved. As no findings of fact were made on the claims for damages and attorney’s fees, there is no factual basis upon which to make an award therefor. 5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT; ONLY QUESTIONS OF LAW REVIEWABLE.— Where the appellant directly appeals from the decision of the trial court to the Supreme Court on questions of law, he is bound by the judgment of the court a quo on its findings of fact.

D E C I S I O N

REYES, J.B.L., J.:

This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery of damages but was unsatisfied with the decision rendered by the Court of First Instance of Manila, in its Civil Case No. 65138, because it awarded him only P31.10 out of his total claim of P690 00 for actual, temperate and moral damages and attorney’s fees. The appealed judgment, which is brief, is hereunder quoted in full:jgc:chanrobles.com.ph "In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a portable typewriter for routine cleaning and servicing. The defendant was not able to finish the job after some time despite repeated reminders made by the plaintiff. The defendant merely gave assurances, but failed to comply with the same. In October, 1963, the defendant asked from the plaintiff the sum of P6.00 for the purchase of spare parts, which amount the plaintiff gave to the defendant. On October 26, 1963, after getting exasperated with the delay of the repair of the typewriter, the plaintiff went to the house of the defendant and asked for the return of the typewriter. The defendant delivered the typewriter in a wrapped package. On reaching home, the plaintiff examined the typewriter returned to him by the defendant and found out that the same was in shambles, with the interior cover and some parts and screws missing. On October 29, 1963. the plaintiff sent a letter to the defendant formally demanding the return of the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff some of the missing parts, the interior cover and the P6.00. "On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job cost him a total of P89.85, including labor and materials (Exhibit C). "On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding from the defendant the payment of P90.00 as actual and compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as attorney’s fees. "In his answer as well as in his testimony given before this court, the defendant made no denials of the facts narrated above, except the claim of the plaintiff that the typewriter was delivered to the defendant through a certain Julio Bocalin, which the defendant denied allegedly because the typewriter was delivered to him personally by the plaintiff. "The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should not, however, be fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the missing parts had a total value of only P31.10. "WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P31.10, and the costs of suit. "SO ORDERED."cralaw virtua1aw library The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it awarded only the value of the missing parts of the typewriter, instead of the whole cost of labor and materials that went into the repair of the machine, as provided for in Article 1167 of the Civil Code, reading as follows:jgc:chanrobles.com.ph "ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it may be decreed that what has been poorly done he undone."cralaw virtua1aw library On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable at all, not even for the sum of P31.10, because his contract with plaintiff-appellant did not contain a period, so that plaintiff-appellant should have first filed a petition for the court to fix the period, under Article 1197 of the Civil Code, within which the defendant appellee was to comply with the contract before said defendant-appellee could be held liable for breach of contract. Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any appeal, the facts, as found by the trial court, are now conclusive and non-reviewable. 1 The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter for routine cleaning and servicing" ; that the defendant was not able to finish the job after some time despite repeated reminders made by the plaintiff" ; that the "defendant merely gave assurances, but failed to comply with the same" ; and that "after getting exasperated with the delay of the repair of the typewriter", the plaintiff went to the house of the defendant and asked for its return, which was done. The inferences derivable from these findings of fact are that the appellant and the appellee had a perfected contract for cleaning and servicing a typewriter; that they intended that the defendant was to finish it at some future time although such time was not specified; and that such time had passed without the work having been accomplished, far the defendant returned the typewriter cannibalized and unrepaired, which in itself is a breach of his obligation, without demanding that he should be given more time to finish the job, or compensation for the work he had already done. The time for compliance having evidently expired, and there being a breach of contract by non-performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the performance of the contract before filing his complaint in this case. Defendant cannot invoke Article 1197 of the Civil Code for he virtually admitted non-performance by returning the typewriter that he was obliged to repair in a non-working condition, with essential parts missing. The fixing of a period would thus be a mere formality and would serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l). It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not repair the typewriter but returned it "in shambles", according to the appealed decision. For such contravention, as appellant contends, he is liable under Article 1167 of the Civil Code. jam quot, for the cost of executing the obligation in a proper manner. The cost of the execution of the obligation in this case should be the cost of the labor or service expended in the repair of the typewriter, which is in the amount of P58.75. because the obligation or contract was to repair it. In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in the same condition it was when he received it. Appellant’s claims for moral and temperate damages and attorney’s fees were, however, correctly rejected by the trial court, for these were not alleged in his complaint (Record on Appeal, pages 1-5). Claims for damages and attorney’s fees must be pleaded, and the

existence of the actual basis thereof must be proved. 2 The appealed judgment thus made no findings on these claims, nor on the fraud or malice charged to the appellee. As no findings of fact were made on the claims for damages and attorney’s fees, there is no factual basis upon which to make an award therefor. Appellant is bound by such judgment of the court, a quo, by reason of his having resorted directly to the Supreme Court on questions of law. IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing of the complaint. Costs in all instances against appellee Fructuoso Gonzales. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Villamor, JJ., concur. Barredo, J., did not take part.

Endnotes:

1. Perez v. Araneta, L-18414, 15 July 1968, 24 SCRA 43; Cebu Portland Cement Co. v. Mun. of Naga L-24116-17, 22 August 1968, 24 SCRA 708. 2. Malonzo v. Galang, L-13851, 27 July 1960; Darang v. Belizear, L-22399, 31 March 1967, 19 SCRA 214.

FIRST DIVISION

[G.R. No. 115129. February 12, 1997.]

IGNACIO BARZAGA, Petitioner, v. COURT OF APPEALS and ANGELITO ALVIAR, Respondents.

Franco L. Loyola, for Petitioners.

Monsod Valencia and Associates for Private Respondent.

SYLLABUS

1. CIVIL. LAW; OBLIGATION AND CONTRACTS; EFFECT OF OBLIGATIONS; A PARTY GUILTY OF NEGLIGENCE AND DELAY IN THE PERFORMANCE OF HIS CONTRACTUAL OBLIGATION IS LIABLE FOR DAMAGES. — An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. 2. ID.; ID.; ID.; ID.; THE ARGUMENT THAT THE INVOICES NEVER INDICATED A SPECIFIC DELIVERY TIME MUST FALL IN THE FACE OF THE POSITIVE VERBAL COMMITMENT OF RESPONDENT’S STOREKEEPER; CASE AT BAR. — Contrary to the appellate court’s factual determination, there was a specific time agreed upon for the delivery materials to the cemetery. Petitioner went to private respondent’s store on 21 December precisely to inquire if the materials he intended to purchase could be delivered immediately. But he was told by the storekeeper that if there were still deliveries to be made that afternoon his order would be delivered the following day. With this in mind Barzaga decided to buy the construction materials the following morning after he was assured of immediate delivery according to his time frame. The argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal commitment of respondent’s storekeeper. Consequently it was no longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to indicate the time of delivery whenever she prepared invoices. 3. ID.; ID.; ID.; ID.; THE DELIBERATE SUPPRESSION OF MATERIAL INFORMATION BY ITSELF MANIFESTS A CERTAIN DEGREE OF BAD FAITH. — One piece of testimony by respondent’s witness Marina Boncales has caught our attention — that the delivery truck arrived a little late than usual because it came from a delivery of materials in Langcaan, Dasmariñas, Cavite. Significantly, this information was withheld by Boncales from petitioner when the latter was negotiating with her for the purchase of construction materials. Consequently, it is not unreasonable to suppose that had she told petitioner of this fact and that the delivery of the materials would consequently be delayed, petitioner would not have bought the materials from respondent’s hardware store but elsewhere which would meet his time requirement. The deliberate suppression of this information by itself manifests a certain degree of bad faith on the part of respondent’s storekeeper. 4. ID.; ID.; ID.; ID.; CASE AT BAR; A CASE OF NON-PERFORMANCE OF A RECIPROCAL

OBLIGATION. — This case is clearly one of non-performance of a reciprocal obligation. In their contract of purchase and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach. 5. ID.; DAMAGES; AWARD OF MORAL DAMAGES; SUSTAINED. — We sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one who could not be laid to rest on the date she herself had chosen. There is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude, cavalier behavior and bad faith of respondent and his employees in the performance of an obligation voluntarily entered into. 6. ID.; ID.; GROSS NEGLIGENCE IN THE FULFILLMENT OF ONE’S BUSINESS OBLIGATIONS ENTITLES THE AGGRIEVED PARTY TO EXEMPLARY DAMAGES. — We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations. Respondent Alviar and his employees should have exercised fairness and good judgment in dealing with petitioner who was then grieving over the loss of his wife. Instead of commiserating with him, respondent and his employees contributed to petitioner’s anguish by causing him to bear the agony resulting from his inability to fulfill his wife’s dying wish. 7. ID.; ID.; TEMPERATE DAMAGES; MAY NOT BE AWARDED IN CASES WHERE THE AMOUNT OF PECUNIARY LOSSES, BY THEIR VERY NATURE, COULD BE ESTABLISHED WITH CERTAINTY. — We delete the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than nominal but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty. In this case, the trial court found that plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred during the extra two (2) days of the wake. The record however does not show that petitioner presented proof of the actual amount of expenses he incurred which seems to be the reason the trial court awarded to him temperate damages instead. This is an erroneous application of the concept of temperate damages. While petitioner may have indeed suffered pecuniary losses, these by their very nature could be established with certainty by means of payment receipts. 8. ID.; ID.; ACTUAL OR COMPENSATORY DAMAGES; PARTY’S FAILURE TO PROVE ACTUAL EXPENDITURE CONDUCES TO A FAILURE OF HIS CLAIM. — Petitioner’s claim falls unequivocally within the realm of actual or compensatory damages. However, his failure to prove actual expenditure consequently conduces to a failure of his claim. For in determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.

D E C I S I O N

BELLOSILLO, J.:

The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the nineteenth of December Ignacio’s wife succumbed to a debilitating ailment after prolonged pain and suffering. Forewarned by her attending physicians of her impending death, she expressed her wish to be laid to rest before Christmas day to spare her family from keeping lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their Redeemer. Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife, Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of December in obedience semper fidelis to her dying wish. But her final entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that forthwith gave him and his family their gloomiest Christmas ever. This is Barzaga’s story. On 21 December 1990, at about three o’clock in the afternoon, he went to the hardware store of respondent Angelito Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife. He also asked if the materials could be delivered at once. Marina Boncales, Alviar’s storekeeper, replied that she had yet to verify if the store had pending deliveries that afternoon because if there were then all subsequent purchases would have to be delivered the following day. With that reply petitioner left. At seven o’ clock the following morning, 22 December, Barzaga returned to Alviar’s hardware store to follow up his purchase of construction materials. He told the store employees that the materials he was buying would have to be delivered at the Memorial Cemetery in Dasmariñas, Cavite, by eight o’clock that morning since his hired workers were already at the burial site and time was of the essence. Marina Boncales agreed to deliver the items at the designated time, date and place. With this assurance, Barzaga purchased the materials and paid in full the amount of P2,110.00. Thereafter he joined his workers at the cemetery, which was only a kilometer away, to await the delivery. The construction materials did not arrive at eight o’clock as promised. At nine o’ clock, the delivery was still nowhere in sight. Barzaga returned to the hardware store to inquire about the delay. Boncales assured him that although the delivery truck was not yet around it had already left the garage and that as soon as it arrived the materials would be brought over to the cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the memorial park and wait for the materials. By ten o’clock, there was still no delivery. This prompted petitioner to return to the store to inquire about the materials. But he received the same answer from respondent’s employees who even cajoled him to go back to the burial place as they would just follow with his construction materials. After hours of waiting — which seemed interminable to him — Barzaga became extremely upset. He decided to dismiss his laborers for the day. He proceeded to the police station, which was just nearby, and lodged a complaint against Alviar. He had his complaint entered in the police blotter. When he returned again to the store he saw the delivery truck already there but the materials he purchased were not yet ready for loading. Distressed that Alviar’s employees were not the least concerned, despite his impassioned pleas, Barzaga decided to cancel his transaction with the store and look for construction materials elsewhere. In the afternoon of that day, petitioner was able to buy from another store. But since darkness was already setting in and his workers had left, he made up his mind to start his project the following morning, 23 December. But he knew that the niche would not be

finished in time for the scheduled burial the following day. His laborers had to take a break on Christmas Day and they could only resume in the morning of the twenty-sixth. The niche was completed in the afternoon and Barzaga’s wife was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule. On 21 January 1991, tormented perhaps by his inability to fulfill his wife’s dying wish, Barzaga wrote private respondent Alviar demanding recompense for the damage he suffered. Alviar did not respond. Consequently, petitioner sued him before the Regional Trial Court. 1 Resisting petitioner’s claim, private respondent contended that legal delay could not be validly ascribed to him because no specific time of delivery was agreed upon between them. He pointed out that the invoices evidencing the sale did not contain any stipulation as to the exact time of delivery and that assuming that the materials were not delivered within the period desired by petitioner, the delivery truck suffered a flat tire on the way to the store to pick up the materials. Besides, his men were ready to make the delivery by ten-thirty in the morning of 22 December but petitioner refused to accept them. According to Alviar, it was this obstinate refusal of petitioner to accept delivery that caused the delay in the construction of the niche and the consequent failure of the family to inter their loved one on the twenty-fourth of December, and that, if at all, it was petitioner and no other who brought about all his personal woes.chanroblesvirtuallawlibrary:red Upholding the proposition that respondent incurred in delay in the delivery of the construction materials resulting in undue prejudice to petitioner, the trial court ordered respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase price of the materials with interest per annum computed at the legal rate from the date of the filing of the complaint, (b) P5,000.00 as temperate damages, (c) P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and (e) P5,000.00 as attorney’s fees. On appeal, respondent Court of Appeals reversed the lower court and ruled that there was no contractual commitment as to the exact time of delivery since this was not indicated in the invoice receipts covering the sale. 2 The arrangement to deliver the materials merely implied that delivery should be made within a reasonable time but that the conclusion that since petitioner’s workers were already at the graveyard the delivery had to be made at that precise moment, is non-sequitur. The Court of Appeals also held that assuming that there was delay, petitioner still had sufficient time to construct the tomb and hold his wife’s burial as she wished. We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. 3 Contrary to the appellate court’s factual determination, there was a specific time agreed upon for the delivery of the materials to the cemetery. Petitioner went to private respondent’s store on 21 December precisely to inquire if the materials he intended to purchase could be delivered immediately. But he was told by the storekeeper that if there were still deliveries to be made that afternoon his order would be delivered the following day. With this in mind Barzaga decided to buy the construction materials the following

morning after he was assured of immediate delivery according to his time frame. The argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal commitment of respondent’s storekeeper. Consequently it was no longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to indicate the time of delivery whenever she prepared invoices. 4 Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the delivery of petitioner’s purchases. He maintains that Barzaga should have allowed his delivery men a little more time to bring the construction materials over to the cemetery since a few hours more would not really matter and considering that his truck had a flat tire. Besides, according to him, Barzaga still had sufficient time to build the tomb for his wife. This is a gratuitous assertion that borders on callousness. Private respondent had no right to manipulate petitioner’s timetable and substitute it with his own. Petitioner had a deadline to meet. A few hours of delay was no piddling matter to him who in his bereavement had yet to attend to other pressing family concerns. Despite this, respondent’s employees still made light of his earnest importunings for an immediate delivery. As petitioner bitterly declared in court." . . they (respondent’s employees) were making a fool out of me." 5 We also find unacceptable respondent’s justification that his truck had a flat tire, for this event, if indeed it happened, was foreseeable according to the trial court, and as such should have been reasonably guarded against. The nature of private respondent’s business requires that he should be ready at all times to meet contingencies of this kind. One piece of testimony by respondent’s witness Marina Boncales has caught our attention — that the delivery truck arrived a little late than usual because it came from a delivery of materials in Langcaan, Dasmariñas, Cavite. 6 Significantly, this information was withheld by Boncales from petitioner when the latter was negotiating with her for the purchase of construction materials. Consequently, it is not unreasonable to suppose that had she told petitioner of this fact and that the delivery of the materials would consequently be delayed, petitioner would not have bought the materials from respondent’s hardware store but elsewhere which could meet his time requirement. The deliberate suppression of this information by itself manifests a certain degree of bad faith on the part of respondent’s storekeeper. The appellate court appears to have belittled petitioner’s submission that under the prevailing circumstances time was of the essence in the delivery of the materials to the grave site. However, we find petitioner’s assertion to be anchored on solid ground. The niche had to be constructed at the very least on the twenty-second of December considering that it would take about two (2) days to finish the job if the interment was to take place on the twenty-fourth of the month. Respondent’s delay in the delivery of the construction materials wasted so much time that construction of the tomb could start only on the twenty-third. It could not be ready for the scheduled burial of petitioner’s wife. This undoubtedly prolonged the wake, in addition to the fact that work at the cemetery had to be put off on Christmas day. This case is clearly one of non-performance of a reciprocal obligation. 7 In their contract of purchase and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach. We therefore sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded feelings, mental anguish and serious anxiety while keeping

watch on Christmas day over the remains of their loved one who could not be laid to rest on the date she herself had chosen. There is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude, cavalier behavior and bad faith of respondent and his employees in the performance of an obligation voluntarily entered into. We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations. Respondent Alviar and his employees should have exercised fairness and good judgment in dealing with petitioner who was then grieving over the loss of his wife. Instead of commiserating with him, respondent and his employees contributed to petitioner’s anguish by causing him to bear the agony resulting from his inability to fulfill his wife’s dying wish. We delete however the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than nominal but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty. In this case, the trial court found that plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred during the extra two (2) days of the wake. The record however does not show that petitioner presented proof of the actual amount of expenses he incurred which seems to be the reason the trial court awarded to him temperate damages instead. This is an erroneous application of the concept of temperate damages. While petitioner may have indeed suffered pecuniary losses, these by their very nature could be established with certainty by means of payment receipts. As such, the claim falls unequivocally within the realm of actual or compensatory damages. Petitioner’s failure to prove actual expenditure consequently conduces to a failure of his claim. For in determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss. 8 We affirm the award of attorney’s fees and litigation expenses. Award of damages, attorney’s fees and litigation costs is left to the sound discretion of the court, and if such discretion be well exercised, as in this case, it will not be disturbed on appeal. 9 WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar as it GRANTED on a motion for reconsideration the refund by private respondent of the amount of P2,110.00 paid by petitioner for the construction materials. Consequently, except for the award of P5,000.00 as temperate damages which we delete, the decision of the Regional Trial Court granting petitioner (a) P2,110.00 as refund for the value of materials with interest computed at the legal rate per annum from the date of the filing of the case; (b) P20,000.00 as moral damages; (c) P10,000.00 as exemplary damages; (d) P5,000.00 as litigation expenses; and (4) P5,000.00 as attorney’s fees, is AFFIRMED. No costs. SO ORDERED. Padilla, Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.

Endnotes:

1. Assigned to RTC-Br. 21, Imus, Cavite, presided over by Judge Roy S. del Rosario, Rollo, p. 68. 2. Decision penned by Justice Manuel C. Herrera, concurred in by Justices Cezar D. Francisco and Buenaventura J. Guerrero, Rollo, p. 38. 3. Art. 1170, Civil Code. 4. TSN, 6 December 1991, pp. 22-23. 5. TSN, 19 September 1991, p. 47. 6. TSN, 6 December 1991, p. 35. 7. Art. 1169, last par., Civil Code. 8. Dichoso v. Court of Appeals, G.R. No. 55613, 10 December 1990, 192 SCRA 169; People v. Rosario, G.R. No. 108789, 18 July 1995, 246 SCRA 658. 9. Philippine Airlines, Inc. v. Court of Appeals, G.R. Nos. 50504-05, 13 August 1990, 188 SCRA 461.

FIRST DIVISION

G.R. No. 117190 January 2, 1997

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

BELLOSILLO, J.:

This case involves the proper interpretation of the contract entered into between the parties.

Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J.M.T. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00.

On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. 1

Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the project. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and working condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability.

In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent. 2 It noted that "[i]f the intention of the parties is to include the construction of the deep well in the project, the same should be stated in the proposals. In the absence of such an agreement, it could be safely concluded that the construction of the deep well is not a part of the project undertaken by the plaintiff." 3 With respect to the repair of the windmill, the trial court found that "there is no clear and convincing proof that the windmill system fell down due to the defect of the construction." 4

The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was included in the agreement of the parties because the term "deep well" was mentioned in both proposals. It also gave credence to the testimony of respondent's witness Guillermo Pili, the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost of constructing the deep well would be deducted from the contract price of P60,000.00. Upon these premises the appellate court concluded

that respondent's payment of P15,000.00 to SPGMI should be applied to his remaining balance with petitioner thus effectively extinguishing his contractual obligation. However, it rejected petitioner's claim of force majeure and ordered the latter to reconstruct the windmill in accordance with the stipulated one-year guaranty.

His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks relief from this Court. He raises two issues: firstly, whether the agreement to construct the windmill system included the installation of a deep well and, secondly, whether petitioner is under obligation to reconstruct the windmill after it collapsed.

We reverse the appellate court on the first issue but sustain it on the second.

The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the proposals of petitioner to construct a windmill system for respondent. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was submitted three days later, i.e., on 22 May 1987 which contained more specifications but proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by respondent and the construction immediately followed. The pertinent portions of the first letter-proposal (Exh. "1") are reproduced hereunder —

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

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

UNIT CONTRACT PRICE P87,000.00

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

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

One (1) set — Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal.

One (1) lot — Angle bar, G.I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling.

One (1) lot — Float valve.

One (1) lot — Concreting materials foundation.

F. O. B. Laguna Contract Price P60,000.00

Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemization or description of the materials to be used in constructing the deep well. There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features specifically described therein and no other. While the words "deep well" and "deep well pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed windmill would be suitable. As correctly pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their meaning they should not be disturbed.

Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration 5 and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered. 6 An examination of such contemporaneous and subsequent acts of respondent as well as the attendant circumstances does not persuade us to uphold him.

Respondent insists that petitioner verbally agreed that the contract price of P60,000.00 covered the installation of a deep well pump. He contends that since petitioner did not have the capacity to install the pump the latter agreed to have a third party do the work the cost of which was to be deducted from the contract price. To prove his point, he presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking him to build a deep well pump as "part of the price/contract which Engineer (Herce) had with Mr. Tanguilig." 7

We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a letter is unsubstantiated. The alleged letter was never presented in court by private respondent for reasons known only to him. But granting that this written communication existed, it could not have simply contained a request for Pili to install a deep well; it would have also mentioned the party who would pay for the undertaking. It strains credulity that respondent would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill construction and that its payment would come from the contract price of P60,000.00.

We find it also unusual that Pili would readily consent to build a deep well the payment for which would come supposedly from the windmill contract price on the mere representation of petitioner, whom he had never met before, without a written commitment at least from the former. For if indeed the deep well were part of the windmill project, the contract for its installation would have been strictly a matter between petitioner and Pili himself with the former assuming the obligation to pay the price. That it was respondent Herce Jr. himself who paid for the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well was not part of the windmill project but a separate agreement between respondent and Pili. Besides, if the price of P60,000.00 included the deep well, the obligation of respondent was to pay the entire amount to petitioner without prejudice to any action that Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he tendered payment directly to Pili and not to petitioner, respondent explained, rather lamely, that he did it "because he has (sic) the money, so (he) just paid the money in his possession." 8

Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is clear that "payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it," 9 it does not appear from the record that Pili and/or SPGMI was so authorized.

Respondent cannot claim the benefit of the law concerning "payments made by a third person." 10 The Civil Code provisions do not apply in the instant case because no creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been established regarding the construction of the deep

well. Specifically, witness Pili did not testify that he entered into a contract with petitioner for the construction of respondent's deep well. If SPGMI was really commissioned by petitioner to construct the deep well, an agreement particularly to this effect should have been entered into.

The contemporaneous and subsequent acts of the parties concerned effectively belie respondent's assertions. These circumstances only show that the construction of the well by SPGMI was for the sole account of respondent and that petitioner merely supervised the installation of the well because the windmill was to be connected to it. There is no legal nor factual basis by which this Court can impose upon petitioner an obligation he did not expressly assume nor ratify.

The second issue is not a novel one. In a long line of cases 11 this Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals, 12 four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor.

Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot be fortuitous — unforeseeable nor unavoidable. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise the windmills will not turn.

The appellate court correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had there been no inherent defect in it which could only be attributable to the appellee." 13 It emphasized that respondent had in his favor the presumption that "things have happened according to the ordinary course of nature and the ordinary habits of life." 14 This presumption has not been rebutted by petitioner.

Finally, petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. 15 When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost.

WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In return, petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty" 16 and to complete the same within three (3) months from the finality of this decision.

SO ORDERED.

Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

Footnotes

1 TSN, 20 December 1988, pp. 10-12.

2 Exh. "A" and Exh. "1."

3 Rollo, p. 36.

4 Id., p. 37.

5 Kasilag v. Rodriguez, 69 Phil. 217 (1939).

6 Art. 1371, New Civil Code; GSIS v. Court of Appeals, G.R. No. 52478, 30 October 1986, 145 SCRA 311; Serrano v. Court of Appeals, No. L-46357, 9 October 1985, 139 SCRA 179.

7 TSN, 13 April 1989, pp. 18-19.

8 TSN, 13 April 1989, p. 22.

9 Art. 1240, New Civil Code.

10 Arts. 1236 and 1237, New Civil Code.

11 Nakpil v. Court of Appeals, Nos. L-47851, L-47863, L-47896, 3 October 1986, 144 SCRA 596; National Power Corporation v. Court of Appeals, G.R. Nos. L-47379 and 47481, 16 May 1988, 161 SCRA 334; National Power Corporation v. Court of Appeals, G.R. Nos. 103442-45, 21 May 1993, 222 SCRA 415.

12 See Note 11.

13 Rollo, p. 44.

14 Sec. 3, par. (y), Rule 131, Revised Rules of Evidence.

15 Art. 1169, last par., New Civil Code.

16 See CA Decision, p. 7; Rollo, p. 27.

SECOND DIVISION

G.R. No. 130547 October 3, 2000

LEAH ALESNA REYES, ROSE NAHDJA, JOHNNY, and minors LLOYD and KRISTINE, all surnamed REYES, represented by their mother, LEAH ALESNA REYES, petitioners, vs. SISTERS OF MERCY HOSPITAL, SISTER ROSE PALACIO, DR. MARVIE BLANES, and DR. MARLYN RICO, respondents.

D E C I S I O N

MENDOZA, J.:

This is a petition for review of the decision1 of the Court of Appeals in CA-G.R. CV No. 36551 affirming the decision of the Regional Trial Court, Branch IX, Cebu City which dismissed a complaint for damages filed by petitioners against respondents.

The facts are as follows:

Petitioner Leah Alesna Reyes is the wife of the late Jorge Reyes. The other petitioners, namely, Rose Nahdja, Johnny, Lloyd, and Kristine, all surnamed Reyes, were their children. Five days before his death on January 8, 1987, Jorge had been suffering from a recurring fever with chills. After he failed to get relief from some home medication he was taking, which consisted of analgesic, antipyretic, and antibiotics, he decided to see the doctor.

On January 8, 1987, he was taken to the Mercy Community Clinic by his wife. He was attended to by respondent Dr. Marlyn Rico, resident physician and admitting physician on duty, who gave Jorge a physical examination and took his medical history. She noted that at the time of his admission, Jorge was conscious, ambulatory, oriented, coherent, and with respiratory distress.2 Typhoid fever was then prevalent in the locality, as the clinic had been getting from 15 to 20 cases of typhoid per month.3 Suspecting that Jorge could be suffering from this disease, Dr. Rico ordered a Widal Test, a standard test for typhoid fever, to be performed on Jorge. Blood count, routine urinalysis, stool examination, and malarial smear were also made.4 After about an hour, the medical technician submitted the results of the test from which Dr. Rico concluded that Jorge was positive for typhoid fever. As her shift was only up to 5:00 p.m., Dr. Rico indorsed Jorge to respondent Dr. Marvie Blanes.

Dr. Marvie Blanes attended to Jorge at around six in the evening. She also took Jorge’s history and gave him a physical examination. Like Dr. Rico, her impression was that Jorge had typhoid fever. Antibiotics being the accepted treatment for typhoid fever, she ordered that a compatibility test with the antibiotic chloromycetin be done on Jorge. Said test was administered by nurse Josephine Pagente who also gave the patient a dose of triglobe. As she did not observe any adverse reaction by the patient to chloromycetin, Dr. Blanes ordered the first five hundred milligrams of said antibiotic to be administered on Jorge at around 9:00 p.m. A second dose was administered on Jorge about three hours later just before midnight.

At around 1:00 a.m. of January 9, 1987, Dr. Blanes was called as Jorge’s temperature rose to 41°C. The patient also experienced chills and exhibited respiratory distress, nausea, vomiting, and convulsions. Dr. Blanes put him under oxygen, used a suction machine, and administered hydrocortisone, temporarily easing the patient’s convulsions. When he regained consciousness, the patient was asked by Dr. Blanes whether he had a previous heart ailment or had suffered from chest pains in the past. Jorge replied he did not.5 After about 15 minutes, however, Jorge again started to vomit, showed restlessness, and his convulsions returned. Dr. Blanes re-applied the emergency measures taken before and, in addition, valium was administered. Jorge, however, did not respond to the treatment and slipped into cyanosis, a

bluish or purplish discoloration of the skin or mucous membrane due to deficient oxygenation of the blood. At around 2:00 a.m., Jorge died. He was forty years old. The cause of his death was "Ventricular Arrythemia Secondary to Hyperpyrexia and typhoid fever."

On June 3, 1987, petitioners filed before the Regional Trial Court of Cebu City a complaint6 for damages against respondents Sisters of Mercy, Sister Rose Palacio, Dr. Marvie Blanes, Dr. Marlyn Rico, and nurse Josephine Pagente. On September 24, 1987, petitioners amended their complaint to implead respondent Mercy Community Clinic as additional defendant and to drop the name of Josephine Pagente as defendant since she was no longer connected with respondent hospital. Their principal contention was that Jorge did not die of typhoid fever.7 Instead, his death was due to the wrongful administration of chloromycetin. They contended that had respondent doctors exercised due care and diligence, they would not have recommended and rushed the performance of the Widal Test, hastily concluded that Jorge was suffering from typhoid fever, and administered chloromycetin without first conducting sufficient tests on the patient’s compatibility with said drug. They charged respondent clinic and its directress, Sister Rose Palacio, with negligence in failing to provide adequate facilities and in hiring negligent doctors and nurses.8

Respondents denied the charges. During the pre-trial conference, the parties agreed to limit the issues on the following: (1) whether the death of Jorge Reyes was due to or caused by the negligence, carelessness, imprudence, and lack of skill or foresight on the part of defendants; (2) whether respondent Mercy Community Clinic was negligent in the hiring of its employees; and (3) whether either party was entitled to damages. The case was then heard by the trial court during which, in addition to the testimonies of the parties, the testimonies of doctors as expert witnesses were presented.

Petitioners offered the testimony of Dr. Apolinar Vacalares, Chief Pathologist at the Northern Mindanao Training Hospital, Cagayan de Oro City. On January 9, 1987, Dr. Vacalares performed an autopsy on Jorge Reyes to determine the cause of his death. However, he did not open the skull to examine the brain. His findings9 showed that the gastro-intestinal tract was normal and without any ulceration or enlargement of the nodules. Dr. Vacalares testified that Jorge did not die of typhoid fever. He also stated that he had not seen a patient die of typhoid fever within five days from the onset of the disease.

For their part, respondents offered the testimonies of Dr. Peter Gotiong and Dr. Ibarra Panopio. Dr. Gotiong is a diplomate in internal medicine whose expertise is microbiology and infectious diseases. He is also a consultant at the Cebu City Medical Center and an associate professor of medicine at the South Western University College of Medicine in Cebu City. He had treated over a thousand cases of typhoid patients. According to Dr. Gotiong, the patient’s history and positive Widal Test results ratio of 1:320 would make him suspect that the patient had typhoid fever. As to Dr. Vacalares’ observation regarding the absence of ulceration in Jorge’s gastro-intestinal tract, Dr. Gotiong said that such hyperplasia in the intestines of a typhoid victim may be microscopic. He noted that since the toxic effect of typhoid fever may lead to meningitis, Dr. Vacalares’ autopsy should have included an examination of the brain.10

The other doctor presented was Dr. Ibarra Panopio, a member of the American Board of Pathology, examiner of the Philippine Board of Pathology from 1978 to 1991, fellow of the Philippine Society of Pathologist, associate professor of the Cebu Institute of Medicine, and chief pathologist of the Andres Soriano Jr. Memorial Hospital in Toledo City. Dr. Panopio stated that although he was partial to the use of the culture test for its greater reliability in the diagnosis of typhoid fever, the Widal Test may also be used. Like Dr. Gotiong, he agreed that the 1:320 ratio in Jorge’s case was already the maximum by which a conclusion of typhoid fever may be made. No additional information may be deduced from a higher dilution.11 He said that Dr. Vacalares’ autopsy on Jorge was incomplete and thus inconclusive.

On September 12, 1991, the trial court rendered its decision absolving respondents from the charges of negligence and dismissing petitioners’ action for damages. The trial court likewise dismissed respondents’ counterclaim, holding that, in seeking damages from respondents, petitioners were impelled by the honest belief that Jorge’s death was due to the latter’s negligence.

Petitioners brought the matter to the Court of Appeals. On July 31, 1997, the Court of Appeals affirmed the decision of the trial court.

Hence this petition.

Petitioners raise the following assignment of errors:

I. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT THE DOCTRINE OF RES IPSA LOQUITUR IS NOT APPLICABLE IN THE INSTANT CASE.

II. THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT MADE AN UNFOUNDED ASSUMPTION THAT THE LEVEL OF MEDICAL PRACTICE IS LOWER IN ILIGAN CITY.

III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED FOR A LESSER STANDARD OF CARE AND DEGREE OF DILIGENCE FOR MEDICAL PRACTICE IN ILIGAN CITY WHEN IT APPRECIATE[D] NO DOCTOR’S NEGLIGENCE IN THE TREATMENT OF JORGE REYES.

Petitioner’s action is for medical malpractice. This is a particular form of negligence which consists in the failure of a physician or surgeon to apply to his practice of medicine that degree of care and skill which is ordinarily employed by the profession generally, under similar conditions, and in like surrounding circumstances.12 In order to successfully pursue such a claim, a patient must prove that the physician or surgeon either failed to do something which a reasonably prudent physician or surgeon would have done, or that he or she did something that a reasonably prudent physician or surgeon would not have done, and that the failure or action caused injury to the patient.13 There are thus four elements involved in medical negligence cases, namely: duty, breach, injury, and proximate causation.

In the present case, there is no doubt that a physician-patient relationship existed between respondent doctors and Jorge Reyes. Respondents were thus duty-bound to use at least the same level of care that any reasonably competent doctor would use to treat a condition under the same circumstances. It is breach of this duty which constitutes actionable malpractice.14 As to this aspect of medical malpractice, the determination of the reasonable level of care and the breach thereof, expert testimony is essential. Inasmuch as the causes of the injuries involved in malpractice actions are determinable only in the light of scientific knowledge, it has been recognized that expert testimony is usually necessary to support the conclusion as to causation.15

Res Ipsa Loquitur

There is a case when expert testimony may be dispensed with, and that is under the doctrine of res ipsa loquitur. As held in Ramos v. Court of Appeals:16

Although generally, expert medical testimony is relied upon in malpractice suits to prove that a physician has done a negligent act or that he has deviated from the standard medical procedure, when the doctrine of res ipsa loquitor is availed by the plaintiff, the need for expert medical testimony is dispensed with because the injury itself provides the proof of negligence. The reason is that the general rule on the necessity of expert testimony applies only to such matters clearly within the domain of medical science, and not to matters that are within the common knowledge of mankind which may be testified to by anyone familiar with the facts. Ordinarily, only physicians and surgeons of skill and experience are competent to testify as to whether a patient has been treated or operated upon with a reasonable degree of skill and care. However, testimony as to the statements and acts of physicians and surgeons, external appearances, and manifest conditions which are observable by any one may be given by non-expert witnesses. Hence, in cases where the res ipsa loquitur is applicable, the court is permitted to find a

physician negligent upon proper proof of injury to the patient, without the aid of expert testimony, where the court from its fund of common knowledge can determine the proper standard of care. Where common knowledge and experience teach that a resulting injury would not have occurred to the patient if due care had been exercised, an inference of negligence may be drawn giving rise to an application of the doctrine of res ipsa loquitur without medical evidence, which is ordinarily required to show not only what occurred but how and why it occurred. When the doctrine is appropriate, all that the patient must do is prove a nexus between the particular act or omission complained of and the injury sustained while under the custody and management of the defendant without need to produce expert medical testimony to establish the standard of care. Resort to res ipsa loquitor is allowed because there is no other way, under usual and ordinary conditions, by which the patient can obtain redress for injury suffered by him.

Thus, courts of other jurisdictions have applied the doctrine in the following situations: leaving of a foreign object in the body of the patient after an operation, injuries sustained on a healthy part of the body which was not under, or in the area, of treatment, removal of the wrong part of the body when another part was intended, knocking out a tooth while a patient’s jaw was under anesthetic for the removal of his tonsils, and loss of an eye while the patient was under the influence of anesthetic, during or following an operation for appendicitis, among others.17

Petitioners asserted in the Court of Appeals that the doctrine of res ipsa loquitur applies to the present case because Jorge Reyes was merely experiencing fever and chills for five days and was fully conscious, coherent, and ambulant when he went to the hospital. Yet, he died after only ten hours from the time of his admission.

This contention was rejected by the appellate court.

Petitioners now contend that all requisites for the application of res ipsa loquitur were present, namely: (1) the accident was of a kind which does not ordinarily occur unless someone is negligent; (2) the instrumentality or agency which caused the injury was under the exclusive control of the person in charge; and (3) the injury suffered must not have been due to any voluntary action or contribution of the person injured.18

The contention is without merit. We agree with the ruling of the Court of Appeals. In the Ramos case, the question was whether a surgeon, an anesthesiologist, and a hospital should be made liable for the comatose condition of a patient scheduled for cholecystectomy.19 In that case, the patient was given anesthesia prior to her operation. Noting that the patient was neurologically sound at the time of her operation, the Court applied the doctrine of res ipsa loquitur as mental brain damage does not normally occur in a gallblader operation in the absence of negligence of the anesthesiologist. Taking judicial notice that anesthesia procedures had become so common that even an ordinary person could tell if it was administered properly, we allowed the testimony of a witness who was not an expert. In this case, while it is true that the patient died just a few hours after professional medical assistance was rendered, there is really nothing unusual or extraordinary about his death. Prior to his admission, the patient already had recurring fevers and chills for five days unrelieved by the analgesic, antipyretic, and antibiotics given him by his wife. This shows that he had been suffering from a serious illness and professional medical help came too late for him.

Respondents alleged failure to observe due care was not immediately apparent to a layman so as to justify application of res ipsa loquitur. The question required expert opinion on the alleged breach by respondents of the standard of care required by the circumstances. Furthermore, on the issue of the correctness of her diagnosis, no presumption of negligence can be applied to Dr. Marlyn Rico.As held in Ramos:

. . . . Res ipsa loquitur is not a rigid or ordinary doctrine to be perfunctorily used but a rule to be cautiously applied, depending upon the circumstances of each case. It is generally restricted to situations in malpractice cases where a layman is able to say, as a matter of common knowledge and observation,

that the consequences of professional care were not as such as would ordinarily have followed if due care had been exercised. A distinction must be made between the failure to secure results, and the occurrence of something more unusual and not ordinarily found if the service or treatment rendered followed the usual procedure of those skilled in that particular practice. It must be conceded that the doctrine of res ipsa loquitur can have no application in a suit against a physician or a surgeon which involves the merits of a diagnosis or of a scientific treatment. The physician or surgeon is not required at his peril to explain why any particular diagnosis was not correct, or why any particular scientific treatment did not produce the desired result.20

Specific Acts of Negligence

We turn to the question whether petitioners have established specific acts of negligence allegedly committed by respondent doctors.

Petitioners contend that: (1) Dr. Marlyn Rico hastily and erroneously relied upon the Widal test, diagnosed Jorge’s illness as typhoid fever, and immediately prescribed the administration of the antibiotic chloromycetin;21 and (2) Dr. Marvie Blanes erred in ordering the administration of the second dose of 500 milligrams of chloromycetin barely three hours after the first was given.22 Petitioners presented the testimony of Dr. Apolinar Vacalares, Chief Pathologist of the Northern Mindanao Training Hospital, Cagayan de Oro City, who performed an autopsy on the body of Jorge Reyes. Dr. Vacalares testified that, based on his findings during the autopsy, Jorge Reyes did not die of typhoid fever but of shock undetermined, which could be due to allergic reaction or chloromycetin overdose. We are not persuaded.

First. While petitioners presented Dr. Apolinar Vacalares as an expert witness, we do not find him to be so as he is not a specialist on infectious diseases like typhoid fever. Furthermore, although he may have had extensive experience in performing autopsies, he admitted that he had yet to do one on the body of a typhoid victim at the time he conducted the postmortem on Jorge Reyes. It is also plain from his testimony that he has treated only about three cases of typhoid fever. Thus, he testified that:23

ATTY. PASCUAL:

Q Why? Have you not testified earlier that you have never seen a patient who died of typhoid fever?

A In autopsy. But, that was when I was a resident physician yet.

Q But you have not performed an autopsy of a patient who died of typhoid fever?

A I have not seen one.

Q And you testified that you have never seen a patient who died of typhoid fever within five days?

A I have not seen one.

Q How many typhoid fever cases had you seen while you were in the general practice of medicine?

A In our case we had no widal test that time so we cannot consider that the typhoid fever is like this and like that. And the widal test does not specify the time of the typhoid fever.

Q The question is: how many typhoid fever cases had you seen in your general practice regardless of the cases now you practice?

A I had only seen three cases.

Q And that was way back in 1964?

A Way back after my training in UP.

Q Clinically?

A Way back before my training.

He is thus not qualified to prove that Dr. Marlyn Rico erred in her diagnosis. Both lower courts were therefore correct in discarding his testimony, which is really inadmissible.

In Ramos, the defendants presented the testimony of a pulmonologist to prove that brain injury was due to oxygen deprivation after the patient had bronchospasms24 triggered by her allergic response to a drug,25 and not due to faulty intubation by the anesthesiologist. As the issue was whether the intubation was properly performed by an anesthesiologist, we rejected the opinion of the pulmonologist on the ground that he was not: (1) an anesthesiologist who could enlighten the court about anesthesia practice, procedure, and their complications; nor (2) an allergologist who could properly advance expert opinion on allergic mediated processes; nor (3) a pharmacologist who could explain the pharmacologic and toxic effects of the drug allegedly responsible for the bronchospasms.

Second. On the other hand, the two doctors presented by respondents clearly were experts on the subject. They vouched for the correctness of Dr. Marlyn Rico’s diagnosis. Dr. Peter Gotiong, a diplomate whose specialization is infectious diseases and microbiology and an associate professor at the Southwestern University College of Medicine and the Gullas College of Medicine, testified that he has already treated over a thousand cases of typhoid fever.26 According to him, when a case of typhoid fever is suspected, the Widal test is normally used,27 and if the 1:320 results of the Widal test on Jorge Reyes had been presented to him along with the patient’s history, his impression would also be that the patient was suffering from typhoid fever.28 As to the treatment of the disease, he stated that chloromycetin was the drug of choice.29 He also explained that despite the measures taken by respondent doctors and the intravenous administration of two doses of chloromycetin, complications of the disease could not be discounted. His testimony is as follows:30

ATTY. PASCUAL:

Q If with that count with the test of positive for 1 is to 320, what treatment if any would be given?

A If those are the findings that would be presented to me, the first thing I would consider would be typhoid fever.

Q And presently what are the treatments commonly used?

A Drug of choice of chloramphenical.

Q Doctor, if given the same patient and after you have administered chloramphenical about 3 1/2 hours later, the patient associated with chills, temperature - 41oC, what could possibly come to your mind?

A Well, when it is change in the clinical finding, you have to think of complication.

Q And what will you consider on the complication of typhoid?

A One must first understand that typhoid fever is toximia. The problem is complications are caused by toxins produced by the bacteria . . . whether you have suffered complications to think of -- heart toxic

myocardities; then you can consider a toxic meningitis and other complications and perforations and bleeding in the ilium.

Q Even that 40-year old married patient who received medication of chloromycetin of 500 milligrams intravenous, after the skin test, and received a second dose of chloromycetin of 500 miligrams, 3 hours later, the patient developed chills . . . rise in temperature to 41oC, and then about 40 minutes later the temperature rose to 100oF, cardiac rate of 150 per minute who appeared to be coherent, restless, nauseating, with seizures: what significance could you attach to these clinical changes?

A I would then think of toxemia, which was toxic meningitis and probably a toxic meningitis because of the high cardiac rate.

Q Even if the same patient who, after having given intramuscular valium, became conscious and coherent about 20 minutes later, have seizure and cyanosis and rolling of eyeballs and vomitting . . . and death: what significance would you attach to this development?

A We are probably dealing with typhoid to meningitis.

Q In such case, Doctor, what finding if any could you expect on the post-mortem examination?

A No, the finding would be more on the meninges or covering of the brain.

Q And in order to see those changes would it require opening the skull?

A Yes.

As regards Dr. Vacalares’ finding during the autopsy that the deceased’s gastro-intestinal tract was normal, Dr. Rico explained that, while hyperplasia31 in the payer’s patches or layers of the small intestines is present in typhoid fever, the same may not always be grossly visible and a microscope was needed to see the texture of the cells.32

Respondents also presented the testimony of Dr. Ibarra T. Panopio who is a member of the Philippine and American Board of Pathology, an examiner of the Philippine Board of Pathology, and chief pathologist at the MetroCebu Community Hospital, Perpetual Succor Hospital, and the Andres Soriano Jr. Memorial Medical Center. He stated that, as a clinical pathologist, he recognized that the Widal test is used for typhoid patients, although he did not encourage its use because a single test would only give a presumption necessitating that the test be repeated, becoming more conclusive at the second and third weeks of the disease.33 He corroborated Dr. Gotiong’s testimony that the danger with typhoid fever is really the possible complications which could develop like perforation, hemorrhage, as well as liver and cerebral complications.34 As regards the 1:320 results of the Widal test on Jorge Reyes, Dr. Panopio stated that no additional information could be obtained from a higher ratio.35 He also agreed with Dr. Gotiong that hyperplasia in the payer’s patches may be microscopic.36

Indeed, the standard contemplated is not what is actually the average merit among all known practitioners from the best to the worst and from the most to the least experienced, but the reasonable average merit among the ordinarily good physicians.37 Here, Dr. Marlyn Rico did not depart from the reasonable standard recommended by the experts as she in fact observed the due care required under the circumstances. Though the Widal test is not conclusive, it remains a standard diagnostic test for typhoid fever and, in the present case, greater accuracy through repeated testing was rendered unobtainable by the early death of the patient. The results of the Widal test and the patient’s history of fever with chills for five days, taken with the fact that typhoid fever was then prevalent as indicated by the fact that the clinic had been getting about 15 to 20 typhoid cases a month, were sufficient to give upon any doctor of reasonable skill the impression that Jorge Reyes had typhoid fever.

Dr. Rico was also justified in recommending the administration of the drug chloromycetin, the drug of choice for typhoid fever. The burden of proving that Jorge Reyes was suffering from any other illness rested with the petitioners. As they failed to present expert opinion on this, preponderant evidence to support their contention is clearly absent.

Third. Petitioners contend that respondent Dr. Marvie Blanes, who took over from Dr. Rico, was negligent in ordering the intravenous administration of two doses of 500 milligrams of chloromycetin at an interval of less than three hours. Petitioners claim that Jorge Reyes died of anaphylactic shock38 or possibly from overdose as the second dose should have been administered five to six hours after the first, per instruction of Dr. Marlyn Rico. As held by the Court of Appeals, however:

That chloromycetin was likewise a proper prescription is best established by medical authority. Wilson, et. al., in Harrison’s Principle of Internal Medicine, 12th ed. write that chlorampenicol (which is the generic of chloromycetin) is the drug of choice for typhoid fever and that no drug has yet proven better in promoting a favorable clinical response. "Chlorampenicol (Chloromycetin) is specifically indicated for bacterial meningitis, typhoid fever, rickettsial infections, bacteriodes infections, etc." (PIMS Annual, 1994, p. 211) The dosage likewise including the first administration of five hundred milligrams (500 mg.) at around nine o’clock in the evening and the second dose at around 11:30 the same night was still within medically acceptable limits, since the recommended dose of chloromycetin is one (1) gram every six (6) hours. (cf. Pediatric Drug Handbook, 1st Ed., Philippine Pediatric Society, Committee on Therapeutics and Toxicology, 1996). The intravenous route is likewise correct. (Mansser, O’Nick, Pharmacology and Therapeutics) Even if the test was not administered by the physician-on-duty, the evidence introduced that it was Dra. Blanes who interpreted the results remain uncontroverted. (Decision, pp. 16-17) Once more, this Court rejects any claim of professional negligence in this regard.

. . . .

As regards anaphylactic shock, the usual way of guarding against it prior to the administration of a drug, is the skin test of which, however, it has been observed: "Skin testing with haptenic drugs is generally not reliable. Certain drugs cause nonspecific histamine release, producing a weal-and-flare reaction in normal individuals. Immunologic activation of mast cells requires a polyvalent allergen, so a negative skin test to a univalent haptenic drug does not rule out anaphylactic sensitivity to that drug." (Terr, "Anaphylaxis and Urticaria" in Basic and Clinical Immunology, p. 349) What all this means legally is that even if the deceased suffered from an anaphylactic shock, this, of itself, would not yet establish the negligence of the appellee-physicians for all that the law requires of them is that they perform the standard tests and perform standard procedures. The law cannot require them to predict every possible reaction to all drugs administered. The onus probandi was on the appellants to establish, before the trial court, that the appellee-physicians ignored standard medical procedure, prescribed and administered medication with recklessness and exhibited an absence of the competence and skills expected of general practitioners similarly situated.39

Fourth. Petitioners correctly observe that the medical profession is one which, like the business of a common carrier, is affected with public interest. Moreover, they assert that since the law imposes upon common carriers the duty of observing extraordinary diligence in the vigilance over the goods and for the safety of the passengers,40 physicians and surgeons should have the same duty toward their patients.41 They also contend that the Court of Appeals erred when it allegedly assumed that the level of medical practice is lower in Iligan City, thereby reducing the standard of care and degree of diligence required from physicians and surgeons in Iligan City.

The standard of extraordinary diligence is peculiar to common carriers. The Civil Code provides:

Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to the circumstances of each case. . . .

The practice of medicine is a profession engaged in only by qualified individuals.1âwphi1 It is a right earned through years of education, training, and by first obtaining a license from the state through professional board examinations. Such license may, at any time and for cause, be revoked by the government. In addition to state regulation, the conduct of doctors is also strictly governed by the Hippocratic Oath, an ancient code of discipline and ethical rules which doctors have imposed upon themselves in recognition and acceptance of their great responsibility to society. Given these safeguards, there is no need to expressly require of doctors the observance of "extraordinary" diligence. As it is now, the practice of medicine is already conditioned upon the highest degree of diligence. And, as we have already noted, the standard contemplated for doctors is simply the reasonable average merit among ordinarily good physicians. That is reasonable diligence for doctors or, as the Court of Appeals called it, the reasonable "skill and competence . . . that a physician in the same or similar locality . . . should apply."

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

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

Footnotes

1 Per Associate Justice Hilarion L. Aquino, with concurrence of Associate Justice (now Supreme Court Justice) Minerva P. Gonzaga-Reyes and Associate Justice Eubulo G. Verzola.

2 TSN, p. 18, Aug. 14, 1990.

3 TSN, p. 18, Oct. 19, 1990.

4 TSN, p. 19, Aug. 14, 1990.

5 TSN, pp. 42-43, Oct. 19, 1990.

6 Records, p. 1.

7 Amended complaint, p. 6; Records, p. 61.

8 Id. at 7.

9 Exh. A.

10 TSN, pp. 4-14, Dec. 17, 1990.

11 TSN, p. 18, March 8, 1991.

12 61 Am. Jur. 2d 337, §205 on Physicians, Surgeons, etc.

13 Garcia-Rueda v. Pascasio, 278 SCRA 769, 778 (1997).

14 Id. at 778-779.

15 Id. at 200, citing 61 Am. Jur. 2d, 510.

16 G.R. No. 124354, Dec. 29, 1999.

17 Id. (Citations omitted; emphasis added)

18 Petition, p. 9; Rollo, p. 12.

19 The surgical excision of the gallbladder.

20 Ramos v. Court of Appeals, supra.

21 Petition, p. 10; Rollo, p. 13.

22 Id. at p. 17.

23 TSN, pp. 33-35, Sept. 20, 1989.

24 The constriction of air passages in the lungs by spasmodic contraction of the bronchial muscles.

25 Thiopental Sodium.

26 TSN, p.6, Dec. 17, 1990.

27 Id.

28 Id. at 9.

29 Id.

30 Id. at 9-12.

31 An abnormal or unusual increase in the component cells.

32 TSN, p. 12, Dec. 17, 1990.

33 TSN, p 37-40, March 8, 1991.

34 Id. at 27-30.

35 Id. at 18.

36 Id. at 30.

37 61 Am. Jur. 2d 338.

38 A state of shock resulting from injection or more rarely ingestion of sensitizing antigen or hapten and due mainly to contraction of smooth muscle and increased capillary permeability caused by release in the tissues and circulation of histamine, heparin, and perhaps acetylcholin and serotonin.

39 CA Decision, pp. 5-7; Rollo, pp. 31-33. (Italics supplied)

40 THE CIVIL CODE, ART. 1733.

41 Petition, pp. 19- 20; Rollo, pp. 22-23.

THIRD DIVISION

G.R. No. L-47379 May 16, 1988

NATIONAL POWER CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS and ENGINEERING CONSTRUCTION, INC., respondents.

G.R. No. L-47481 May 16, 1988

ENGINEERING CONSTRUCTION, INC., petitioner, vs. COUTRT OF APPEALS and NATIONAL POWER CORPORATION, respondents.

Raymundo A. Armovit for private respondent in L-47379.

The Solicitor General for petitioner.

GUTIERREZ, JR., J.:

These consolidated petitions seek to set aside the decision of the respondent Court of Appeals which adjudged the National Power Corporation liable for damages against Engineering Construction, Inc. The appellate court, however, reduced the amount of damages awarded by the trial court. Hence, both parties filed their respective petitions: the National Power Corporation (NPC) in G.R. No. 47379, questioning the decision of the Court of Appeals for holding it liable for damages and the Engineering Construction, Inc. (ECI) in G.R. No. 47481, questioning the same decision for reducing the consequential damages and attorney's fees and for eliminating the exemplary damages.

The facts are succinctly summarized by the respondent Court of Appeals, as follows:

On August 4, 1964, plaintiff Engineering Construction, Inc., being a successful bidder, executed a contract in Manila with the National Waterworks and Sewerage Authority (NAWASA), whereby the former undertook to furnish all tools, labor, equipment, and materials (not furnished by Owner), and to construct the proposed 2nd lpo-Bicti Tunnel, Intake and Outlet Structures, and Appurtenant Structures, and Appurtenant Features, at Norzagaray, Bulacan, and to complete said works within eight hundred (800) calendar days from the date the Contractor receives the formal notice to proceed (Exh. A).

The project involved two (2) major phases: the first phase comprising, the tunnel work covering a distance of seven (7) kilometers, passing through the mountain, from the Ipo river, a part of Norzagaray, Bulacan, where the Ipo Dam of the defendant National Power Corporation is located, to Bicti; the other phase consisting of the outworks at both ends of the tunnel.

By September 1967, the plaintiff corporation already had completed the first major phase of the work, namely, the tunnel excavation work. Some portions of the outworks at the Bicti site were still under construction. As soon as the plaintiff corporation had finished the tunnel excavation work at the Bicti site, all the equipment no longer needed there were transferred to the Ipo site where some projects were yet to be completed.

The record shows that on November 4,1967, typhoon 'Welming' hit Central Luzon, passing through defendant's Angat Hydro-electric Project and Dam at lpo, Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains intermittently fell. Due to the heavy downpour, the water in the reservoir of the Angat Dam was rising perilously at the rate of sixty (60) centimeters per hour. To prevent an overflow of water from the dam, since the water level had reached the danger height of 212 meters above sea level, the defendant corporation caused the opening of the spillway gates." (pp. 45-46, L-47379, Rollo)

The appellate court sustained the findings of the trial court that the evidence preponlderantly established the fact that due to the negligent manner with which the spillway gates of the Angat Dam were opened, an extraordinary large volume of water rushed out of the gates, and hit the installations and construction works of ECI at the lpo site with terrific impact, as a result of which the latter's stockpile of materials and supplies, camp facilities and permanent structures and accessories either washed away, lost or destroyed.

The appellate court further found that:

It cannot be pretended that there was no negligence or that the appellant exercised extraordinary care in the opening of the spillway gates of the Angat Dam. Maintainers of the dam knew very well that it was far more safe to open them gradually. But the spillway gates were opened only when typhoon Welming was already at its height, in a vain effort to race against time and prevent the overflow of water from the dam as it 'was rising dangerously at the rate of sixty centimeters per hour. 'Action could have been taken as early as November 3, 1967, when the water in the reservoir was still low. At that time, the gates of the dam could have been opened in a regulated manner. Let it be stressed that the appellant knew of the coming of the typhoon four days before it actually hit the project area. (p. 53, L-47379, Rollo)

As to the award of damages, the appellate court held:

We come now to the award of damages. The appellee submitted a list of estimated losses and damages to the tunnel project (Ipo side) caused by the instant flooding of the Angat River (Exh. J-1). The damages were itemized in four categories, to wit: Camp Facilities P55,700.00; Equipment, Parts and Plant — P375,659.51; Materials P107,175.80; and Permanent Structures and accessories — P137,250.00, with an aggregate total amount of P675,785.31. The list is supported by several vouchers which were all submitted as Exhibits K to M-38 a, N to O, P to U-2 and V to X- 60-a (Vide: Folders Nos. 1 to 4). The appellant did not submit proofs to traverse the aforementioned documentary evidence. We hold that the lower court did not commit any error in awarding P 675,785.31 as actual or compensatory damages.

However, We cannot sustain the award of P333,200.00 as consequential damages. This amount is broken down as follows: P213,200.00 as and for the rentals of a crane to temporarily replace the one "destroyed beyond repair," and P120,000.00 as one month bonus which the appellee failed to realize in accordance with the contract which the appellee had with NAWASA. Said rental of the crane allegedly covered the period of one year at the rate of P40.00 an hour for 16 hours a day. The evidence, however, shows that the appellee bought a crane also a crawler type, on November 10, 1967, six (6) days after the incident in question (Exh N) And according to the lower court, which finding was never assailed, the appellee resumed its normal construction work on the Ipo- Bicti Project after a stoppage of only one month. There is no evidence when the

appellee received the crane from the seller, Asian Enterprise Limited. But there was an agreement that the shipment of the goods would be effected within 60 days from the opening of the letter of credit (Exh. N).<äre||anº•1àw> It appearing that the contract of sale was consummated, We must conclude or at least assume that the crane was delivered to the appellee within 60 days as stipulated. The appellee then could have availed of the services of another crane for a period of only one month (after a work stoppage of one month) at the rate of P 40.00 an hour for 16 hours a day or a total of P 19,200.00 as rental.

But the value of the new crane cannot be included as part of actual damages because the old was reactivated after it was repaired. The cost of the repair was P 77,000.00 as shown in item No. 1 under the Equipment, Parts and Plants category (Exh. J-1), which amount of repair was already included in the actual or compensatory damages. (pp. 54-56, L-47379, Rollo)

The appellate court likewise rejected the award of unrealized bonus from NAWASA in the amount of P120,000.00 (computed at P4,000.00 a day in case construction is finished before the specified time, i.e., within 800 calendar days), considering that the incident occurred after more than three (3) years or one thousand one hundred seventy (1,170) days. The court also eliminated the award of exemplary damages as there was no gross negligence on the part of NPC and reduced the amount of attorney's fees from P50,000.00 to P30,000.00.

In these consolidated petitions, NPC assails the appellate court's decision as being erroneous on the ground that the destruction and loss of the ECI's equipment and facilities were due to force majeure. It argues that the rapid rise of the water level in the reservoir of its Angat Dam due to heavy rains brought about by the typhoon was an extraordinary occurrence that could not have been foreseen, and thus, the subsequent release of water through the spillway gates and its resultant effect, if any, on ECI's equipment and facilities may rightly be attributed to force majeure.

On the other hand, ECI assails the reduction of the consequential damages from P333,200.00 to P19,000.00 on the grounds that the appellate court had no basis in concluding that ECI acquired a new Crawler-type crane and therefore, it only can claim rentals for the temporary use of the leased crane for a period of one month; and that the award of P4,000.00 a day or P120,000.00 a month bonus is justified since the period limitation on ECI's contract with NAWASA had dual effects, i.e., bonus for earlier completion and liquidated damages for delayed performance; and in either case at the rate of P4,000.00 daily. Thus, since NPC's negligence compelled work stoppage for a period of one month, the said award of P120,000.00 is justified. ECI further assailes the reduction of attorney's fees and the total elimination of exemplary damages.

Both petitions are without merit.

It is clear from the appellate court's decision that based on its findings of fact and that of the trial court's, petitioner NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height of typhoon "Welming" when it knew very well that it was safer to have opened the same gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at least four days before it actually struck. And even though the typhoon was an act of God or what we may call force majeure, NPC cannot escape liability because its negligence was the proximate cause of the loss and damage. As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-607):

Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability.

The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and human agencies are to be excluded from creating or entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it was, and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).

Thus, it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which the loss or damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).

Furthermore, the question of whether or not there was negligence on the part of NPC is a question of fact which properly falls within the jurisdiction of the Court of Appeals and will not be disturbed by this Court unless the same is clearly unfounded. Thus, in Tolentino v. Court of appeals, (150 SCRA 26, 36) we ruled:

Moreover, the findings of fact of the Court of Appeals are generally final and conclusive upon the Supreme Court (Leonardo v. Court of Appeals, 120 SCRA 890 [1983]. In fact it is settled that the Supreme Court is not supposed to weigh evidence but only to determine its substantially (Nuñez v. Sandiganbayan, 100 SCRA 433 [1982] and will generally not disturb said findings of fact when supported by substantial evidence (Aytona v. Court of Appeals, 113 SCRA 575 [1985]; Collector of Customs of Manila v. Intermediate Appellate Court, 137 SCRA 3 [1985]. On the other hand substantial evidence is defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Philippine Metal Products, Inc. v. Court of Industrial Relations, 90 SCRA 135 [1979]; Police Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302 [1985])

Therefore, the respondent Court of Appeals did not err in holding the NPC liable for damages.

Likewise, it did not err in reducing the consequential damages from P333,200.00 to P19,000.00. As shown by the records, while there was no categorical statement or admission on the part of ECI that it bought a new crane to replace the damaged one, a sales contract was presented to the effect that the new crane would be delivered to it by Asian Enterprises within 60 days from the opening of the letter of credit at the cost of P106,336.75. The offer was made by Asian Enterprises a few days after the flood. As compared to the amount of P106,336.75 for a brand new crane and paying the alleged amount of P4,000.00 a day as rental for the use of a temporary crane, which use petitioner ECI alleged to have lasted for a period of one year, thus, totalling P120,000.00, plus the fact that there was already a sales contract between it and Asian Enterprises, there is no reason why ECI should opt to rent a temporary crane for a period of one year. The appellate court also found that the damaged crane was subsequently repaired and reactivated and the cost of repair was P77,000.00. Therefore, it included the said amount in the award of of compensatory damages, but not the value of the new crane. We do not find anything erroneous in the decision of the appellate court that the consequential damages should represent only the service of the temporary crane for one month. A contrary ruling would result in the unjust enrichment of ECI.

The P120,000.00 bonus was also properly eliminated as the same was granted by the trial court on the premise that it represented ECI's lost opportunity "to earn the one month bonus from NAWASA ... ." As stated earlier, the loss or damage to ECI's equipment and facilities occurred long after the stipulated deadline to finish the construction. No bonus, therefore, could have been possibly earned by ECI at that point in time. The supposed liquidated damages for failure to finish the project within the stipulated period or the opposite of the claim for bonus is not clearly presented in the records of these petitions. It is not shown that NAWASA imposed them.

As to the question of exemplary damages, we sustain the appellate court in eliminating the same since it found that there was no bad faith on the part of NPC and that neither can the latter's negligence be considered gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we ruled:

Neither may private respondent recover exemplary damages since he is not entitled to moral or compensatory damages, and again because the petitioner is not shown to have acted in a wanton, fraudulent, reckless or oppressive manner (Art. 2234, Civil Code; Yutuk v. Manila Electric Co., 2 SCRA 377; Francisco v. Government Service Insurance System, 7 SCRA 577; Gutierrez v. Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977; Marchan v. Mendoza, 24 SCRA 888).

We also affirm the reduction of attorney's fees from P50,000.00 to P30,000.00. There are no compelling reasons why we should set aside the appellate court's finding that the latter amount suffices for the services rendered by ECI's counsel.

WHEREFORE, the petitions in G.R. No. 47379 and G.R. No. 47481 are both DISMISSED for LACK OF MERIT. The decision appealed from is AFFIRMED.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

FIRST DIVISION

G.R. No. 112127 July 17, 1995

CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs. COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.

BELLOSILLO, J.:

CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to private respondents the property donated to it by their predecessor-in-interest.

Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the name of the donee CPU with the following annotations copied from the deed of donation —

1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with all its buildings as part of the curriculum;

2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land;

3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a cornerstone bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection of a building thereon. 1

On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not complied with the conditions of the donation. Private respondents also argued that petitioner had in fact negotiated with the National Housing Authority (NHA) to exchange the donated property with another land owned by the latter.

In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it did not violate any of the conditions in the deed of donation because it never used the donated property for any other purpose than that for which it was intended; and, that it did not sell, transfer or convey it to any third party.

On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation and declared it null and void. The court a quo further directed petitioner to execute a deed of the reconveyance of the property in favor of the heirs of the donor, namely, private respondents herein.

Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the back of petitioner's certificate of title were resolutory conditions breach of which should terminate the rights of the donee thus making the donation revocable.

The appellate court also found that while the first condition mandated petitioner to utilize the donated property for the establishment of a medical school, the donor did not fix a period within which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner could not be considered as having failed to comply with its part of the bargain. Thus, the appellate court rendered its decision reversing the appealed decision and remanding the case to the court of origin for the determination of the time within which petitioner should comply with the first condition annotated in the certificate of title.

Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the certificate of title of petitioner are onerous obligations and resolutory conditions of the donation which must be fulfilled non-compliance of which would render the donation revocable; (b) in holding that the issue of prescription does not deserve "disquisition;" and, (c) in remanding the case to the trial court for the fixing of the period within which petitioner would establish a medical college. 2

We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was

onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation. A gift of land to the City of Manila requiring the latter to erect schools, construct a children's playground and open streets on the land was considered an onerous donation. 3 Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation upon the latter to establish a medical college thereon, the donation must be for an onerous consideration.

Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Thus, when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed was not a condition precedent or a suspensive condition but a resolutory one. 4 It is not correct to say that the schoolhouse had to be constructed before the donation became effective, that is, before the donee could become the owner of the land, otherwise, it would be invading the property rights of the donor. The donation had to be valid before the fulfillment of the condition. 5 If there was no fulfillment or compliance with the condition, such as what obtains in the instant case, the donation may now be revoked and all rights which the donee may have acquired under it shall be deemed lost and extinguished.

The claim of petitioner that prescription bars the instant action of private respondents is unavailing.

The condition imposed by the donor, i.e., the building of a medical school upon the land donated, depended upon the exclusive will of the donee as to when this condition shall be fulfilled. When petitioner accepted the donation, it bound itself to comply with the condition thereof. Since the time within which the condition should be fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance and the acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute of limitations from barring the action of private respondents upon the original contract which was the deed of donation. 6

Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the property donated cannot be specifically determined in the instant case. A cause of action arises when that which should have been done is not done, or that which should not have been done is done. 7 In cases where there is no special provision for such computation, recourse must be had to the rule that the period must be counted from the day on which the corresponding action could have been instituted. It is the legal possibility of bringing the action which determines the starting point for the computation of the period. In this case, the starting point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon it by the donor.

The period of time for the establishment of a medical college and the necessary buildings and improvements on the property cannot be quantified in a specific number of years because of the presence of several factors and circumstances involved in the erection of an educational institution, such as government laws and regulations pertaining to education, building requirements and property restrictions which are beyond the control of the donee.

Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith and such period has arrived. 8

This general rule however cannot be applied considering the different set of circumstances existing in the instant case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a

term of the obligation when such procedure would be a mere technicality and formality and would serve no purpose than to delay or lead to an unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed.

Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interests. 10 Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of the donor, private respondents herein, by means of reconveyance.

WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days from the finality of this judgment.

Costs against petitioner.

SO ORDERED.

Quiason and Kapunan, JJ., concur.

Separate Opinions

DAVIDE, JR., J., dissenting:

I agree with the view in the majority opinion that the donation in question is onerous considering the conditions imposed by the donor on the donee which created reciprocal obligations upon both parties. Beyond that, I beg to disagree.

First of all, may I point out an inconsistency in the majority opinion's description of the donation in question. In one part, it says that the donation in question is onerous. Thus, on page 4 it states:

We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., give us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself,

e.g., when a donation imposes a burden equivalent to the value of the donation . . . . (emphasis supplied)

Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one. The pertinent portion thereof reads:

Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interest . . . (emphasis supplied)

Second, the discussion on conditional obligations is unnecessary. There is no conditional obligation to speak of in this case. It seems that the "conditions" imposed by the donor and as the word is used in the law of donations is confused with "conditions" as used in the law of obligations. In his annotation of Article 764 of the Civil Code on Donations, Arturo M. Tolentino, citing the well-known civilists such as Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the context within which the term "conditions" is used in the law of donations, to wit:

The word "conditions" in this article does not refer to uncertain events on which the birth or extinguishment of a juridical relation depends, but is used in the vulgar sense of obligations or charges imposed by the donor on the donee. It is used, not in its technical or strict legal sense, but in its broadest sense. 1 (emphasis supplied)

Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what are referred to are actually the obligations, charges or burdens imposed by the donor upon the donee and which would characterize the donation as onerous. In the present case, the donation is, quite obviously, onerous, but it is more properly called a "modal donation." A modal donation is one in which the donor imposes a prestation upon the donee. The establishment of the medical college as the condition of the donation in the present case is one such prestation.

The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor the extinguishment of the obligations of the donor and the donee with respect to the donation. In fact, the conditions imposed by Don Ramon Lopez upon the donee are the very obligations of the donation — to build the medical college and use the property for the purposes specified in the deed of donation. It is very clear that those obligations are unconditional, the fulfillment, performance, existence or extinguishment of which is not dependent on any future or uncertain event or past and unknown event, as the Civil Code would define a conditional obligation. 2

Reliance on the case of Parks vs. Province of Tarlac 3 as cited on page 5 of the majority opinion is erroneous in so far as the latter stated that the condition in Parks is a resolutory one and applied this to the present case. A more careful reading of this Court's decision would reveal that nowhere did we say, whether explicitly or impliedly, that the donation in that case, which also has a condition imposed to build a school and a public park upon the property donated, is a resolutory condition. 4 It is incorrect to say that the "conditions" of the donation there or in the present case are resolutory conditions because, applying Article 1181 of the Civil Code, that would mean that upon fulfillment of the conditions, the rights already acquired will be extinguished. Obviously, that could not have been the intention of the parties.

What the majority opinion probably had in mind was that the conditions are resolutory because if they are not complied with, the rights of the donee as such will be extinguished and the donation will be revoked. To my mind, though, it is more accurate to state that the conditions here are not resolutory conditions but, for the reasons stated above, are the obligations imposed by the donor.

Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here. The conditions/obligations imposed by the donor herein are subject to a period. I draw this conclusion based on our previous ruling which, although made almost 90 years ago, still finds application in the present case. In Barretto vs. City of Manila, 5 we said that when the contract of donation, as the one involved therein, has no fixed period in which the condition should be fulfilled, the provisions of what is now Article 1197 (then Article 1128) are applicable and it is the duty of the court to fix a suitable time for its fulfillment. Indeed, from the nature and circumstances of the conditions/obligations of the present donation, it can be inferred that a period was contemplated by the donor. Don Ramon Lopez could not have intended his property to remain idle for a long period of time when in fact, he specifically burdened the donee with the obligation to set up a medical college therein and thus put his property to good use. There is a need to fix the duration of the time within which the conditions imposed are to be fulfilled.

It is also important to fix the duration or period for the performance of the conditions/obligations in the donation in resolving the petitioner's claim that prescription has already barred the present action. I disagree once more with the ruling of the majority that the action of the petitioners is not barred by the statute of limitations. There is misplaced reliance again on a previous decision of this Court in Osmeña vs. Rama. 6 That case does not speak of a deed of donation as erroneously quoted and cited by the majority opinion. It speaks of a contract for a sum of money where the debtor herself imposed a condition which will determine when she will fulfill her obligation to pay the creditor, thus, making the fulfillment of her obligation dependent upon her will. What we have here, however, is not a contract for a sum of money but a donation where the donee has not imposed any conditions on the fulfillment of its obligations. Although it is admitted that the fulfillment of the conditions/obligations of the present donation may be dependent on the will of the donee as to when it will comply therewith, this did not arise out of a condition which the donee itself imposed. It is believed that the donee was not meant to and does not have absolute control over the time within which it will perform its obligations. It must still do so within a reasonable time. What that reasonable time is, under the circumstances, for the courts to determine. Thus, the mere fact that there is no time fixed as to when the conditions of the donation are to be fulfilled does not ipso facto mean that the statute of limitations will not apply anymore and the action to revoke the donation becomes imprescriptible.

Admittedly, the donation now in question is an onerous donation and is governed by the law on contracts (Article 733) and the case of Osmeña, being one involving a contract, may apply. But we must not lose sight of the fact that it is still a donation for which this Court itself applied the pertinent law to resolve situations such as this. That the action to revoke the donation can still prescribe has been the pronouncement of this Court as early as 1926 in the case of Parks which, on this point, finds relevance in this case. There, this Court said,

[that] this action [for the revocation of the donation] is prescriptible, there is no doubt. There is no legal provision which excludes this class of action from the statute of limitations. And not only this, the law itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special period of [four] years for the revocation by the subsequent birth of children [Art. 646, now Art. 763], and . . . by reason of ingratitude. If no special period is provided for the prescription of the action for revocation for noncompliance of the conditions of the donation [Art. 647, now Art. 764], it is because in this respect the donation is considered onerous and is governed by the law of contracts and the general rules of prescription. 7

More recently, in De Luna v. Abrigo, 8 this Court reiterated the ruling in Parks and said that:

It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation must be brought within four (4) years from the non-compliance of the conditions of the donation. However, it is Our opinion that said article does not apply to onerous donations in view of the specific provision of Article 733 providing that onerous donations are governed by the rules on contracts.

In the light of the above, the rules on contracts and the general rules on prescription and not the rules on donations are applicable in the case at bar.

The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a written contract, which is what the deed of an onerous donation is. The prescriptive period is ten years from the time the cause of action accrues, and that is, from the expiration of the time within which the donee must comply with the conditions/obligations of the donation. As to when this exactly is remains to be determined, and that is for the courts to do as reposed upon them by Article 1197.

For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court of Appeals must be upheld, except its ruling that the conditions of the donation are resolutory.

Padilla, J., dissents

Separate Opinions

DAVIDE, JR., J., dissenting:

I agree with the view in the majority opinion that the donation in question is onerous considering the conditions imposed by the donor on the donee which created reciprocal obligations upon both parties. Beyond that, I beg to disagree.

First of all, may I point out an inconsistency in the majority opinion's description of the donation in question. In one part, it says that the donation in question is onerous. Thus, on page 4 it states:

We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., give us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation . . . . (emphasis supplied)

Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one. The pertinent portion thereof reads:

Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interest . . . (emphasis supplied)

Second, the discussion on conditional obligations is unnecessary. There is no conditional obligation to speak of in this case. It seems that the "conditions" imposed by the donor and as the word is used in the law of donations is confused with "conditions" as used in the law of obligations. In his annotation of Article 764 of the Civil Code on Donations, Arturo M. Tolentino, citing the well-known civilists such as Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the context within which the term "conditions" is used in the law of donations, to wit:

The word "conditions" in this article does not refer to uncertain events on which the birth or extinguishment of a juridical relation depends, but is used in the vulgar sense of obligations or charges imposed by the donor on the donee. It is

used, not in its technical or strict legal sense, but in its broadest sense. 1 (emphasis supplied)

Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what are referred to are actually the obligations, charges or burdens imposed by the donor upon the donee and which would characterize the donation as onerous. In the present case, the donation is, quite obviously, onerous, but it is more properly called a "modal donation." A modal donation is one in which the donor imposes a prestation upon the donee. The establishment of the medical college as the condition of the donation in the present case is one such prestation.

The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor the extinguishment of the obligations of the donor and the donee with respect to the donation. In fact, the conditions imposed by Don Ramon Lopez upon the donee are the very obligations of the donation — to build the medical college and use the property for the purposes specified in the deed of donation. It is very clear that those obligations are unconditional, the fulfillment, performance, existence or extinguishment of which is not dependent on any future or uncertain event or past and unknown event, as the Civil Code would define a conditional obligation. 2

Reliance on the case of Parks vs. Province of Tarlac 3 as cited on page 5 of the majority opinion is erroneous in so far as the latter stated that the condition in Parks is a resolutory one and applied this to the present case. A more careful reading of this Court's decision would reveal that nowhere did we say, whether explicitly or impliedly, that the donation in that case, which also has a condition imposed to build a school and a public park upon the property donated, is a resolutory condition. 4 It is incorrect to say that the "conditions" of the donation there or in the present case are resolutory conditions because, applying Article 1181 of the Civil Code, that would mean that upon fulfillment of the conditions, the rights already acquired will be extinguished. Obviously, that could not have been the intention of the parties.

What the majority opinion probably had in mind was that the conditions are resolutory because if they are not complied with, the rights of the donee as such will be extinguished and the donation will be revoked. To my mind, though, it is more accurate to state that the conditions here are not resolutory conditions but, for the reasons stated above, are the obligations imposed by the donor.

Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here. The conditions/obligations imposed by the donor herein are subject to a period. I draw this conclusion based on our previous ruling which, although made almost 90 years ago, still finds application in the present case. In Barretto vs. City of Manila, 5 we said that when the contract of donation, as the one involved therein, has no fixed period in which the condition should be fulfilled, the provisions of what is now Article 1197 (then Article 1128) are applicable and it is the duty of the court to fix a suitable time for its fulfillment. Indeed, from the nature and circumstances of the conditions/obligations of the present donation, it can be inferred that a period was contemplated by the donor. Don Ramon Lopez could not have intended his property to remain idle for a long period of time when in fact, he specifically burdened the donee with the obligation to set up a medical college therein and thus put his property to good use. There is a need to fix the duration of the time within which the conditions imposed are to be fulfilled.

It is also important to fix the duration or period for the performance of the conditions/obligations in the donation in resolving the petitioner's claim that prescription has already barred the present action. I disagree once more with the ruling of the majority that the action of the petitioners is not barred by the statute of limitations. There is misplaced reliance again on a previous decision of this Court in Osmeña vs. Rama. 6 That case does not speak of a deed of donation as erroneously quoted and cited by the majority opinion. It speaks of a contract for a sum of money where the debtor herself imposed a condition which will determine when she will fulfill her obligation to pay the creditor, thus, making the fulfillment of her obligation dependent upon her will. What we have here, however, is not a contract for a sum of money but a donation where the donee has not imposed any conditions on the fulfillment of its obligations. Although it is admitted that the fulfillment of the conditions/obligations of the present donation may be dependent on the will of the donee as to when it will comply therewith, this did not arise out of a

condition which the donee itself imposed. It is believed that the donee was not meant to and does not have absolute control over the time within which it will perform its obligations. It must still do so within a reasonable time. What that reasonable time is, under the circumstances, for the courts to determine. Thus, the mere fact that there is no time fixed as to when the conditions of the donation are to be fulfilled does not ipso facto mean that the statute of limitations will not apply anymore and the action to revoke the donation becomes imprescriptible.

Admittedly, the donation now in question is an onerous donation and is governed by the law on contracts (Article 733) and the case of Osmeña, being one involving a contract, may apply. But we must not lose sight of the fact that it is still a donation for which this Court itself applied the pertinent law to resolve situations such as this. That the action to revoke the donation can still prescribe has been the pronouncement of this Court as early as 1926 in the case of Parks which, on this point, finds relevance in this case. There, this Court said,

[that] this action [for the revocation of the donation] is prescriptible, there is no doubt. There is no legal provision which excludes this class of action from the statute of limitations. And not only this, the law itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special period of [four] years for the revocation by the subsequent birth of children [Art. 646, now Art. 763], and . . . by reason of ingratitude. If no special period is provided for the prescription of the action for revocation for noncompliance of the conditions of the donation [Art. 647, now Art. 764], it is because in this respect the donation is considered onerous and is governed by the law of contracts and the general rules of prescription. 7

More recently, in De Luna v. Abrigo, 8 this Court reiterated the ruling in Parks and said that:

It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation must be brought within four (4) years from the non-compliance of the conditions of the donation. However, it is Our opinion that said article does not apply to onerous donations in view of the specific provision of Article 733 providing that onerous donations are governed by the rules on contracts.

In the light of the above, the rules on contracts and the general rules on prescription and not the rules on donations are applicable in the case at bar.

The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a written contract, which is what the deed of an onerous donation is. The prescriptive period is ten years from the time the cause of action accrues, and that is, from the expiration of the time within which the donee must comply with the conditions/obligations of the donation. As to when this exactly is remains to be determined, and that is for the courts to do as reposed upon them by Article 1197.

For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court of Appeals must be upheld, except its ruling that the conditions of the donation are resolutory.

Padilla, J., dissents

Footnotes

1 Rollo, p. 23.

2 Rollo, p. 8.

3 City of Manila v. Rizal Park Co., 53 Phil. 515 (1929).

4 Parks v. Province of Tarlac, 49 Phil. 142 (1926).

5 Ibid.

6 Osmeña v. Rama, 14 Phil. 99 (1909).

7 Arturo M. Tolentino, The Civil Code of the Philippines, 1986 Ed., Vol. IV, p. 42.

8 Concepcion v. People, 74 Phil. 63 (1942).

9 Tiglao v. Manila Railroad Co., 52 O.G., p. 179.

10 Art. 1378, Civil Code.

DAVIDE, JR. J., dissenting:

1 ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of the Philippines 535, vol. 2 [1983].

2 Article 1179.

3 49 Phil. 142 [1926].

4 Id. at 145-146.

5 7 Phil. 416 [1907].

6 14 Phil. 99 [1909].

7 Parks vs. Province of Tarlac, supra note 3, at 146.

8 181 SCRA 150 [1990]

THIRD DIVISION

G.R. No. L-68021 February 20, 1989

HEIRS OF FAUSTA DIMACULANGAN, petitioners, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT and FELIMON UY, respondents.

Jerry D. Bañares for petitioners.

Luis T. Tuason, Jr. for private respondent.

FERNAN, C.J.:

This is a petition for review on certiorari of the July 2, 1984 decision of the Third Special Cases Division, Intermediate Appellate Court, in AC-G.R. SP. No. 01230, entitled "Heirs of Fausta Dimaculangan v. Hon. Baltazar R. Dizon, et al." dismissing for lack of merit the petition for review of the Orders dated June 6, 1983 and July 13, 1983, issued by the Regional Trial Court of Pasay City, Branch CXIII in Civil Case No. 8865-P which in turn affirmed on appeal the October 16, 1980 decision of Hon. Mariano A. Lacsamana, then presiding judge, Pasay City Court, Branch 11, in Civil Case No. 13591, entitled "Felimon Uy v. Fausta Dimaculangan, for Ejectment".

Fausta Dimaculangan and her children, petitioners herein, occupy by lease an apartment located at No. 2490 E. Zamora St., Pasay City, at a monthly rental of P260.00. They have been living in said premises since 1961. To augment its income, the family maintains therein a sari-sari store and bakes hot pan de sal to sell to the general public. The capital investment involved is claimed to be P3,200.00 only.

On July 5, 1978, private respondent Felimon Uy sent Fausta Dimaculangan a registered letter informing her that the property which she has been occupying has been sold to him and should she desire to continue occupying the same, she should sign a contract of lease for a period of two (2) years at a monthly rental of P1,500.00. Receiving no reply to his letter, the private respondent sent a second one, demanding payment of P750.00 covering unpaid rentals for the months of August, September and October, 1978 but still he received no answer to his-demand. Thus, he filed with the City Court of Pasay City a complaint for ejectment 1 praying, among others, that said court render judgment ordering Fausta Dimaculangan and all persons claiming rights under her to vacate the leased premises.

In her answer with compulsory counterclaim, 2 Fausta Dimaculangan admitted that she received plaintiff's letter of July 5, 1978 but claimed that she sent plaintiff a reply which was however returned undelivered because plaintiff distorted his address. She denied having been in default in her monthly rentals to the plaintiff, and alleged that she has never been in default during the entire period of her occupancy of the premises since 1961 up to the present. In fact she tried to pay the plaintiff who did not want to collect the monthly rentals, even in the form of money orders which were however, returned unclaimed. She countered that the filing of the complaint was just a scheme to compel her to agree to the capricious and whimsical demand for an unconscionable increase in the monthly rental from P250.00 to P1,500.00, in clear violation of the provisions of P.D. No. 20, as amended. She further alleged that when she received the plaintiff s letter of October 3, 1978, she caused the payment of the rentals for August, September and October, 1978. Defendant Fausta Dimaculangan prayed to the trial court that the complaint be dismissed and a favorable judgment be rendered in her favor.

Pending trial of the case, Fausta Dimaculangan died. She was substituted by her children as defendants.

After trial, the presiding judge of the City Court of Pasay found that the premises in question is partly residential and partly commercial; that defendant has no arrears and that the latter replied to plaintiff s demand letter and paid by way of money orders her rentals which were however, returned unclaimed.

On October 16, 1980, the aforementioned court rendered a decision increasing the monthly rentals and fixing a definite period for the term of the lease, the dispositive portion of which reads:

WHEREFORE, AND IN VIEW OF THE FOREGOING, the defendant is hereby ordered to pay the plaintiff the amount of P500.00 per month, as monthly rental from August 1978 to August 1980; defendant shall be granted a Contract of Lease for two (2) years from August 1980 to August 1982 of which the defendant shall pay the plaintiff a monthly rental of P750.00; the party-litigants are ordered to pay the amount of P1,500.00 to their respective counsels by way of attorney's fees; and the party-litigates (sic) shall equally pay the costs of suit.

SO ORDERED. 3

On Appeal, the Regional Trial Court, Branch CXIII, Pasay City, affirmed the aforesaid decision of the City Court and denied petitioner's motion for reconsideration. 4

On review by certiorari, the Intermediate Appellate Court, now Court of Appeals, dismissed the petition for lack of merit. 5

Hence, the instant petition for review, raising the following issues for the resolution of this Court:

1. May the trial court in a complaint for ejectment increase the rental agreed upon by the parties, and in the instant case, from the agreed P250.00 to P500.00, and then to P750.00, without violating the provisions of existing laws;

2. May the trial court alter the agreement of the parties by shortening the period of the lease from an indefinite period within the purview of Presidential Decree No. 20, the law in force at the time, and of the amendatory Batas Pambansa Blg. 25, to a fixed two (2) years;

3. In two dismissing the petition for review, and in effect, affirming the judgments of the Metropolitan Trial Court, and the Regional Trial Court, has the Honorable Intermediate Appellate Court committed a grave abuse of discretion amounting to lack or absence of jurisdiction, or at least a grave reversible error of a question of law, and/or of fact and law, correctible by the instant petition ? 6

It has been established that petitioners have been occupying the leased premises on a verbal contract since 1961 at a monthly rent of P250.00, and that although no fixed period for the duration of the lease has been agreed upon the original lessor and lessee, the rentals were paid monthly.

Under the circumstances, there appears to be no dispute that subject contract of lease is covered by P.D. 20 and later by B.P. No. 25.

The decisive issue therefore, in this case, is whether or not subject contract of lease is for an indefinite period, for the purpose of applying Presidential Decree No. 20.

The pertinent provision of P.D. No. 20 reads:

SEC. 4. — Except when the lease is for a definite period, the provisions of paragraph (1) of Article 1673 of the Civil Code of the Philippines insofar as they refer to dwelling unit or land on which another's dwelling is located shall be suspended until otherwise provided; but other provisions of the Civil Code and the Rules of Court of the Philippines on lease contracts, insofar as they are not in conflict with the provisions of this act, shall apply.

To exempt the lease from the application of P.D. No. 20, it must be one with a definite period.

It will be recalled that the agreement between the original lessor and lessee was unwritten, so that it is difficult to determine with certainty the terms and conditions agreed upon.

Be that as it may, it is undisputed that the rentals are paid monthly. This Court had already ruled that leases are deemed on a "month-to-month basis", if rentals therefore are paid monthly. 7

Similarly, it is well settled that a lease contract "on a month-to month basis" provides for a definite period and may be terminated at the end of any month. 8 By express exception of P.D. No. 20, judicial ejectment lies when the lease is for a definite period or when the fixed or definite period agreed upon has expired. 9

Even more recently, this Court clarified that "(I)n exempting from suspension ejectments on the ground of the expiration of the lease period, Section 4 of Presidential Decree No. 20 made no distinction between oral and written lease contracts and no distinction may, therefore, be inferred. Consequently, at the time of filing her action the private respondent had a clear and indubitable right to eject the petitioners, the period of the latter's lease expiring at the end of every monthly period ... 10 The Court further pointed out that the Rent Control Law now in force, Batas Pambansa Blg. 877, has erased the distinction between oral and written leases insofar as expiration of the lease period as a ground for judicial ejectment in leases covered by said law, is concerned. 11

In view of the foregoing, there appears to be no necessity to discuss the other issues in this case; more specifically whether or not the trial court may increase the rental and/or alter the period of the lease from an indefinite period to a definite period; both issues having become moot and academic.

Citing the case of Mabalot v. Madela Jr. 12 the Court of Appeals ruled that the petition has been rendered moot and academic by the death of the lessee Fausta Dimaculangan, which terminated the lease in her favor. It will be noted however, that in the aforecited case, those seeking to continue in possession of the premises were not the heirs of the lessee but merely members of the lessee's household, which does not apply in the case at bar, where petitioners are the lessee's children. Authorities are of the view that lease is not essentially personal in character, thus the right is transmissible to the heirs. 13

At any rate, the period fixed by respondent Judge which appears acceptable to the lessor has expired in 1982 and has therefore become moot and academic, aside from the fact that with private respondent's conformity, it has become the latter's term which is well within his authority; that is, to terminate the contract and enter into a new one.

WHEREFORE, the petition is hereby dismissed for lack of merit, with costs against the petitioner.

SO ORDERED.

Feliciano, Bidin and Cortes JJ., concur.

Gutierrez, Jr., J., In the result.

Footnotes

1 Rollo, p. 27.

2 Rollo, p. 29.

3 Rollo, pp. 39-40.

4 Rollo, pp. 41-42; 49.

5 Rollo, p. 68.

6 Rollo, p. 16.

7 Mejorada v. Municipal Council of Dipolog, 52 SCRA 453 (1973).

8 Rantael v. CA, 97 SCRA 453 (1980); Cruz v. Puno, Jr., 120 SCRA 497 (1983); Lesaca v. Cuevas, 125 SCRA 388 (1983).

9 Ibid.

10 Dionisio v. IAC, 147 SCRA 250 (1987).

11 Ibid.

12 121 SCRA 347 (1983).

13 Paras, Civil Code of the Philippines. 262, Eleventh Edition, 1986; Annotations by Atty. Florimond C. Rous, 93 SCRA 430 (1979).

SECOND DIVISION

G.R. No. 138842 October 18, 2000

NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, JR., petitioners, vs. COURT OF APPEALS, ESTATE OF MAXIMINO A. NAZARENO, SR., ROMEO P. NAZARENO and ELIZA NAZARENO, respondents.

D E C I S I O N

MENDOZA, J.:

This is a petition for review on certiorari of the decision1 of the Court of Appeals in CA-GR CV No. 39441 dated May 29, 1998 affirming with modifications the decision of the Regional Trial Court, Branch 107, Quezon City, in an action for annulment of sale and damages.

The facts are as follows:

Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died on April 15, 1970, while Maximino, Sr. died on December 18, 1980. They had five children, namely, Natividad, Romeo, Jose, Pacifico, and Maximino, Jr. Natividad and Maximino, Jr. are the petitioners in this case, while the estate of Maximino, Sr., Romeo, and his wife Eliza Nazareno are the respondents.

During their marriage, Maximino Nazareno, Sr. and Aurea Poblete acquired properties in Quezon City and in the Province of Cavite. It is the ownership of some of these properties that is in question in this case.

It appears that after the death of Maximino, Sr., Romeo filed an intestate case in the Court of First Instance of Cavite, Branch XV, where the case was docketed as Sp. Proc. No. NC-28. Upon the reorganization of the courts in 1983, the case was transferred to the Regional Trial Court of Naic, Cavite. Romeo was appointed administrator of his father’s estate.

In the course of the intestate proceedings, Romeo discovered that his parents had executed several deeds of sale conveying a number of real properties in favor of his sister, Natividad. One of the deeds involved six lots in Quezon City which were allegedly sold by Maximino, Sr., with the consent of Aurea, to Natividad on January 29, 1970 for the total amount of P47,800.00. The Deed of Absolute Sale reads as follows:

DEED OF ABSOLUTE SALE

KNOW ALL MEN BY THESE PRESENTS:

I, MAXIMINO A. NAZARENO, Filipino, married to Aurea Poblete-Nazareno, of legal age and a resident of the Mun. of Naic, Prov. of Cavite, Philippines,

- W I T N E S S E T H -

That I am the absolute registered owner of six (6) parcels of land with the improvements thereon situated in Quezon City, Philippines, which parcels of land are herewith described and bounded as follows, to wit:

"TRANS. CERT. OF TITLE NO. 140946"

"A parcel of land (Lot 3-B of the subdivision plan Psd-47404, being a portion of Lot 3, Block D-3 described on plan Bsd-10642, G.L.R.O. Record No.) situated in the Quirino District, Quezon City. Bounded on the N., along line 1-2 by Lot 15, Block D-3 of plan Bsd - 10642; along line 2-3 by Lot 4, Block D-3 of plan Bsd-10642; along line 3-4 by Aurora Boulevard (Road Lot-1, Bsd-10642); and along line 4-1 by Lot 3-D of the subdivision plan. Beginning at a point marked "1" on plan, being S.29 deg. 26’E., 1156.22 m. from B.L.L.M. 9, Quezon City,

thence N. 79 deg. 53’E., 12.50 m. to point 2;

thence S. 10 deg. 07’E., 40.00 m. to point 3;

thence S. 79 deg. 53’W., 12.50 m. to point 4;

thence N. 10 deg. 07’W., 40.00 m. to the point

of beginning; containing an area of FIVE HUNDRED (500) SQUARE METERS. All points referred to are indicated on the plan and are marked on the ground as follows: points "1" and "4" by P.L.S. Cyl. Conc. Mons. bearings true; date of the original survey, April 8-July 15, 1920 and that of the subdivision survey, March 25, 1956."

"TRANS. CERT. OF TITLE NO. 132019"

"A parcel of land (Lot 3, Block 93 of the subdivision plan Psd-57970 being a portion of Lot 6, Pcs-4786, G.L.R.O. Rec. No. 917) situated in Quirino District Quezon City. Bounded on the NW., along line 1-2, by Lot 1, Block 93; on the NE., along line 2-3, by Road Lot 101; on the SE., along line 3-4, by Road Lot 100; on the SW., along line 4-1, by Lot 4, Block 93; all of the subdivision plan. Beginning at point marked "1" on plan, being S. 65 deg. 40’ 3339.92 m. from B.L.L.M. No. 1, Marikina, Rizal;

thence N. 23 deg. 28 min. E., 11.70 m. to point "2";

thence S. 66 deg. 32 min. E., 18.00 m. to point "3";

thence S. 23 deg. 28 min. W., 11.70 m. to point "4";

thence N. 66 deg. 32. min. W., 18.00 m. to the point

of beginning; containing an area of TWO HUNDRED TEN SQUARE METERS AND SIXTY SQUARE DECIMETERS (210.60). All points referred to are indicated on the plan and are marked on the ground by B.L. Cyl. Conc. Mons. 15 x 60 cm.; bearings true; date of the original survey, Nov. 10, 1920 and Jan. 31-March 31, 1924 and that of the subdivision survey, February 1 to September 30, 1954. Date approved - March 9, 1962."

"TRANS. CERT. OF TITLE NO. 118885"

"A parcel of land (Lot No. 10, of the consolidation and subdivision plan Pcs-988, being a portion of the consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos. 27-A and 27-B, Psd-14901, G.L.R.O. Record No. 917), situated in the District of Cubao, Quezon City, Island of Luzon. Bounded on the NE., by Lot No. 4 of the consolidation and subdivision plan; on the SE., by Lot No. 11 of the consolidation and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision plan; and on the NW., by Lot No. 9 of the consolidation and subdivision plan. Beginning at a point marked "1" on the plan, being S. 7 deg. 26’W., 4269.90 m. more or less from B.L.L.M. No. 1, Mp. of Mariquina;

thence S. 25 deg. 00’E., 12.00 m. to point "2";

thence S. 64 deg. 59’W., 29.99 m. to point "3";

thence N. 25 deg. 00’W., 12.00 m to point "4";

thence N. 64 deg. 59’E., 29.99 m. to the point of

beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360), more or less. All points referred to are indicated on the plan and on the ground are marked by P.L.S. Conc. Mons. 15 x 60 cm.; bearings true; declination 0 deg. 50’E., date of the original survey, April 8 to July 15, 1920, and that of the consolidation and subdivision survey, April 24 to 26, 1941."

"TRANS. CERT. OF TITLE NO. 118886"

"A parcel of land (Lot No. 11, of the consolidation and subdivision plan Pcs-988, being a portion of the consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos. 27-A and 27-B, Psd-14901, G.L.R.O. Record No. 917), situated in the District of Cubao, Quezon City, Island of Luzon. Bounded on the NE., by Lot No. 4 of the consolidation and subdivision plan; on the SE., by Lot No. 12 of the consolidation and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision plan; on the NW., by Lot No. 10 of the consolidation and subdivision plan. Beginning at a point marked "1" on plan, being S. 79 deg. 07’W., 4264.00 m. more or less from B.L.L.M. No. 1, Mp. of Mariquina;

thence S. 64 deg. 59’W., 29.99 m. to point "2";

thence N. 25 deg. 00’W., 12.00 m. to point "3";

thence N. 64 deg. 59’E., 29.99 m. to point "4";

thence S. 26 deg. 00’E., 12.00 m. to the point of

beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360), more or less. All points referred to are indicated on the plan and on the ground, are marked by P.L.S. Conc. Mons. 15 x 60 cm.; bearings true; declination 0 deg. 50’E.; date of the original survey, April 8 to July 15, 1920, and that of the consolidation and subdivision survey, April 24 to 26, 1941."

"A parcel of land (Lot No. 13 of the consolidation and subdivision plan Pcs-988, being a portion of the consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos. 27-A and 27-B, Psd-14901, G.L.R.O. Record No. 917), situated in the District of Cubao, Quezon City, Island of Luzon. Bounded on the NE., by Lot No. 4 of the consolidation and subdivision plan; on the SE., by Lot No. 14, of the consolidation; and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision plan; and on the NW., by Lot No. 12, of the consolidation and subdivision plan. Beginning at the point marked "1" on plan, being S.78 deg. 48’W., 4258.20 m. more or less from B.L.L.M. No. 1, Mp. of Mariquina;

thence S. 64 deg. 58’W., 30.00 m. to point "2";

thence N. 25 deg. 00’W., 12.00 m. to point "3";

thence N. 64 deg. 59’E., 29.99 m. to point "4";

thence S.25 deg. 00’E., 12.00 m. to point of

beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360, more or less. All points referred to are indicated on the plan and on the ground are marked by P.L.S. Conc. Mons. 15 x 60

cm.; bearings true; declination 0 deg. 50’E., date of the original survey, April 8 to July 15, 1920, and that of the consolidation and subdivision survey, April 24 to 26, 1941."

"A parcel of land (Lot No. 14, of the consolidation and subdivision plan Pcs-988, being a portion of the consolidated Lot No. 26, Block No. 6, Psd-127, and Lots Nos. 27-A and 27-B, Psd-14901, G.L.R.O. Record No. 917), situated in the District of Cubao, Quezon City, Island of Luzon. Bounded on the NE., by Lot No. 4 of the consolidation and subdivision plan; on the SE., by Lot No. 15, of the consolidation and subdivision plan; on the SW., by Lot No. 3 of the consolidation and subdivision plan; and on the NW., by Lot No. 13 of the consolidation and subdivision plan. Beginning at the point marked "1" on plan, being S.78 deg. 48’W., 4258.20 m. more or less from B.L.L.M. No. 1, Mp. of Mariquina;

thence S. 25 deg. 00’E., 12.00 m. to point "2";

thence S. 65 deg. 00’W., 30.00 m. to point "3";

thence S. 65 deg. 00’W., 12.00 m. to point "4";

thence N.64 deg. 58’E., 30.00 m. to the point of

beginning; containing an area of THREE HUNDRED SIXTY SQUARE METERS (360), more or less. All points referred to are indicated on the plan and on the ground are marked by P.L.S. Conc. Mons. 15 x 60 cm.; bearings true; declination 0 deg. 50’E., date of the original survey, April 8 to July 15, 1920, and that of the consolidation and subdivision survey, April 24 to 26, 1941."

That for and in consideration of the sum of FORTY THREE THOUSAND PESOS (P43,000.00) PHILIPPINE CURRENCY, to me in hand paid by NATIVIDAD P. NAZARENO, Filipino, single, of legal age and a resident of the Mun. of Naic, Prov. of Cavite, Philippines, the receipt whereof is acknowledged to my entire satisfaction, I do hereby CEDE, SELL, TRANSFER, CONVEY and ASSIGN unto the said Natividad P. Nazareno, her heirs, administrators and assigns, all my title, rights, interests and participations to the abovedescribed parcels of land with the improvements thereon, with the exception of LOT NO. 11 COVERED BY T.C.T. NO. 118886, free of any and all liens and encumbrances; and

That for and in consideration of the sum of FOUR THOUSAND EIGHT HUNDRED PESOS (P4,800.00) PHILIPPINE CURRENCY, to me in hand paid by NATIVIDAD P. NAZARENO, Filipino, single, of legal age and a resident of the Mun. of Naic, Prov. of Cavite, Philippines, the receipt whereof is acknowledged to my entire satisfaction, I do hereby CEDE, SELL, TRANSFER, CONVEY and ASSIGN unto the said Natividad P. Nazareno, her heirs, administrators and assigns, all my title, rights, interests and participations in and to Lot No. 11 covered by T.C.T. No. 118886 above-described, free of any and all liens and encumbrances, with the understanding that the title to be issued in relation hereto shall be separate and distinct from the title to be issued in connection with Lots Nos. 13 and 14, although covered by the same title.

IN WITNESS WHEREOF, I have hereunto signed this deed of absolute sale in the City of Manila, Philippines, this 29th day of January, 1970.2

By virtue of this deed, transfer certificates of title were issued to Natividad, to wit: TCT No. 162738 (Lot 3-B),3 TCT No. 162739 (Lot 3),4 TCT No. 162735 (Lot 10),5 TCT No. 162736 (Lot 11),6 and TCT No. 162737 (Lots 13 and 14),7 all of the Register of Deeds of Quezon City.

Among the lots covered by the above Deed of Sale is Lot 3-B which is registered under TCT No. 140946. This lot had been occupied by Romeo, his wife Eliza, and by Maximino, Jr. since 1969. Unknown to Romeo, Natividad sold Lot 3-B on July 31, 1982 to Maximino, Jr.,8 for which reason the latter was issued TCT No. 293701 by the Register of Deeds of Quezon City.9

When Romeo found out about the sale to Maximino, Jr., he and his wife Eliza locked Maximino, Jr. out of the house. On August 4, 1983, Maximino, Jr. brought an action for recovery of possession and damages with prayer for writs of preliminary injunction and mandatory injunction with the Regional Trial Court of Quezon City. On December 12, 1986, the trial court ruled in favor of Maximino, Jr. In CA-G.R. CV No. 12932, the Court of Appeals affirmed the decision of the trial court.10

On June 15, 1988, Romeo in turn filed, on behalf of the estate of Maximino, Sr., the present case for annulment of sale with damages against Natividad and Maximino, Jr. The case was filed in the Regional Trial Court of Quezon City, where it was docketed as Civil Case No. 88-58.11 Romeo sought the declaration of nullity of the sale made on January 29, 1970 to Natividad and that made on July 31, 1982 to Maximino, Jr. on the ground that both sales were void for lack of consideration.

On March 1, 1990, Natividad and Maximino, Jr. filed a third-party complaint against the spouses Romeo and Eliza.12 They alleged that Lot 3, which was included in the Deed of Absolute Sale of January 29, 1970 to Natividad, had been surreptitiously appropriated by Romeo by securing for himself a new title (TCT No. 277968) in his name.13 They alleged that Lot 3 is being leased by the spouses Romeo and Eliza to third persons. They therefore sought the annulment of the transfer to Romeo and the cancellation of his title, the eviction of Romeo and his wife Eliza and all persons claiming rights from Lot 3, and the payment of damages.

The issues having been joined, the case was set for trial. Romeo presented evidence to show that Maximino and Aurea Nazareno never intended to sell the six lots to Natividad and that Natividad was only to hold the said lots in trust for her siblings. He presented the Deed of Partition and Distribution dated June 28, 1962 executed by Maximino Sr. and Aurea and duly signed by all of their children, except Jose, who was then abroad and was represented by their mother, Aurea. By virtue of this deed, the nine lots subject of this Deed of Partition were assigned by raffle as follows:

1. Romeo - Lot 25-L (642 m2)

2. Natividad - Lots 23 (312 m2) and 24 (379 m2)

3. Maximino, Jr. - Lots 6 (338 m2) and 7 (338 m2)

4. Pacifico - Lots 13 (360 m2) and 14 (360 m2)

5. Jose - Lots 10 (360 m2) and 11 (360 m2)

Romeo received the title to Lot 25-L under his name,14 while Maximino, Jr. received Lots 6 and 7 through a Deed of Sale dated August 16, 1966 for the amount of P9,500.00.15 Pacifico and Jose’s shares were allegedly given to Natividad, who agreed to give Lots 10 and 11 to Jose, in the event the latter came back from abroad. Natividad’s share, on the other hand, was sold to third persons16 because she allegedly did not like the location of the two lots. But, Romeo said, the money realized from the sale was given to Natividad.

Romeo also testified that Lot 3-B was bought for him by his father, while Lot 3 was sold to him for P7,000.00 by his parents on July 4, 1969.17 However, he admitted that a document was executed by his parents transferring six properties in Quezon City, i.e., Lots 3, 3-B, 10, 11, 13, and 14, to Natividad.

Romeo further testified that, although the deeds of sale executed by his parents in their favor stated that the sale was for a consideration, they never really paid any amount for the supposed sale. The transfer was made in this manner in order to avoid the payment of inheritance taxes.18 Romeo denied stealing Lot 3 from his sister but instead claimed that the title to said lot was given to him by Natividad in 1981 after their father died.

Natividad and Maximino, Jr. claimed that the Deed of Partition and Distribution executed in 1962 was not really carried out. Instead, in December of 1969, their parents offered to sell to them the six lots in Quezon City, i.e., Lots 3, 3-B, 10, 11, 13 and 14. However, it was only Natividad who bought the six properties because she was the only one financially able to do so. Natividad said she sold Lots 13 and 14 to Ros-Alva Marketing Corp.19 and Lot 3-B to Maximino, Jr. for P175,000.00.20 Natividad admitted that Romeo and the latter’s wife were occupying Lot 3-B at that time and that she did not tell the latter about the sale she had made to Maximino, Jr.

Natividad said that she had the title to Lot 3 but it somehow got lost. She could not get an original copy of the said title because the records of the Registrar of Deeds had been destroyed by fire. She claimed she was surprised to learn that Romeo was able to obtain a title to Lot 3 in his name.

Natividad insisted that she paid the amount stated in the Deed of Absolute Sale dated January 29, 1970. She alleged that their parents had sold these properties to their children instead of merely giving the same to them in order to impose on them the value of hardwork.

Natividad accused Romeo of filing this case to harass her after Romeo lost in the action for recovery of possession (Civil Case No. Q-39018) which had been brought against him by Maximino, Jr. It appears that before the case filed by Romeo could be decided, the Court of Appeals rendered a decision in CA-GR CV No. 12932 affirming the trial court’s decision in favor of Maximino, Jr.

On August 10, 1992, the trial court rendered a decision, the dispositive portion of which states:

WHEREFORE, judgment is hereby rendered declaring the nullity of the Deed of Sale dated January 29, 1970. Except as to Lots 3, 3-B, 13 and 14 which had passed on to third persons, the defendant Natividad shall hold the rest in trust for Jose Nazareno to whom the same had been adjudicated. The Register of Deeds of Quezon City is directed to annotate this judgment on Transfer Certificate of Titles Nos. 162735 and 162736 as a lien in the titles of Natividad P. Nazareno.

The defendants’ counterclaim is dismissed. Likewise, the third-party complaint is dismissed.

The defendants are hereby directed to pay to the plaintiff jointly and severally the sum of P30,000 as and for attorney’s fees. Likewise, the third-party plaintiff is directed to pay the third-party defendant’s attorney’s fees of P20,000.

All other claims by one party against the other are dismissed.

SO ORDERED.21

Natividad and Maximino, Jr. filed a motion for reconsideration. As a result, on October 14, 1992 the trial court modified its decision as follows:

WHEREFORE, the plaintiff’s Partial Motion for Reconsideration is hereby granted. The judgment dated August 10, 1992 is hereby amended, such that the first paragraph of its dispositive portion is correspondingly modified to read as follows:

"WHEREFORE, judgment is hereby rendered declaring the nullity of the Deeds of Sale dated January 29, 1970 and July 31, 1982.

"Except as to Lots 3, 13 and 14 which had passed on to third person, the defendant Natividad shall hold the rest OF THE PROPERTIES COVERED BY THE DEED OF SALE DATED JANUARY 29, 1970 (LOTS 10 and 11) in trust for Jose Nazareno to whom the same had been adjudicated.

"The Register of Deeds of Quezon City is directed to annotate this judgment on Transfer Certificates of Title No. 162735 and 162736 as a lien on the titles of Natividad P. Nazareno.

"LIKEWISE, THE SAID REGISTER OF DEEDS IS DIRECTED TO CANCEL TCT NO. 293701 (formerly 162705) OVER LOT 3-B AND RESTORE TCT NO. 140946 IN THE NAME OF MAXIMINO NAZARENO SR. AND AUREA POBLETE."22

On appeal to the Court of Appeals, the decision of the trial court was modified in the sense that titles to Lot 3 (in the name of Romeo Nazareno) and Lot 3-B (in the name of Maximino Nazareno, Jr.), as well as to Lots 10 and 11 were cancelled and ordered restored to the estate of Maximino Nazareno, Sr. The dispositive portion of the decision dated May 29, 1998 reads:

WHEREFORE, the appeal is GRANTED. The decision and the order in question are modified as follows:

1. The Deed of Absolute Sale dated 29 January 1970 and the Deed of Absolute Sale dated 31 July 1982 are hereby declared null and void;

2. Except as to Lots 13 and 14 ownership of which has passed on to third persons, it is hereby declared that Lots 3, 3-B, 10 and 11 shall form part of the estate of the deceased Maximino Nazareno, Sr.;

3. The Register of Deeds of Quezon City is hereby ordered to restore TCT No. 140946 (covering Lot 3-B), TCT No. 132019 (covering Lot 3), TCT No. 118885 (covering Lot 10), and TCT No. 118886 (covering Lot 11).23

Petitioners filed a motion for reconsideration but it was denied in a resolution dated May 27, 1999. Hence this petition.

Petitioners raise the following issues:

1. WHETHER OR NOT THE UNCORROBORATED TESTIMONY OF PRIVATE RESPONDENT ROMEO P. NAZARENO CAN DESTROY THE FULL FAITH AND CREDIT ACCORDED TO NOTARIZED DOCUMENTS LIKE THE DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970 (EXH. 1) EXECUTED BY THE DECEASED SPOUSES MAXIMINO A. NAZARENO, SR. AND AUREA POBLETE IN FAVOR OF PETITIONER NATIVIDAD P. NAZARENO.

2. WHETHER OR NOT THE RESPONDENT COURT GROSSLY MISAPPRECIATED THE FACTS OF THE CASE WITH RESPECT TO THE VALIDITY OF THE SAID DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970 (EXH. 1) IN THE LIGHT OF THE FOLLOWING:

A) THE DOCUMENTARY EVIDENCE, ALL OF WHICH ARE NOTARIZED, EXECUTED BY THE DECEASED SPOUSES DURING THEIR LIFETIME INVOLVING SOME OF THEIR CONJUGAL PROPERTIES.

B) THE EXECUTION OF AN EXTRA-JUDICIAL PARTITION WITH WAIVER OF RIGHTS AND CONFIRMATION OF SALE DATED MAY 24, 1975 (EXH. 14A) OF THE ESTATE OF AUREA POBLETE BY THE DECEASED MAXIMINO A. NAZARENO, SR. AND THEIR CHILDREN INVOLVING THE ONLY REMAINING ESTATE OF AUREA POBLETE THUS IMPLIEDLY ADMITTING THE VALIDITY OF PREVIOUS DISPOSITIONS MADE BY SAID DECEASED SPOUSES ON THEIR CONJUGAL PROPERTIES, HALF OF WHICH WOULD HAVE BECOME A PART OF AUREA POBLETE’S ESTATE UPON HER DEMISE.

C) THE ADMISSION MADE BY MAXIMINO A. NAZARENO, SR. IN HIS TESTIMONY IN OPEN COURT ON AUGUST 13, 1980 DURING HIS LIFETIME IN CIVIL CASE NO. NC-712 (EXH. 81, 81B) THAT HE HAD SOLD CERTAIN PROPERTIES IN FAVOR OF NATIVIDAD P. NAZARENO THUS BELYING THE CLAIM OF ROMEO P. NAZARENO THAT THE DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970 IS ONE AMONG THE DOCUMENTS EXECUTED BY THE DECEASED SPOUSES TO BE WITHOUT CONSIDERATION.

D) THE ADMISSIONS MADE BY ROMEO P. NAZARENO HIMSELF CONTAINED IN A FINAL DECISION OF THE RESPONDENT COURT IN CA-GR CV NO. 12932 DATED AUGUST 31, 1992 AND AN ANNEX APPEARING IN HIS ANSWER TO THE COMPLAINT IN CIVIL CASE NO. Q-39018 (EXH. 11-B) INVOLVING LOT 3B, ONE OF THE PROPERTIES IN QUESTION THAT THE SAID PROPERTY IS OWNED BY PETITIONER NATIVIDAD P. NAZARENO.

E) THE PARTIAL PROJECT OF PARTITION DATED MAY 24, 1995 WHICH WAS APPROVED BY THE INTESTATE COURT IN SP. PROC. NO. NC-28 AND EXECUTED IN ACCORDANCE WITH THE LATTER COURT’S FINAL ORDER DATED JULY 9, 1991 DETERMINING WHICH WERE THE REMAINING PROPERTIES OF THE ESTATE.

3. WHETHER OR NOT THE DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970 EXECUTED BY THE DECEASED SPOUSES MAXIMINO A. NAZARENO, SR. AND AUREA POBLETE DURING THEIR LIFETIME INVOLVING THEIR CONJUGAL PROPERTIES IS AN INDIVISIBLE CONTRACT? AND IF SO WHETHER OR NOT UPON THEIR DEATH, THE ESTATE OF MAXIMINO A. NAZARENO, SR. ALONE CAN SEEK THE ANNULMENT OF SAID SALE?

4. WHETHER OR NOT THE SALE OF LOT 3 UNDER THE DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970 IN FAVOR OF PETITIONER NATIVIDAD P. NAZARENO, IS VALID CONSIDERING THAT AS PER THE ORDER OF THE LOWER COURT DATED NOVEMBER 21, 1990. ROMEO NAZARENO ADMITTED THAT HE DID NOT PAY THE CONSIDERATION STATED IN THE DEED OF ABSOLUTE SALE DATED JULY 4, 1969 EXECUTED BY THE DECEASED SPOUSES IN HIS FAVOR (EXH. M-2).

5. WHETHER OR NOT AS A CONSEQUENCE, THE TITLE ISSUED IN THE NAME OF ROMEO P. NAZARENO, TCT NO. 277968 (EXH. M) SHOULD BE CANCELLED AND DECLARED NULL AND VOID AND A NEW ONE ISSUED IN FAVOR OF NATIVIDAD P. NAZARENO PURSUANT TO THE DEED OF ABSOLUTE SALE EXECUTED IN THE LATTER’S FAVOR ON JANUARY 29, 1970 BY THE DECEASED SPOUSES.24

We find the petition to be without merit.

First. Petitioners argue that the lone testimony of Romeo is insufficient to overcome the presumption of validity accorded to a notarized document.

To begin with, the findings of fact of the Court of Appeals are conclusive on the parties and carry even more weight when these coincide with the factual findings of the trial court. This Court will not weigh the evidence all over again unless there is a showing that the findings of the lower court are totally devoid of support or are clearly erroneous so as to constitute serious abuse of discretion.25 The lone testimony of a witness, if credible, is sufficient. In this case, the testimony of Romeo that no consideration was ever paid for the sale of the six lots to Natividad was found to be credible both by the trial court and by the Court of Appeals and it has not been successfully rebutted by petitioners. We, therefore, have no reason to overturn the findings by the two courts giving credence to his testimony.

The fact that the deed of sale was notarized is not a guarantee of the validity of its contents. As held in Suntay v. Court of Appeals:26

Though the notarization of the deed of sale in question vests in its favor the presumption of regularity, it is not the intention nor the function of the notary public to validate and make binding an instrument never, in the first place, intended to have any binding legal effect upon the parties thereto. The intention of the parties still and always is the primary consideration in determining the true nature of a contract.

Second. Petitioners make capital of the fact that in C.A.-G.R. CV No. 12932, which was declared final by this Court in G.R. No. 107684, the Court of Appeals upheld the right of Maximino, Jr. to recover possession of Lot 3-B. In that case, the Court of Appeals held:

As shown in the preceding disquisition, Natividad P. Nazareno acquired the property in dispute by purchase in 1970. She was issued Transfer Certificate of Title No. 162738 of the Registry of Deeds of Quezon City. When her parents died, her mother Aurea Poblete-Nazareno in 1970 and her father Maximino A. Nazareno, Sr. in 1980, Natividad P. Nazareno had long been the exclusive owner of the property in question. There was no way therefore that the aforesaid property could belong to the estate of the spouses Maximino Nazareno, Sr. and Aurea Poblete. The mere fact that Romeo P. Nazareno included the same property in an inventory of the properties of the deceased Maximino A. Nazareno, Sr. will not adversely affect the ownership of the said realty. Appellant Romeo P. Nazareno’s suspicion that his parents had entrusted all their assets under the care and in the name of Natividad P. Nazareno, their eldest living sister who was still single, to be divided upon their demise to all the compulsory heirs, has not progressed beyond mere speculation. His barefaced allegation on the point not only is without any corroboration but is even belied by documentary evidence. The deed of absolute sale (Exhibit "B"), being a public document (Rule 132, Secs. 19 and 23, Revised Rules on Evidence), is entitled to great weight; to contradict the same, there must be evidence that is clear, convincing and more than merely preponderant (Yturralde vs. Aganon, 28 SCRA 407; Favor vs. Court of Appeals, 194 SCRA 308). Defendants-appellants’ own conduct disproves their claim of co-ownership over the property in question. Being themselves the owner of a ten-unit apartment building along Stanford St., Cubao Quezon City, defendants-appellants, in a letter of demand to vacate addressed to their tenants (Exhibits "P", "P-1" and "P-2") in said apartment, admitted that the house and lot located at No. 979 Aurora Blvd., Quezon City where they were residing did not belong to them. Also, when they applied for a permit to repair the subject property in 1977, they stated that the property belonged to and was registered in the name of Natividad P. Nazareno. Among the documents submitted to support their application for a building permit was a copy of TCT No. 162738 of the Registry of Deeds of Quezon City in the name of Natividad Nazareno (Exhibit "O" and submarkings; tsn March 15, 1985, pp. 4-5).27

To be sure, that case was for recovery of possession based on ownership of Lot 3-B. The parties in that case were Maximino, Jr., as plaintiff, and the spouses Romeo and Eliza, as defendants. On the other hand, the parties in the present case for annulment of sale are the estate of Maximino, Sr., as plaintiff, and Natividad and Maximino, Jr., as defendants. Romeo and Eliza were named third-party defendants after a third-party complaint was filed by Natividad and Maximino, Jr. As already stated, however, this third-party complaint concerned Lot 3, and not Lot 3-B.

The estate of a deceased person is a juridical entity that has a personality of its own.28 Though Romeo represented at one time the estate of Maximino, Sr., the latter has a separate and distinct personality from the former. Hence, the judgment in CA-GR CV No. 12932 regarding the ownership of Maximino, Jr. over Lot 3-B binds Romeo and Eliza only, and not the estate of Maximino, Sr., which also has a right to recover properties which were wrongfully disposed.

Furthermore, Natividad’s title was clearly not an issue in the first case. In other words, the title to the other five lots subject of the present deed of sale was not in issue in that case. If the first case resolved anything, it was the ownership of Maximino, Jr. over Lot 3-B alone.

Third. Petitioners allege that, as shown by several deeds of sale executed by Maximino, Sr. and Aurea during their lifetime, the intention to dispose of their real properties is clear. Consequently, they argue that the Deed of Sale of January 29, 1970 should also be deemed valid.

This is a non-sequitur. The fact that other properties had allegedly been sold by the spouses Maximino, Sr. and Aurea does not necessarily show that the Deed of Sale made on January 29, 1970 is valid.

Romeo does not dispute that their parents had executed deeds of sale. The question, however, is whether these sales were made for a consideration. The trial court and the Court of Appeals found that the Nazareno spouses transferred their properties to their children by fictitious sales in order to avoid the payment of inheritance taxes.

Indeed, it was found both by the trial court and by the Court of Appeals that Natividad had no means to pay for the six lots subject of the Deed of Sale.

All these convince the Court that Natividad had no means to pay for all the lots she purportedly purchased from her parents. What is more, Romeo’s admission that he did not pay for the transfer to him of lots 3 and 25-L despite the considerations stated in the deed of sale is a declaration against interest and must ring with resounding truth. The question is, why should Natividad be treated any differently, i.e., with consideration for the sale to her, when she is admittedly the closest to her parents and the one staying with them and managing their affairs? It just seems without reason. Anyway, the Court is convinced that the questioned Deed of Sale dated January 29, 1970 (Exh. "A" or "1") is simulated for lack of consideration, and therefore ineffective and void.29

In affirming this ruling, the Court of Appeals said:

Facts and circumstances indicate badges of a simulated sale which make the Deed of Absolute Sale dated 29 January 1970 void and of no effect. In the case of Suntay vs. Court of Appeals (251 SCRA 430 [1995]), the Supreme Court held that badges of simulation make a deed of sale null and void since parties thereto enter into a transaction to which they did not intend to be legally bound.

It appears that it was the practice in the Nazareno family to make simulated transfers of ownership of real properties to their children in order to avoid the payment of inheritance taxes. Per the testimony of Romeo, he acquired Lot 25-L from his parents through a fictitious or simulated sale wherein no consideration was paid by him. He even truthfully admitted that the sale of Lot 3 to him on 04 July 1969 (Deed of Absolute Sale, Records, Vol. II, p. 453) likewise had no consideration. This document was signed by the spouses Max, Sr. and Aurea as vendors while defendant-appellant Natividad signed as witness.30

Fourth. Petitioners argue further:

The Deed of Absolute Sale dated January 29, 1970 is an indivisible contract founded on an indivisible obligation. As such, it being indivisible, it can not be annulled by only one of them. And since this suit was filed only by the estate of Maximino A. Nazareno, Sr. without including the estate of Aurea Poblete, the present suit must fail. The estate of Maximino A. Nazareno, Sr. can not cause its annulment while its validity is sustained by the estate of Aurea Poblete.31

An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of the thing which is the object thereof. The indivisibility refers to the prestation and not to the object thereof.32 In the present case, the Deed of Sale of January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation is clearly indivisible because the performance of the contract cannot be done in parts, otherwise the value of what is transferred is diminished. Petitioners are therefore mistaken in basing the indivisibility of a contract on the number of obligors.

In any case, if petitioners’ only point is that the estate of Maximino, Sr. alone cannot contest the validity of the Deed of Sale because the estate of Aurea has not yet been settled, the argument would nonetheless be without merit. The validity of the contract can be questioned by anyone affected by it.33 A void contract is inexistent from the beginning. Hence, even if the estate of Maximino, Sr. alone contests the validity of the sale, the outcome of the suit will bind the estate of Aurea as if no sale took place at all.

Fifth. As to the third-party complaint concerning Lot 3, we find that this has been passed upon by the trial court and the Court of Appeals. As Romeo admitted, no consideration was paid by him to his parents for the Deed of Sale. Therefore, the sale was void for having been simulated. Natividad never acquired ownership over the property because the Deed of Sale in her favor is also void for being without consideration and title to Lot 3 cannot be issued in her name.

Nonetheless, it cannot be denied that Maximino, Sr. intended to give the six Quezon City lots to Natividad. As Romeo testified, their parents executed the Deed of Sale in favor of Natividad because the latter was the only "female and the only unmarried member of the family."34 She was thus entrusted with the real properties in behalf of her siblings. As she herself admitted, she intended to convey Lots 10 and 11 to Jose in the event the latter returned from abroad. There was thus an implied trust constituted in her favor.1âwphi1 Art. 1449 of the Civil Code states:

There is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof.

There being an implied trust, the lots in question are therefore subject to collation in accordance with Art. 1061 which states:

Every compulsory heir, who succeeds with other compulsory heirs, must bring into the mass of the estate any property or right which he may have received from the decedent, during the lifetime of the latter, by way of donation, or any other gratuitous title, in order that it may be computed in the determination of the legitime of each heir, and in the account of the partition.

As held by the trial court, the sale of Lots 13 and 14 to Ros-Alva Marketing, Corp. on April 20, 197935 will have to be upheld for Ros-Alva Marketing is an innocent purchaser for value which relied on the title of Natividad. The rule is settled that "every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property."36

WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, and De Leon, Jr., JJ., concur. Buena, J., no part.

Footnotes

1 Per Justice Buenaventura J. Guerrero and concurred in by Justice Arturo B. Buena (now Associate Justice of the Supreme Court) and Justice Portia Aliño-Hormachuelos.

2 Rollo, pp. 170-173.

3 Records, p. 567.

4 This was alleged by Natividad Nazareno in her third-party complaint. No copy of the TCT was presented in court; Rollo, p. 55.

5 Records, p. 563.

6 Id., p. 564.

7 Id., p. 565.

8 Id., pp. 11-12.

9 Id., p. 568.

10 Rollo, p. 72.

11 Id., p. 49.

12 Id., p. 55.

13 Records, p. 450.

14 Id., p. 446.

15 Rollo, pp. 165-166.

16 Records, pp. 579-580.

17 See Records, p. 453.

18 TSN, pp. 31-32, April 10, 1991.

19 Rollo, pp. 242-243.

20 Records, pp. 11-12.

21 Rollo, p. 104.

22 Id., pp. 107-108.

23 CA Decision, p. 17; Rollo, p. 142.

24 Rollo, pp. 28-30.

25 Fortune Motors (Phils.) Corp. v. Court of Appeals, 267 SCRA 653, 669 (1997).

26 251 SCRA 430, 452 (1995).

27 Rollo, pp. 82-83.

28 Limjoco v. Intestate Estate of Fragante, 80 Phil. 776 (1948).

29 Rollo, p. 103.

30 Id., p. 140.

31 Id., p. 44.

32 4 A. TOLENTINO, CIVIL CODE OF THE PHILIPPINES, 254 (1991).

33 Id., p. 632.

34 Rollo, p. 94.

35 Records, pp. 658-659.

36 Cruz v. Court of Appeals, 281 SCRA 491, 496 (1997).

THIRD DIVISION

G.R. No. 116896 May 5, 1997

PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner, vs. COURT OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S. RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S. RAYMUNDO, and AMADOR S. RAYMUNDO, respondents.

DAVIDE, JR., J.:

This petition for review on certiorari has its roots in Civil Case No. 53444, which was sparked by petitioner's refusal to pay the rentals as stipulated in the contract of lease 1 on an undivided portion of 30,000 square meters of a parcel of land owned by private respondents.

The lease contract, executed on 18 November 1985, reads in part as follows:

1. TERM OF LEASE — This lease shall be for a period of five (5) years, commencing on the date of issuance of the industrial clearance by the Ministry of Human Settlements, renewable for a like or other period at the option of the LESSEE under the same terms and conditions.

2. RATE OF RENT — LESSEE shall pay to the LESSOR rent at the monthly rate of TWENTY THOUSAND PESOS (P20,000.00), Philippine Currency, in the manner set forth in Paragraph 3 below. This rate shall be increased yearly by Five Percent (5%) based on the agreed monthly rate of P20,000.00 as follows:

Monthly Rate Period Applicable

P21,000.00 Starting on the 2nd year

P22,000.00 Starting on the 3rd year

P23,000.00 Starting on the 4th year

P24,000.00 Starting on the 5th year

3. TERMS OF PAYMENT — The rent stipulated in Paragraph 2 above shall be paid yearly in advance by the LESSEE. The first annual rent in the amount of TWO HUNDRED FORTY THOUSAND PESOS (P240,000.00), Philippine currency, shall be due and payable upon the execution of this Agreement and the succeeding annual rents shall be payable every twelve (12) months thereafter during the effectivity of this Agreement.

4. USE OF LEASED PROPERTY — It is understood that the Property shall be used by the LESSEE as the site, grounds and premises of a rock crushing plant and field office, sleeping quarters and canteen/mess hall. The LESSORS hereby

grant to the LESSEE the right to erect on the Leased Property such structure(s) and/or improvement(s) necessary for or incidental to the LESSEE's purposes.

xxx xxx xxx

11. TERMINATION OF LEASE — This Agreement may be terminated by mutual agreement of the parties. Upon the termination or expiration of the period of lease without the same being renewed, the LESSEE shall vacate the Leased Property at its expense.

On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a Temporary Use Permit 2 for the proposed rock crushing project. The permit was to be valid for two years unless sooner revoked by the Ministry.

On 16 January 1986, private respondents wrote petitioner requesting payment of the first annual rental in the amount of P240,000 which was due and payable upon the execution of the contract. They also assured the latter that they had already stopped considering the proposals of other aggregates plants to lease the property because of the existing contract with petitioner. 3

In its reply-letter, petitioner argued that under paragraph 1 of the lease contract, payment of rental would commence on the date of the issuance of an industrial clearance by the Ministry of Human Settlements, and not from the date of signing of the contract. It then expressed its intention to terminate the contract, as it had decided to cancel or discontinue with the rock crushing project "due to financial, as well as technical, difficulties." 4

Private respondents refused to accede to petitioner's request for the pretermination of the lease contract. They insisted on the performance of petitioner's obligation and reiterated their demand for the payment of the first annual rental. 5

Petitioner objected to private respondents' claim and argued that it was "only obligated to pay . . . the amount of P20,000.00 as rental payments for the one-month period of lease, counted from 07 January 1986 when the Industrial Permit was issued by the Ministry of Human Settlements up to 07 February 1986 when the Notice of Termination was served" 6 on private respondents.

On 19 May 1986, private respondents instituted with the Regional Trial Court of Pasig an action against petitioner for Specific Performance with Damages. 7 The case was docketed as Civil Case No. 53444 at Branch 160 of the said court. After the filing by petitioner of its Answer with Counterclaim, the case was set for trial on the merits.

What transpired next was summarized by the trial court in this wise:

Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). Defendant asked for postponement of the reception of its evidence scheduled on August 10, 1988 and as prayed for, was reset to August 25, 1988 (p. 91 rec.) Counsel for defendant again asked for postponement, through representative, as he was presently indisposed. The case was reset, intransferable to September 15 and 26, 1988 (p. 94 rec.) On September 2, 1988, the office of the Government Corporate Counsel entered its appearance for defendant (p. 95, rec.) and the original counsel later withdrew his appearance. On September 15, 1988 the Government Corporate Counsel asked for postponement, represented by Atty. Elpidio de Vega, and with his conformity in open court, the hearing was reset, intransferable to September 26 and October 17, 1988, (p. 98, rec.) On September 26, 1988 during the hearing, defendant's counsel filed a motion for postponement (urgent) as he had "sore eyes", a medical certificate attached.

Counsel for plaintiffs objected to the postponement and the court considered the evidence of the government terminated or waived. The case was deemed submitted for decision upon the filing of the memorandum. Plaintiffs filed their memorandum on October 26, 1988. (p. 111, rec.).

On October 18, 1988 in the meantime, the defendant filed a motion for reconsideration of the order of the court on September 26, 1988 (p. 107, rec.) The motion was not asked to be set for hearing (p. 110 rec.) There was also no proof of notice and service to counsel for plaintiff . The court in the interest of justice set the hearing on the motion on November 29, 1988. (p. 120, rec.) but despite notice, again defendant's counsel was absent (p. 120-A, dorsal side, rec.) without reason. The court reset the motion to December 16, 1988, in the interest of justice. The motion for reconsideration was denied by the court. A second motion for reconsideration was filed and counsel set for hearing the motion on January 19, 1989. During the hearing, counsel for the government was absent. The motion was deemed abandoned but the court at any rate, after a review of the incidents and the grounds relied upon in the earlier motion of defendant, found no reason to disturb its previous order. 8

On 12 April 1989, the trial court rendered a decision ordering petitioner to pay private respondents the amount of P492,000 which represented the rentals for two years, with legal interest from 7 January 1986 until the amount was fully paid, plus attorney's fees in the amount of P20,000 and costs. 9

Petitioner then appealed to the Court of Appeals alleging that the trial court erred in ordering it to pay private respondent the amount of P492,000 and in denying it the right to be heard.

Upon the affirmance of the trial court's decision 10 and the denial of its motion for reconsideration, petitioner came to this Court ascribing to respondent Court of Appeals the same alleged errors and reiterating their arguments.

First. Petitioner invites the attention of this Court to paragraph 1 of the lease contract, which reads: "This lease shall be for a period of five (5) years, commencing on the date of issuance of the industrial clearance by the Ministry of Human Settlements. . . ." It then submits that the issuance of an industrial clearance is a suspensive condition without which the rights under the contract would not be acquired. The Temporary Use Permit is not the industrial clearance referred to in the contract; for the said permit requires that a clearance from the National Production Control Commission be first secured, and besides, there is a finding in the permit that the proposed project does not conform to the Zoning Ordinance of Rodriguez, (formerly Montalban), Rizal, where the leased property is located. Without the industrial clearance the lease contract could not become effective and petitioner could not be compelled to perform its obligation under the contract.

Petitioner is now estopped from claiming that the Temporary Use Permit was not the industrial clearance contemplated in the contract. In its letter dated 24 April 1986, petitioner states:

We wish to reiterate PNCC Management's previous stand that it is only obligated to pay your clients the amount of P20,000.00 as rental payments for the one-month period of the lease, counted from 07 January 1986 when the Industrial Permit was issued by the Ministry of Human Settlements up to 07 February 1986 when the Notice of Termination was served on your clients. 11 (Emphasis Supplied).

The "Industrial Permit" mentioned in the said letter could only refer to the Temporary Use Permit issued by the Ministry of Human Settlements on 7 January 1986. And it can be gleaned from this letter that petitioner has considered the permit as industrial clearance;

otherwise, petitioner could have simply told private respondents that its obligation to pay rentals has not yet arisen because the Temporary Use Permit is not the industrial clearance contemplated by them. Instead, petitioner recognized its obligation to pay rentals counted from the date the permit was issued.

Also worth noting is petitioner's earlier letter, thus:

[P]lease be advised of PNCC Management's decision to cancel or discontinue with the rock crushing project due to financial as well as technical difficulties. In view thereof, we would like to terminate our Lease Contract dated 18 November, 1985. Should you agree to the mutual termination of our Lease Contract, kindly indicate your conformity hereto by affixing your signature on the space provided below. May we likewise request Messrs. Rene, Jose and Antonio, all surnamed Raymundo and Mrs. Socorro A. Raymundo as Attorney-in-Fact of Amador S. Raymundo to sign on the spaces indicated below. 12

It can be deduced from this letter that the suspensive condition — issuance of industrial clearance — has already been fulfilled and that the lease contract has become operative. Otherwise, petitioner did not have to solicit the conformity of private respondents to the termination of the contract for the simple reason that no juridical relation was created because of the non- fulfillment of the condition.

Moreover, the reason of petitioner in discontinuing with its project and in consequently cancelling the lease contract was "financial as well as technical difficulties," not the alleged insufficiency of the Temporary Use Permit.

Second. Invoking Article 1266 and the principle of rebus sic stantibus, petitioner asserts that it should be released from the obligatory force of the contract of lease because the purpose of the contract did not materialize due to unforeseen events and causes beyond its control, i.e., due to the abrupt change in political climate after the EDSA Revolution and financial difficulties.

It is a fundamental rule that contracts, once perfected, bind both contracting parties, and obligations arising therefrom have the force of law between the parties and should be complied with in good faith. 13 But the law recognizes exceptions to the principle of the obligatory force of contracts. One exception is laid down in Article 1266 of the Civil Code, which reads: "The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor."

Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to obligations "to do," and not to obligations "to give." 14 An obligation "to do" includes all kinds of work or service; while an obligation "to give" is a prestation which consists in the delivery of a movable or an immovable thing in order to create a real right, or for the use of the recipient, or for its simple possession, or in order to return it to its owner. 15

The obligation to pay rentals 16 or deliver the thing in a contract of lease 17 falls within the prestation "to give"; hence, it is not covered within the scope of Article 1266. At any rate, the unforeseen event and causes mentioned by petitioner are not the legal or physical impossibilities contemplated in the said article. Besides, petitioner failed to state specifically the circumstances brought about by "the abrupt change in the political climate in the country" except the alleged prevailing uncertainties in government policies on infrastructure projects.

The principle of rebus sic stantibus 18 neither fits in with the facts of the case. Under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the contract also ceases to exist. 19 This theory is said to be the basis of Article 1267 of the Civil Code, which provides:

Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part.

This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute application of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is therefore only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor. 20

In this case, petitioner wants this Court to believe that the abrupt change in the political climate of the country after the EDSA Revolution and its poor financial condition "rendered the performance of the lease contract impractical and inimical to the corporate survival of the petitioner."

This Court cannot subscribe to this argument. As pointed out by private respondents: 21

It is a matter of record that petitioner PNCC entered into a contract with private respondents on November 18, 1985. Prior thereto, it is of judicial notice that after the assassination of Senator Aquino on August 21, 1983, the country has experienced political upheavals, turmoils, almost daily mass demonstrations, unprecedented, inflation, peace and order deterioration, the Aquino trial and many other things that brought about the hatred of people even against crony corporations. On November 3, 1985, Pres. Marcos, being interviewed live on U.S. television announced that there would be a snap election scheduled for February 7, 1986.

On November 18, 1985, notwithstanding the above, petitioner PNCC entered into the contract of lease with private respondents with open eyes of the deteriorating conditions of the country.

Anent petitioner's alleged poor financial condition, the same will neither release petitioner from the binding effect of the contract of lease. As held in Central Bank v. Court of Appeals, 22 cited by private respondents, mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation, nor does it constitute a defense to an action for specific performance.

With regard to the non-materialization of petitioner's particular purpose in entering into the contract of lease, i.e., to use the leased premises as a site of a rock crushing plant, the same will not invalidate the contract. The cause or essential purpose in a contract of lease is the use or enjoyment of a thing. 23 As a general principle, the motive or particular purpose of a party in entering into a contract does not affect the validity nor existence of the contract; an exception is when the realization of such motive or particular purpose has been made a condition upon which the contract is made to depend. 24 The exception does not apply here.

Third. According to petitioner, the award of P492,000.00 representing the rent for two years is excessive, considering that it did not benefit from the property. Besides, the temporary permit, conformably with the express provision therein, was deemed automatically revoked for failure of petitioner to use the same within one year from the issuance thereof. Hence, the rent payable should only be for one year.

Petitioner cannot be heard to complain that the award is excessive. The temporary permit was valid for two years but was automatically revoked because of its non-use within one year from its issuance. The non-use of the permit and the non-entry into the property subject of the lease contract were both imputable to petitioner and cannot, therefore, be taken advantage of in order to evade or lessen petitioner's monetary obligation. The damage or prejudice to private respondents is beyond dispute. They unquestionably suffered pecuniary losses because of their inability to use the leased premises. Thus, in

accordance with Article 1659 of the Civil Code, 25 they are entitled to indemnification for damages; and the award of P492,000.00 is fair and just under the circumstances of the case.

Finally, petitioner submits that the trial court gravely abused its discretion in denying petitioner the right to be heard.

We disagree. The trial court was in fact liberal in granting several postponements 26 to petitioner before it deemed terminated and waived the presentation of evidence in petitioner's behalf.

It must be recalled that private respondents rested their case on 7 September 1987 yet. 27 Almost a year after, or on 10 August 1988 when it was petitioner's turn to present evidence, petitioner's counsel asked for postponement of the hearing to 25 August 1988 due to conflict of schedules, 28 and this was granted. 29 At the rescheduled hearing, petitioner's counsel, through a representative, moved anew for postponement, as he was allegedly indisposed. 30 The case was then reset "intransferable" to September 15 and 26, 1988. 31 On 2 September 1988, the Office of the Government Corporate Counsel, through Atty. Elpidio J. Vega, entered its appearance for the petitioner, 32 and later the original counsel withdrew his appearance. 33 On 15 September 1988, Atty. Vega requested for postponement to enable him to go over the records of the case. 34 With his conformity, the hearing was reset "intransferable" to September 26 and October 17, 1988. 35 In the morning of 26 September 1988, the court received Atty. Vega's Urgent Motion for Postponement on the ground that he was afflicted with conjunctivitis or sore eyes. 36 This time, private respondents objected; and upon their motion, the court deemed terminated and waived the presentation of evidence for the petitioner. 37 Nevertheless, before the court considered the case submitted for decision, it required the parties to submit their respective memoranda within thirty days. 38 But petitioner failed to comply.

Likewise, the court was liberal with respect to petitioner's motion for reconsideration. Notwithstanding the lack of request for hearing and proof of notice and service to private respondents, the court set the hearing of the said motion on 29 November 1988. 39 Upon the denial of the said motion for lack of merit, 40 petitioner filed a second motion for reconsideration. But during the hearing of the motion on a date selected by him, Atty. Vega was absent for no reason at all, despite due notice. 41

From the foregoing narration of procedural antecedents, it cannot be said that petitioner was deprived of its day in court. The essence of due process is simply an opportunity to he heard. 42 To be heard does not only mean oral arguments in court; one may be heard also through pleadings. Where opportunity to be heard, either through oral arguments or pleadings, is accorded, there is no denial of procedural due process. 43

WHEREFORE, the instant petition is DENIED and the challenge decision of the Court of Appeals is AFFIRMED in toto.

No pronouncements as to costs.

SO ORDERED.

Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.

Footnotes

1 Exhibit "A," Original Record (OR), 68.

2 Exhibit "C," OR, 77; Rollo, 57.

3 Exhibit "B," OR, 76.

4 Exhibit "D," OR, 78.

5 Exhibit "E," Id., 80.

6 Exhibit "F," Id., 81-82.

7 Id., 1-7.

8 Order of 19 January 1989, OR, 129-130; Decision, 2-3.

9 OR 134-137; Rollo, 53-56. Per Judge Mariano M. Umali.

10 Rollo, 24-31. Per then Associate Justice Justo P. Torres, Jr. (now Associate Justice of the Supreme Court), with the concurrence of then Associate Justice Bernardo P. Pardo and Associate Justice Corona Ibay-Somera.

11 Exhibit "F-1," OR, 82.

12 Exhibit "D," Id., 78-79.

13 Articles 1159, 1308, 1315, and 1356 of the Civil Code.

14 DESIDERIO P. JURADO, Comments and Jurisprudence on Obligations and Contracts 292 ( 10th revised ed. 1993) (hereafter JURADO).

15 IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of the Philippines 57 (1991) (hereafter IV TOLENTINO).

16 JURADO, 283.

17 IV TOLENTINO 57.

18 At this point of affairs; in these circumstances. A name given to a tacit condition, said to attach to all treaties, that they shall cease to be obligatory so soon as the state of facts and conditions upon which they were founded has substantially changed. (Black's Law Dictionary, 1139 [5th ed., 1979]).

19 Naga Telephone Co. v. Court of Appeals, 230 SCRA 351, 365 [1994] citing IV TOLENTINO 347.

20 IV TOLENTINO 347.

21 Memorandum for the Private Respondents, 17; Rollo, 160.

22 139 SCRA 46 [1985], citing Repide v. Afzelius, 39 Phil. 190 [1918].

23 V TOLENTINO 206 [1992]; V EDGARDO E. PARAS, Civil Code of the Philippines, 307 [1995].

24 V TOLENTINO 535.

25 It provides:

Art. 1659. If the lessor or the lessee should not comply with the obligations set forth in Articles 1654 and 1657, the aggrieved party may ask for rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force.

26 Ocampo v. Arboleda, 153 SCRA 374, 381 [1987].

27 OR, 87.

28 OR, 89.

29 Id., 91.

30 Id., 94.

31 Id.

32 Id., 95.

33 Id., 99.

34 Id., 98.

35 Id.

36 Id., 101.

37 Id., 106.

38 Id.

39 Id., 120.

40 Id., 128.

41 Id., 127.

42 Roces v. Aportadera, 243 SCRA 108, 114 [1995]; Vallende v. NLRC, 245 SCRA 662, 666-667 [1995]; Navarro III v. Damasco, 246 SCRA 260, 265 [1995].

43 Mutuc v. Court of Appeals, 190 SCRA 43, 49 [1990].

THIRD DIVISION

G.R. No. 138544 October 3, 2000

SECURITY BANK AND TRUST COMPANY, Inc., petitioner, vs. RODOLFO M. CUENCA, respondent.

D E C I S I O N

PANGANIBAN, J.:

Being an onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in favor of the solidary debtor. The fundamental rules of fair play require the creditor to obtain the consent of the surety to any material alteration in the principal loan agreement, or at least to notify it thereof. Hence, petitioner bank cannot hold herein respondent liable for loans obtained in excess of the amount or beyond the period stipulated in the original agreement, absent any clear stipulation showing that the latter waived his right to be notified thereof, or to give consent thereto. This is especially true where, as in this case, respondent was no longer the principal officer or major stockholder of the corporate debtor at the time the later obligations were incurred. He was thus no longer in a position to compel the debtor to pay the creditor and had no more reason to bind himself anew to the subsequent obligations.

The Case

This is the main principle used in denying the present Petition for Review under Rule 45 of the Rules of Court. Petitioner assails the December 22, 1998 Decision1 of the Court of Appeals (CA) in CA-GR CV No. 56203, the dispositive portion of which reads as follows:

"WHEREFORE, the judgment appealed from is hereby amended in the sense that defendant-appellant Rodolfo M. Cuenca [herein respondent] is RELEASED from liability to pay any amount stated in the judgment.

"Furthermore, [Respondent] Rodolfo M. Cuenca’s counterclaim is hereby DISMISSED for lack of merit.

"In all other respect[s], the decision appealed from is AFFIRMED."2

Also challenged is the April 14, 1999 CA Resolution,3 which denied petitioner’s Motion for Reconsideration.

Modified by the CA was the March 6, 1997 Decision4 of the Regional Trial Court (RTC) of Makati City (Branch 66) in Civil Case No. 93-1925, which disposed as follows:

"WHEREFORE, judgment is hereby rendered ordering defendants Sta. Ines Melale Corporation and Rodolfo M. Cuenca to pay, jointly and severally, plaintiff Security Bank & Trust Company the sum of P39,129,124.73 representing the balance of the loan as of May 10, 1994 plus 12% interest per annum until fully paid, and the sum of P100,000.00 as attorney’s fees and litigation expenses and to pay the costs.

SO ORDERED."

The Facts

The facts are narrated by the Court of Appeals as follows:5

"The antecedent material and relevant facts are that defendant-appellant Sta. Ines Melale (‘Sta. Ines’) is a corporation engaged in logging operations. It was a holder of a Timber License Agreement issued by the Department of Environment and Natural Resources (‘DENR’).

"On 10 November 1980, [Petitioner] Security Bank and Trust Co. granted appellant Sta. Ines Melale Corporation [SIMC] a credit line in the amount of [e]ight [m]llion [p]esos (P8,000,000.00) to assist the latter in meeting the additional capitalization requirements of its logging operations.

"The Credit Approval Memorandum expressly stated that the P8M Credit Loan Facility shall be effective until 30 November 1981:

‘JOINT CONDITIONS:

‘1. Against Chattel Mortgage on logging trucks and/or inventories (except logs) valued at 200% of the lines plus JSS of Rodolfo M. Cuenca.

‘2. Submission of an appropriate Board Resolution authorizing the borrowings, indicating therein the company’s duly authorized signatory/ies;

‘3. Reasonable/compensating deposit balances in current account shall be maintained at all times; in this connection, a Makati account shall be opened prior to availment on lines;

‘4. Lines shall expire on November 30, 1981; and

‘5. The bank reserves the right to amend any of the aforementioned terms and conditions upon written notice to the Borrower.’ (Emphasis supplied.)

"To secure the payment of the amounts drawn by appellant SIMC from the above-mentioned credit line, SIMC executed a Chattel Mortgage dated 23 December 1980 (Exhibit ‘A’) over some of its machinery and equipment in favor of [Petitioner] SBTC. As additional security for the payment of the loan, [Respondent] Rodolfo M. Cuenca executed an Indemnity Agreement dated 17 December 1980 (Exhibit ‘B’) in favor of [Petitioner] SBTC whereby he solidarily bound himself with SIMC as follows:

x x x x x x x x x

‘Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and severally with the client (SIMC) in favor of the bank for the payment, upon demand and without the benefit of excussion of whatever amount x x x the client may be indebted to the bank x x x by virtue of aforesaid credit accommodation(s) including the substitutions, renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit accommodation(s) x x x .’ (Emphasis supplied).

"On 26 November 1981, four (4) days prior to the expiration of the period of effectivity of the P8M-Credit Loan Facility, appellant SIMC made a first drawdown from its credit line with [Petitioner] SBTC in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00). To cover said drawdown, SIMC duly executed promissory Note No. TD/TLS-3599-81 for said amount (Exhibit ‘C’).

"Sometime in 1985, [Respondent] Cuenca resigned as President and Chairman of the Board of Directors of defendant-appellant Sta. Ines. Subsequently, the shareholdings of [Respondent] Cuenca in defendant-appellant Sta. Ines were sold at a public auction relative to Civil Case No. 18021 entitled ‘Adolfo A. Angala vs. Universal Holdings, Inc. and Rodolfo M. Cuenca’. Said shares were bought by Adolfo Angala who was the highest bidder during the public auction.

"Subsequently, appellant SIMC repeatedly availed of its credit line and obtained six (6) other loan[s] from [Petitioner] SBTC in the aggregate amount of [s]ix [m]illion [t]hree [h]undred [s]ixty-[n]ine [t]housand [n]ineteen and 50/100 [p]esos (P6,369,019.50). Accordingly, SIMC executed Promissory Notes Nos. DLS/74/760/85, DLS/74773/85, DLS/74/78/85, DLS/74/760/85 DLS/74/12/86, and DLS/74/47/86 to cover the amounts of the abovementioned additional loans against the credit line.

"Appellant SIMC, however, encountered difficulty6 in making the amortization payments on its loans and requested [Petitioner] SBTC for a complete restructuring of its indebtedness. SBTC accommodated appellant SIMC’s request and signified its approval in a letter dated 18 February 1988 (Exhibit ‘G’) wherein SBTC and defendant-appellant Sta. Ines, without notice to or the prior consent of [Respondent] Cuenca, agreed to restructure the past due obligations of defendant-appellant Sta. Ines. [Petitioner] Security Bank agreed to extend to defendant-appellant Sta. Ines the following loans:

a. Term loan in the amount of [e]ight [m]illion [e]ight [h]undred [t]housand [p]esos (P8,800,000.00), to be applied to liquidate the principal portion of defendant-appellant Sta. Ines[‘] total outstanding indebtedness to [Petitioner] Security Bank (cf. P. 1 of Exhibit ‘G’, Expediente, at Vol. II, p. 336; Exhibit ‘5-B-Cuenca’, Expediente, et Vol I, pp. 33 to 34) and

b. Term loan in the amount of [t]hree [m]illion [f]our [h]undred [t]housand [p]esos (P3,400,000.00), to be applied to liquidate the past due interest and penalty portion of the indebtedness of defendant-appellant Sta. Ines to [Petitioner] Security Bank (cf. Exhibit ‘G’, Expediente, at Vol. II, p. 336; Exhibit ‘5-B-Cuenca’, Expediente, at Vol. II, p. 33 to 34).’

"It should be pointed out that in restructuring defendant-appellant Sta. Ines’ obligations to [Petitioner] Security Bank, Promissory Note No. TD-TLS-3599-81 in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00), which was the only loan incurred prior to the expiration of the P8M-Credit Loan Facility on 30 November 1981 and the only one covered by the Indemnity Agreement dated 19 December 1980 (Exhibit ‘3-Cuenca’, Expediente, at Vol. II, p. 331), was not segregated from, but was instead lumped together with, the other loans, i.e., Promissory Notes Nos. DLS/74/12/86, DLS/74/28/86 and DLS/74/47/86 (Exhibits ‘D’, ‘E’, and ‘F’, Expediente, at Vol. II, pp. 333 to 335) obtained by defendant-appellant Sta. Ines which were not secured by said Indemnity Agreement.

"Pursuant to the agreement to restructure its past due obligations to [Petitioner] Security Bank, defendant-appellant Sta. Ines thus executed the following promissory notes, both dated 09 March 1988 in favor of [Petitioner] Security Bank:

PROMISSORY NOTE NO. AMOUNT

RL/74/596/88 P8,800,000.00

RL/74/597/88 P3,400,000.00

TOTAL P12,200,000.00

(Exhibits ‘H’ and ‘I’, Expediente, at Vol. II, pp. 338 to 343).

"To formalize their agreement to restructure the loan obligations of defendant-appellant Sta. Ines, [Petitioner] Security Bank and defendant-appellant Sta. Ines executed a Loan Agreement dated 31

October 1989 (Exhibit ‘5-Cuenca’, Expediente, at Vol. I, pp. 33 to 41). Section 1.01 of the said Loan Agreement dated 31 October 1989 provides:

‘1.01 Amount - The Lender agrees to grant loan to the Borrower in the aggregate amount of TWELVE MILLION TWO HUNDRED THOUSAND PESOS (P12,200,000.00), Philippines [c]urrency (the ‘Loan’). The loan shall be released in two (2) tranches of P8,800,000.00 for the first tranche (the ‘First Loan’) and P3,400,000.00 for the second tranche (the ‘Second Loan’) to be applied in the manner and for the purpose stipulated hereinbelow.

‘1.02. Purpose - The First Loan shall be applied to liquidate the principal portion of the Borrower’s present total outstanding indebtedness to the Lender (the ‘indebtedness’) while the Second Loan shall be applied to liquidate the past due interest and penalty portion of the Indebtedness.’ (Underscoring supplied.) (cf. p. 1 of Exhibit ‘5-Cuenca’, Expediente, at Vol. I, p. 33)

"From 08 April 1988 to 02 December 1988, defendant-appellant Sta. Ines made further payments to [Petitioner] Security Bank in the amount of [o]ne [m]illion [s]even [h]undred [f]ifty-[s]even [t]housand [p]esos (P1,757,000.00) (Exhibits ‘8’, ‘9-P-SIMC’ up to ‘9-GG-SIMC’, Expediente, at Vol. II, pp. 38, 70 to 165)

"Appellant SIMC defaulted in the payment of its restructured loan obligations to [Petitioner] SBTC despite demands made upon appellant SIMC and CUENCA, the last of which were made through separate letters dated 5 June 1991 (Exhibit ‘K’) and 27 June 1991 (Exhibit ‘L’), respectively.

"Appellants individually and collectively refused to pay the [Petitioner] SBTC. Thus, SBTC filed a complaint for collection of sum of money on 14 June 1993, resulting after trial on the merits in a decision by the court a quo, x x x from which [Respondent] Cuenca appealed."

Ruling of the Court of Appeals

In releasing Respondent Cuenca from liability, the CA ruled that the 1989 Loan Agreement had novated the 1980 credit accommodation earlier granted by the bank to Sta. Ines. Accordingly, such novation extinguished the Indemnity Agreement, by which Cuenca, who was then the Board chairman and president of Sta. Ines, had bound himself solidarily liable for the payment of the loans secured by that credit accommodation. It noted that the 1989 Loan Agreement had been executed without notice to, much less consent from, Cuenca who at the time was no longer a stockholder of the corporation.

The appellate court also noted that the Credit Approval Memorandum had specified that the credit accommodation was for a total amount of P8 million, and that its expiry date was November 30, 1981. Hence, it ruled that Cuenca was liable only for loans obtained prior to November 30, 1981, and only for an amount not exceeding P8 million.

It further held that the restructuring of Sta. Ines’ obligation under the 1989 Loan Agreement was tantamount to a grant of an extension of time to the debtor without the consent of the surety. Under Article 2079 of the Civil Code, such extension extinguished the surety.

The CA also opined that the surety was entitled to notice, in case the bank and Sta. Ines decided to materially alter or modify the principal obligation after the expiry date of the credit accommodation.

Hence, this recourse to this Court.7

The Issues

In its Memorandum, petitioner submits the following for our consideration:8

"A. Whether or not the Honorable Court of Appeals erred in releasing Respondent Cuenca from liability as surety under the Indemnity Agreement for the payment of the principal amount of twelve million two hundred thousand pesos (P12,200,000.00) under Promissory Note No. RL/74/596/88 dated 9 March 1988 and Promissory Note No. RL/74/597/88 dated 9 March 1988, plus stipulated interests, penalties and other charges due thereon;

i. Whether or not the Honorable Court of Appeals erred in ruling that Respondent Cuenca’s liability under the Indemnity Agreement covered only availments on SIMC’s credit line to the extent of eight million pesos (P8,000,000.00) and made on or before 30 November 1981;

ii. Whether or not the Honorable Court of Appeals erred in ruling that the restructuring of SIMC’s indebtedness under the P8 million credit accommodation was tantamount to an extension granted to SIMC without Respondent Cuenca’s consent, thus extinguishing his liability under the Indemnity Agreement pursuant to Article 2079 of the Civil Code;

iii. Whether or not the Honorable Court of appeals erred in ruling that the restructuring of SIMC’s indebtedness under the P8 million credit accommodation constituted a novation of the principal obligation, thus extinguishing Respondent Cuenca’s liability under the indemnity agreement;

B. Whether or not Respondent Cuenca’s liability under the Indemnity Agreement was extinguished by the payments made by SIMC;

C. Whether or not petitioner’s Motion for Reconsideration was pro-forma;

D. Whether or not service of the Petition by registered mail sufficiently complied with Section 11, Rule 13 of the 1997 Rules of Civil Procedure."

Distilling the foregoing, the Court will resolve the following issues: (a) whether the 1989 Loan Agreement novated the original credit accommodation and Cuenca’s liability under the Indemnity Agreement; and (b) whether Cuenca waived his right to be notified of and to give consent to any substitution, renewal, extension, increase, amendment, conversion or revival of the said credit accommodation. As preliminary matters, the procedural questions raised by respondent will also be addressed.

The Court’s Ruling

The Petition has no merit.

Preliminary Matters: Procedural Questions

Motion for Reconsideration Not Pro Forma

Respondent contends that petitioner’s Motion for Reconsideration of the CA Decision, in merely rehashing the arguments already passed upon by the appellate court, was pro forma; that as such, it did not toll the period for filing the present Petition for Review.9 Consequently, the Petition was filed out of time.10

We disagree. A motion for reconsideration is not pro forma just because it reiterated the arguments earlier passed upon and rejected by the appellate court. The Court has explained that a movant may raise the same arguments, precisely to convince the court that its ruling was erroneous.11

Moreover, there is no clear showing of intent on the part of petitioner to delay the proceedings. In Marikina Valley Development Corporation v. Flojo,12 the Court explained that a pro forma motion had no other purpose than to gain time and to delay or impede the proceedings. Hence, "where the

circumstances of a case do not show an intent on the part of the movant merely to delay the proceedings, our Court has refused to characterize the motion as simply pro forma." It held:

"We note finally that because the doctrine relating to pro forma motions for reconsideration impacts upon the reality and substance of the statutory right of appeal, that doctrine should be applied reasonably, rather than literally. The right to appeal, where it exists, is an important and valuable right. Public policy would be better served by according the appellate court an effective opportunity to review the decision of the trial court on the merits, rather than by aborting the right to appeal by a literal application of the procedural rules relating to pro forma motions for reconsideration."

Service by Registered Mail Sufficiently Explained

Section 11, Rule 13 of the 1997 Rules of Court, provides as follows:

"SEC. 11. Priorities in modes of service and filing. -- Whenever practicable, the service and filing of pleadings and other papers shall be done personally. Except with respect to papers emanating from the court, a resort to other modes must be accompanied by a written explanation why the service or filing was not done personally. A violation of this Rule may be cause to consider the paper as not filed."

Respondent maintains that the present Petition for Review does not contain a sufficient written explanation why it was served by registered mail.

We do not think so. The Court held in Solar Entertainment v. Ricafort13 that the aforecited rule was mandatory, and that "only when personal service or filing is not practicable may resort to other modes be had, which must then be accompanied by a written explanation as to why personal service or filing was not practicable to begin with."

In this case, the Petition does state that it was served on the respective counsels of Sta. Ines and Cuenca "by registered mail in lieu of personal service due to limitations in time and distance."14 This explanation sufficiently shows that personal service was not practicable. In any event, we find no adequate reason to reject the contention of petitioner and thereby deprive it of the opportunity to fully argue its cause.

First Issue: Original Obligation Extinguished by Novation

An obligation may be extinguished by novation, pursuant to Article 1292 of the Civil Code, which reads as follows:

"ART. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other."

Novation of a contract is never presumed. It has been held that "[i]n the absence of an express agreement, novation takes place only when the old and the new obligations are incompatible on every point."15 Indeed, the following requisites must be established: (1) there is a previous valid obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is a valid new contract.16

Petitioner contends that there was no absolute incompatibility between the old and the new obligations, and that the latter did not extinguish the earlier one. It further argues that the 1989 Agreement did not change the original loan in respect to the parties involved or the obligations incurred. It adds that the terms of the 1989 Contract were "not more onerous."17 Since the original credit accomodation was not extinguished, it concludes that Cuenca is still liable under the Indemnity Agreement.

We reject these contentions. Clearly, the requisites of novation are present in this case. The 1989 Loan Agreement extinguished the obligation18 obtained under the 1980 credit accomodation. This is evident from its explicit provision to "liquidate" the principal and the interest of the earlier indebtedness, as the following shows:

"1.02. Purpose. The First Loan shall be applied to liquidate the principal portion of the Borrower’s present total outstanding Indebtedness to the Lender (the "Indebtedness") while the Second Loan shall be applied to liquidate the past due interest and penalty portion of the Indebtedness."19 (Italics supplied.)

The testimony of an officer20 of the bank that the proceeds of the 1989 Loan Agreement were used "to pay-off" the original indebtedness serves to strengthen this ruling.21

Furthermore, several incompatibilities between the 1989 Agreement and the 1980 original obligation demonstrate that the two cannot coexist. While the 1980 credit accommodation had stipulated that the amount of loan was not to exceed P8 million,22 the 1989 Agreement provided that the loan was P12.2 million. The periods for payment were also different.

Likewise, the later contract contained conditions, "positive covenants" and "negative covenants" not found in the earlier obligation. As an example of a positive covenant, Sta. Ines undertook "from time to time and upon request by the Lender, [to] perform such further acts and/or execute and deliver such additional documents and writings as may be necessary or proper to effectively carry out the provisions and purposes of this Loan Agreement."23 Likewise, SIMC agreed that it would not create any mortgage or encumbrance on any asset owned or hereafter acquired, nor would it participate in any merger or consolidation.24

Since the 1989 Loan Agreement had extinguished the original credit accommodation, the Indemnity Agreement, an accessory obligation, was necessarily extinguished also, pursuant to Article 1296 of the Civil Code, which provides:

"ART. 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent."

Alleged Extension

Petitioner insists that the 1989 Loan Agreement was a mere renewal or extension of the P8 million original accommodation; it was not a novation.25

This argument must be rejected. To begin with, the 1989 Loan Agreement expressly stipulated that its purpose was to "liquidate," not to renew or extend, the outstanding indebtedness. Moreover, respondent did not sign or consent to the 1989 Loan Agreement, which had allegedly extended the original P8 million credit facility. Hence, his obligation as a surety should be deemed extinguished, pursuant to Article 2079 of the Civil Code, which specifically states that "[a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. x x x." In an earlier case,26 the Court explained the rationale of this provision in this wise:

"The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the surety’s consent would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditor’s remedies against the principal debtor upon the maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period."

Binding Nature of the Credit Approval Memorandum

As noted earlier, the appellate court relied on the provisions of the Credit Approval Memorandum in holding that the credit accommodation was only for P8 million, and that it was for a period of one year ending on November 30, 1981. Petitioner objects to the appellate court’s reliance on that document, contending that it was not a binding agreement because it was not signed by the parties. It adds that it was merely for its internal use.

We disagree. It was petitioner itself which presented the said document to prove the accommodation. Attached to the Complaint as Annex A was a copy thereof "evidencing the accommodation."27 Moreover, in its Petition before this Court, it alluded to the Credit Approval Memorandum in this wise:

"4.1 On 10 November 1980, Sta. Ines Melale Corporation ("SIMC") was granted by the Bank a credit line in the aggregate amount of Eight Million Pesos (P8,000,000.00) to assist SIMC in meeting the additional capitalization requirements for its logging operations. For this purpose, the Bank issued a Credit Approval Memorandum dated 10 November 1980."

Clearly, respondent is estopped from denying the terms and conditions of the P8 million credit accommodation as contained in the very document it presented to the courts. Indeed, it cannot take advantage of that document by agreeing to be bound only by those portions that are favorable to it, while denying those that are disadvantageous.

Second Issue: Alleged Waiver of Consent

Pursuing another course, petitioner contends that Respondent Cuenca "impliedly gave his consent to any modification of the credit accommodation or otherwise waived his right to be notified of, or to give consent to, the same."28 Respondent’s consent or waiver thereof is allegedly found in the Indemnity Agreement, in which he held himself liable for the "credit accommodation including [its] substitutions, renewals, extensions, increases, amendments, conversions and revival." It explains that the novation of the original credit accommodation by the 1989 Loan Agreement is merely its "renewal," which "connotes cessation of an old contract and birth of another one x x x."29

At the outset, we should emphasize that an essential alteration in the terms of the Loan Agreement without the consent of the surety extinguishes the latter’s obligation. As the Court held in National Bank v. Veraguth,30 "[i]t is fundamental in the law of suretyship that any agreement between the creditor and the principal debtor which essentially varies the terms of the principal contract, without the consent of the surety, will release the surety from liability."

In this case, petitioner’s assertion - that respondent consented to the alterations in the credit accommodation -- finds no support in the text of the Indemnity Agreement, which is reproduced hereunder:

"Rodolfo M. Cuenca of legal age, with postal address c/o Sta. Ines Malale Forest Products Corp., Alco Bldg., 391 Buendia Avenue Ext., Makati Metro Manila for and in consideration of the credit accommodation in the total amount of eight million pesos (P8,000,000.00) granted by the SECURITY BANK AND TRUST COMPANY, a commercial bank duly organized and existing under and by virtue of the laws of the Philippine, 6778 Ayala Avenue, Makati, Metro Manila hereinafter referred to as the BANK in favor of STA. INES MELALE FOREST PRODUCTS CORP., x x x ---- hereinafter referred to as the CLIENT, with the stipulated interests and charges thereon, evidenced by that/those certain PROMISSORY NOTE[(S)], made, executed and delivered by the CLIENT in favor of the BANK hereby bind(s) himself/themselves jointly and severally with the CLIENT in favor of the BANK for the payment , upon demand and without benefit of excussion of whatever amount or amounts the CLIENT may be indebted to the BANK under and by virtue of aforesaid credit accommodation(s) including the substitutions, renewals, extensions, increases, amendment, conversions and revivals of the aforesaid credit accommodation(s), as well as of the amount or amounts of such other obligations that the CLIENT may owe the BANK, whether direct or indirect, principal or secondary, as appears in the accounts, books

and records of the BANK, plus interest and expenses arising from any agreement or agreements that may have heretofore been made, or may hereafter be executed by and between the parties thereto, including the substitutions, renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit accommodation(s), and further bind(s) himself/themselves with the CLIENT in favor of the BANK for the faithful compliance of all the terms and conditions contained in the aforesaid credit accommodation(s), all of which are incorporated herein and made part hereof by reference."

While respondent held himself liable for the credit accommodation or any modification thereof, such clause should be understood in the context of the P8 million limit and the November 30, 1981 term. It did not give the bank or Sta. Ines any license to modify the nature and scope of the original credit accommodation, without informing or getting the consent of respondent who was solidarily liable. Taking the bank’s submission to the extreme, respondent (or his successors) would be liable for loans even amounting to, say, P100 billion obtained 100 years after the expiration of the credit accommodation, on the ground that he consented to all alterations and extensions thereof.

Indeed, it has been held that a contract of surety "cannot extend to more than what is stipulated. It is strictly construed against the creditor, every doubt being resolved against enlarging the liability of the surety."31 Likewise, the Court has ruled that "it is a well-settled legal principle that if there is any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in favor of the surety x x x. Ambiguous contracts are construed against the party who caused the ambiguity."32 In the absence of an unequivocal provision that respondent waived his right to be notified of or to give consent to any alteration of the credit accommodation, we cannot sustain petitioner’s view that there was such a waiver.

It should also be observed that the Credit Approval Memorandum clearly shows that the bank did not have absolute authority to unilaterally change the terms of the loan accommodation. Indeed, it may do so only upon notice to the borrower, pursuant to this condition:

"5. The Bank reserves the right to amend any of the aforementioned terms and conditions upon written notice to the Borrower."33

We reject petitioner’s submission that only Sta. Ines as the borrower, not respondent, was entitled to be notified of any modification in the original loan accommodation.34 Following the bank’s reasoning, such modification would not be valid as to Sta. Ines if no notice were given; but would still be valid as to respondent to whom no notice need be given. The latter’s liability would thus be more burdensome than that of the former. Such untenable theory is contrary to the principle that a surety cannot assume an obligation more onerous than that of the principal.35

The present controversy must be distinguished from Philamgen v. Mutuc,36 in which the Court sustained a stipulation whereby the surety consented to be bound not only for the specified period, "but to any extension thereafter made, an extension x x x that could be had without his having to be notified."

In that case, the surety agreement contained this unequivocal stipulation: "It is hereby further agreed that in case of any extension of renewal of the bond, we equally bind ourselves to the Company under the same terms and conditions as herein provided without the necessity of executing another indemnity agreement for the purpose and that we hereby equally waive our right to be notified of any renewal or extension of the bond which may be granted under this indemnity agreement."

In the present case, there is no such express stipulation.1âwphi1 At most, the alleged basis of respondent’s waiver is vague and uncertain. It confers no clear authorization on the bank or Sta. Ines to modify or extend the original obligation without the consent of the surety or notice thereto.

Continuing Surety

Contending that the Indemnity Agreement was in the nature of a continuing surety, petitioner maintains that there was no need for respondent to execute another surety contract to secure the 1989 Loan Agreement.

This argument is incorrect. That the Indemnity Agreement is a continuing surety does not authorize the bank to extend the scope of the principal obligation inordinately.37 In Dino v. CA,38 the Court held that "a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof."

To repeat, in the present case, the Indemnity Agreement was subject to the two limitations of the credit accommodation: (1) that the obligation should not exceed P8 million, and (2) that the accommodation should expire not later than November 30, 1981. Hence, it was a continuing surety only in regard to loans obtained on or before the aforementioned expiry date and not exceeding the total of P8 million.

Accordingly, the surety of Cuenca secured only the first loan of P6.1 million obtained on November 26, 1991. It did not secure the subsequent loans, purportedly under the 1980 credit accommodation, that were obtained in 1986. Certainly, he could not have guaranteed the 1989 Loan Agreement, which was executed after November 30, 1981 and which exceeded the stipulated P8 million ceiling.

Petitioner, however, cites the Dino ruling in which the Court found the surety liable for the loan obtained after the payment of the original one, which was covered by a continuing surety agreement. At the risk of being repetitious, we hold that in Dino, the surety Agreement specifically provided that "each suretyship is a continuing one which shall remain in full force and effect until this bank is notified of its revocation." Since the bank had not been notified of such revocation, the surety was held liable even for the subsequent obligations of the principal borrower.

No similar provision is found in the present case. On the contrary, respondent’s liability was confined to the 1980 credit accommodation, the amount and the expiry date of which were set down in the Credit Approval Memorandum.

Special Nature of the JSS

It is a common banking practice to require the JSS ("joint and solidary signature") of a major stockholder or corporate officer, as an additional security for loans granted to corporations. There are at least two reasons for this. First, in case of default, the creditor’s recourse, which is normally limited to the corporate properties under the veil of separate corporate personality, would extend to the personal assets of the surety. Second, such surety would be compelled to ensure that the loan would be used for the purpose agreed upon, and that it would be paid by the corporation.

Following this practice, it was therefore logical and reasonable for the bank to have required the JSS of respondent, who was the chairman and president of Sta. Ines in 1980 when the credit accommodation was granted. There was no reason or logic, however, for the bank or Sta. Ines to assume that he would still agree to act as surety in the 1989 Loan Agreement, because at that time, he was no longer an officer or a stockholder of the debtor-corporation. Verily, he was not in a position then to ensure the payment of the obligation. Neither did he have any reason to bind himself further to a bigger and more onerous obligation.

Indeed, the stipulation in the 1989 Loan Agreement providing for the surety of respondent, without even informing him, smacks of negligence on the part of the bank and bad faith on that of the principal debtor. Since that Loan Agreement constituted a new indebtedness, the old loan having been already liquidated, the spirit of fair play should have impelled Sta. Ines to ask somebody else to act as a surety for the new loan.

In the same vein, a little prudence should have impelled the bank to insist on the JSS of one who was in a position to ensure the payment of the loan. Even a perfunctory attempt at credit investigation would have revealed that respondent was no longer connected with the corporation at the time. As it is, the bank is now relying on an unclear Indemnity Agreement in order to collect an obligation that could have been secured by a fairly obtained surety. For its defeat in this litigation, the bank has only itself to blame.

In sum, we hold that the 1989 Loan Agreement extinguished by novation the obligation under the 1980 P8 million credit accommodation. Hence, the Indemnity Agreement, which had been an accessory to the 1980 credit accommodation, was also extinguished. Furthermore, we reject petitioner’s submission that respondent waived his right to be notified of, or to give consent to, any modification or extension of the 1980 credit accommodation.

In this light, we find no more need to resolve the issue of whether the loan obtained before the expiry date of the credit accommodation has been paid.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

Footnotes

1 Written by Justice Jorge S. Imperial (Division chairman), with the concurrence of Justices Hector L. Hofileña and Omar U. Amin (members).

2 CA Decision, pp. 32-33; rollo, pp. 52-53.

3 Rollo, p. 56. Penned by Justice Amin with the concurrence of Justices Hofilena and Marina L. Buzon.

4 Written by Judge Eriberto U. Rosario Jr. (now a member of the Court of Appeals)

5 CA Decision, pp. 4-9; rollo, pp. 24-29.

6 According to the RTC, Sta. Ines’ Timber License Agreement, which was supposed to expire on July 15, 1998, was suspended by the Department of Environment and Natural Resources on December 6, 1989 and eventually cancelled on May 4, 1990. (RTC Decision, p. 3; rollo, p. 12.)

7 This case was deemed submitted for decision on May 8, 2000, upon receipt by this Court of respondent’s Reply Memorandum signed by Attys. Elvira C. Oquendo and Vissia Concepcion C. Calderon of Carpio Villaraza & Cruz. Filed earlier on March 3, 2000, was petitioner’s Memorandum, signed by Attys. Menardo I. Guevarra, Adrian Ferdinand S. Sugay and Ma. Jazmin B. Banal of De Borja Medialdea Bello Guevarra & Gerodias.

8 Petitioner’s Memorandum, pp. 9-10; rollo, pp. 320-321. All in upper case in the original.

9 §2, Rule 37 of the Rules of Court, provides that "[a] pro forma motion for new trial or reconsideration shall not toll the reglementary period of appeal."

10 Respondent’s Memorandum, pp. 114-115; rollo, pp. 480-481.

11 See Guerra Enterprises v. CFI, 32 SCRA 314, April 17, 1970.

12 251 SCRA 87, December 8, 1995, per Feliciano, J.

13 293 SCRA 661, August 5, 1998, per Davide, J. (now CJ).

14 Petition for Review, p. 29; rollo, p. 92.

15 Lim Tay v. CA, 293 SCRA 364, August 5, 1998, per Panganiban, J.

16 Cruz v. CA, 293 SCRA 239, July 27, 1998; citing Vitug, Compendium of Civil Law and Jurisprudence, 1993 ed., p. 528.

17 Petitioner’s Memorandum, pp. 25-26; rollo, pp. 336-337.

18 As will be shown later, only one loan was obtained before the expiry date of the 1980 credit accommodation.

19 Rollo, p. 125.

20 Carmen Comia, former manager of the bank’s Loans and Discounts Department.

21 Respondent’s Memorandum, pp. 67-68; rollo, pp. 433-434; citing TSN, June 17, 1994, pp. 21, 90, 95-96.

22 Credit Approval Memorandum, p. 1; rollo, p. 109.

23 1989 Loan Agreement, p. 4; rollo, p. 128.

24 Ibid.

25 Petitioner’s Memorandum, p. 28; rollo, p. 339.

26 Cochingyan v. R & B Surety and Insurance Co., 151 SCRA 339, 352, June 30, 1987, per Feliciano, J.

27 Complaint, p. 2; rollo, p. 135.

28 Petitioner’s Memorandum, p. 19; rollo, p. 330.

29 Petitioner’s Memorandum, p. 29; rollo, p. 340.

30 50 Phil. 253, 257, April 1, 1927, per Villamor, J.

31 Aguenza v. CA, 271 SCRA 1, April 7, 1997, per Hermosisima, J. See also Zenith Insurance v. CA, 119 SCRA 485, December 29, 1982.

32 Garcia v. CA, 258 SCRA 446, 456, July 5, 1996, per Melo, J.

33 Credit Approval Memorandum, p. 2; rollo, p. 110.

34 Petitioner’s Memorandum, pp. 24-25; rollo, pp. 335-336.

35 Article 2054, Civil Code.

36 61 SCRA 22, 26, November 13, 1974, per Fernando, J.

37 In Atok Finance Corp. v. CA, 222 SCRA 232, 245, May 18, 1993, per Feliciano, J., the Court explained the nature of a continuing surety in this wise:

"Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor."

38 216 SCRA 9, November 26, 1992, per Davide, J. (now CJ). See also Fortune Motors v. CA, 267 SCRA 653, February 7, 1997.

THIRD DIVISION

G.R. No. 112191 February 7, 1997

FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L. RODRIGUEZA, petitioners, vs. THE HONORABLE COURT OF APPEALS and FILINVEST CREDIT CORPORATION, respondents.

PANGANIBAN, J.:

To fund their acquisition of new vehicles (which are later retailed or resold to the general public), car dealers normally enter into wholesale automotive financing schemes whereby vehicles are delivered by the manufacturer or assembler on the strength of trust receipts or drafts executed by the car dealers, which are backed up by sureties. These trust receipts or drafts are then assigned and/or discounted by the manufacturer to/with financing companies, which assume payment of the vehicles but with the corresponding right to collect such payment from the car dealers and/or the sureties. In this manner, car dealers are able to secure delivery of their stock-in-trade without having to pay cash therefor; manufacturers get paid without any receivables/collection problems; and financing companies earn their margins with the assurance of payment not only from the dealers but also from the sureties. When the vehicles are eventually resold, the car dealers are supposed to pay the financing companies — and the business goes merrily on. However, in the event the car dealer defaults in paying the financing company, may the surety escape liability on the legal ground that the obligations were incurred subsequent to the execution of the surety contract?

This is the principal legal question raised in this petition for review (under Rule 45 of the Rules of Court) seeking to set aside the Decision 1 of the Court of Appeals (Tenth Division) 2 promulgated on September 30, 1993 in CA G.R. CV No. 09136 which affirmed in toto the decision 3 of the Regional Trial Court of Manila — Branch 11 4 in Civil Case No. 83-21994, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, by ordering the latter to pay, jointly and severally, the plaintiff the following amounts:

1. The sum of P1,348,033.89, plus interest thereon at the rate of P922.53 per day starting April 1, 1985 until the said principal amount is fully paid;

2. The amount of P50,000.00 as attorney's fees and another P50,000.00 as liquidated damages; and

3. That the defendants, although spared from paying exemplary damages, are further ordered to pay, in solidum, the costs of this suit.

Plaintiff therein was the financing company and the defendants the car dealer and its sureties.

The Facts

On or about August 4, 1981, Joseph L. G. Chua and Petitioner Edgar Lee Rodrigueza ("Petitioner Rodrigueza") each executed an undated "Surety Undertaking" 5 whereunder they "absolutely, unconditionally and solidarily guarantee(d)" to Respondent Filinvest Credit Corporation ("Respondent

Filinvest") and its affiliated and subsidiary companies the "full, faithful and prompt performance, payment and discharge of any and all obligations and agreements" of Fortune Motors (Phils.) Corporation ("Petitioner Fortune") "under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise)" of the latter with Filinvest and its affiliated and subsidiary companies "now in force or hereafter made."

The following year or on April 6 5, 1982, Petitioner Fortune, Respondent Filinvest and Canlubang Automotive Resources Corporation ("CARCO") entered into an "Automotive Wholesale Financing Agreement" 7 ("Financing Agreement") under which CARCO will deliver motor vehicles to Fortune for the purpose of resale in the latter's ordinary course of business; Fortune, in turn, will execute trust receipts over said vehicles and accept drafts drawn by CARCO, which will discount the same together with the trust receipts and invoices and assign them in favor of Respondent Filinvest, which will pay the motor vehicles for Fortune. Under the same agreement, Petitioner Fortune, as trustee of the motor vehicles, was to report and remit proceeds of any sale for cash or on terms to Respondent Filinvest immediately without necessity of demand.

Subsequently, several motor vehicles were delivered by CARCO to Fortune, and trust receipts covered by demand drafts and deeds of assignment were executed in favor of Respondent Filinvest. However, when the demand drafts matured, not all the proceeds of the vehicles which Petitioner Fortune had sold were remitted to Respondent Filinvest. Fortune likewise failed to turn over to Filinvest several unsold motor vehicles covered by the trust receipts. Thus, Filinvest through counsel, sent a demand letter 8 dated December 12, 1983 to Fortune for the payment of its unsettled account in the amount of P1,302,811.00. Filinvest sent similar demand letters 9 separately to Chua and Rodrigueza as sureties. Despite said demands, the amount was not paid. Hence, Filinvest filed in the Regional Trial Court of Manila a complaint for a sum of money with preliminary attachment against Fortune, Chua and Rodrigueza.

In an order dated September 26, 1984, the trial court declared that there was no factual issue to be resolved except for the correct balance of defendants' account with Filinvest as agreed upon by the parties during pre-trial. 10 Subsequently, Filinvest presented testimonial and documentary evidence. Defendants (petitioners herein), instead of presenting their evidence, filed a "Motion for Judgment on Demurrer to Evidence" 11 anchored principally on the ground that the Surety Undertakings were null and void because, at the time they were executed, there was no principal obligation existing. The trial court denied the motion and scheduled the case for reception of defendants' evidence. On two scheduled dates, however, defendants failed to present their evidence, prompting the court to deem them to have waived their right to present evidence. On December 17, 1985, the trial court rendered its decision earlier cited ordering Fortune, Chua and Rodrigueza to pay Filinvest, jointly and severally, the sum of P1,348,033.83 plus interest at the rate of P922.53 per day from April 1, 1985 until fully paid, P50,000.00 in attorney's fees, another P50,000.00 in liquidated damages and costs of suit.

As earlier mentioned, their appeal was dismissed by the Court of Appeals (Tenth Division) which affirmed in toto the trial court's decision. Hence, this recourse.

Issues

Petitioners assign the following errors in the appealed Decision:

1. that the Court of Appeals erred in declaring that surety can exist even if there was no existing indebtedness at the time of its execution.

2. that the Court of Appeals erred when it declared that there was no novation.

3. that the Court of Appeals erred when it declared, that the evidence was sufficient to prove the amount of the claim. 12

Petitioners argue that future debts which can be guaranteed under Article 2053 of the Civil Code refer only to "debts existing at the time of the constitution of the guaranty but the amount thereof is unknown," and that a guaranty being an accessory obligation cannot exist without a principal obligation. Petitioners claim that the surety undertakings cannot be made to cover the Financing Agreement executed by Fortune, Filinvest and CARCO since the latter contract was not yet in existence when said surety contracts were entered into.

Petitioners further aver that the Financing Agreement would effect a novation of the surety contracts since it changed the principal terms of the surety contracts and imposed additional and onerous obligations upon the sureties.

Lastly, petitioners claim that no accounting of the payments made by Petitioner Fortune to Respondent Filinvest was done by the latter. Hence, there could be no way by which the sureties can ascertain the correct amount of the balance, if any.

Respondent Filinvest, on the other hand, imputes "estoppel (by pleadings or by judicial admission)" upon petitioners when in their "Motion to Discharge Attachment," they admitted their liability as sureties thus:

Defendants Chua and Rodrigueza could not have perpetrated fraud because they are only sureties of defendant Fortune Motors . . .;

. . . The defendants (referring to Rodrigueza and Chua) are not parties to the trust receipts agreements since they are ONLY sureties. . . . 13

In rejecting the arguments of petitioners and in holding that they (Fortune and the sureties) were jointly and solidarily liable to Filinvest, the trial court declared:

As to the alleged non-existence of a principal obligation when the surety agreement was signed, it is enought (sic) to state that a guaranty may also be given as security for future debts, the amount of which is not known (Art. 2053, New Civil Code). In the case of NARIC vs. Fojas, L-11517, promulgated April 10, 1958, it was ruled that a bond posted to secure additional credit that the principal debtor had applied for, is not void just because the said bond was signed and filed before the additional credit was extended by the creditor. The obligation of the sureties on future obligations of Fortune is apparent from a proviso under the Surety Undertakings marked Exhs. B and C that the sureties agree with the plaintiff as follows:

In consideration of your entering into an arrangement with the party (Fortune) named above, . . . by which you may purchase or otherwise require from, and or enter into with obligor . . . trust receipt . . . arising out of wholesale and/or retail transactions by or with obligor, the undersigned . . . absolutely, unconditionally, and solidarily guarantee to you . . . the full, faithful and prompt performance, payment and discharge of any and all obligations . . . of obligor under and with respect to any and all such contracts and any and all agreements (whether by way of guaranty or otherwise) of obligor with you . . . now in force or hereafter made. (Emphasis supplied).

On the matter of novation, this has already been ruled upon when this Court denied defendants' Motion to dismiss on the argument that what happened was really an assignment of credit, and not a novation of contract, which does not

require the consent of the debtors. The fact of knowledge is enough. Besides, as explained by the plaintiff, the mother or the principal contract was the Financing Agreement, whereas the trust receipts, the sight drafts, as well as the Deeds of assignment were only collaterals or accidental modifications which do not extinguish the original contract by way of novation. This proposition holds true even if the subsequent agreement would provide for more onerous terms for, at any rate, it is the principal or mother contract that is to be followed. When the changes refer to secondary agreements and not to the object or principal conditions of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation (Tolentino, Commentaries on Jurisprudence of the Civil Code of the Philippines, 1973 Edition, Vol. IV, page 367; cited in plaintiff's Memorandum of September 6, 1985, p. 3).

On the evidence adduced by the plaintiff to show the status of defendants' accounts, which took into consideration payments by defendants made after the filing of the case, it is enough to state that a statement was carefully prepared showing a balance of the principal obligation plus interest totalling P1,348,033.89 as of March 31, 1985 (Exh. M). This accounting has not been traversed nor contradicted by defendants although they had the opportunity to do so. Likewise, there was absolute silence on the part of defendants as to the correctness of the previous statement of account made as of December 16, 1983 (referring to Exh. I), but more important, however, is that defendants received demand letters from the plaintiff stating that, as of December 1983 (Exhs. J, K and L), this total amount of obligation was P1,302,811,00, and yet defendants were not heard to have responded to said demand letters, let alone have taken any exception thereto. There is such a thing as evidence by silence (Sec. 23, Rule 130, Revised Rules of Court). 14

The Court of Appeals, affirming the above decision of the trial court, further explained:

. . . In the case at bar, the surety undertakings in question unequivocally state that Chua and Rodrigueza "absolutely, unconditionally and solidarily guarantee" to Filinvest the "full, faithful and prompt performance, payment and discharge of any and all obligations and agreements" of Fortune "under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise)" of the latter with Filinvest in force at the time of the execution of the "Surety Undertakings" or made thereafter. Indeed, if Chua and Rodrigueza did not intend to guarantee all of Fortune's future obligation with Filinvest, then they should have expressly stated in their respective surety undertakings exactly what said surety agreements guaranteed or to which obligations of Fortune the same were intended to apply. For another, if Chua and Rodrigueza truly believed that the surety undertakings they executed should not cover Fortune's obligations under the AWFA, then why did they not inform Filinvest of such fact when the latter sent them the aforementioned demand letters (Exhs. 'K' and 'L') urging them to pay Fortune's liability under the AWFA. Instead, quite uncharacteristic of persons who have just been asked to pay an obligation to which they believe they are not liable, Chua and Rodrigueza elected or chose not to answer said demand letters. Then, too, considering that appellant Chua is the corporate president of Fortune and a signatory to the AWFA, he should have simply had it stated in the AWFA or in a separate document that the "Surety Undertakings" do not cover Fortune's obligations in the aforementioned AWFA, trust receipts or demand drafts.

Appellants argue that it was unfair for Filinvest to have executed the AWFA only after two (2) years from the date of the "Surety undertakings" because Chua and Rodrigueza were thereby made to wait for said number of years just to know what kind of obligation they had to guarantee.

The argument cannot hold water. In the first place, the "Surety Undertakings" did not provide that after a period of time the same will lose its force and effect. In the second place, if Chua and Rodrigueza did not want to guarantee the obligations of Fortune under the AWFA, trust receipts and demand drafts, then why did they not simply terminate the 'Surety Undertakings' by serving ten (10) days written notice to Filinvest as expressly allowed in said surety agreements. It is highly plausible that the reason why the 'Surety Undertakings' were not terminated was because the execution of the same was part of the consideration why Filinvest and CARCO agreed to enter into the AWFA with Fortune. 15

The Court's Ruling

We affirm the decisions of the trial and appellate courts.

First Issue: Surety May Secure Future Obligations

The case at bench falls on all fours with Atok Finance Corporation vs. Court of Appeals 16 which reiterated our rulings in National Rice and Corn Corporation (NARIC) vs. Court of Appeals 17 and Rizal Commercial Banking Corporation vs. Arro. 18 In Atok Finance, Sanyu Chemical as principal, and Sanyu Trading along with individual private stockholders of Sanyu Chemical, namely, spouses Daniel and Nenita Arrieta, Leopoldo Halili and Pablito Bermundo, as sureties, executed a continuing suretyship agreement in favor of Atok Finance as creditor. Under the agreement, Sanyu Trading and the individual private stockholders and officers of Sanyu Chemical "jointly and severally unconditionally guarantee(d) to Atok Finance Corporation (hereinafter called Creditor), the full, faithful and prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] . . . to the Creditor." Subsequently, Sanyu Chemical assigned its trade receivables outstanding with a total face value of P125,871.00 to Atok Finance in consideration of receipt of the amount of P105,000.00. Later, additional trade receivables with a total face value of P100,378.45 were also assigned. Due to nonpayment upon maturity, Atok

Finance commenced action against Sanyu Chemical, the Arrieta spouses, Bermundo and Halili to collect the sum of P120,240.00 plus penalty charges due and payable. The individual private respondents contended that the continuing suretyship agreement, being an accessory contract, was null and void since, at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance. The trial court rendered a decision in favor of Atok Finance and ordered defendants to pay, jointly and severally, aforesaid amount to Atok.

On appeal, the then Intermediate Appellate Court reversed the trial court and dismissed the complaint on the ground that there was "no proof that when the suretyship agreement was entered into, there was a pre-existing obligation which served as the principal obligation between the parties. Furthermore, the 'future debts' alluded to in Article 2053 refer to debts already existing at the time of the constitution of the agreement but the amount thereof is unknown, unlike in the case at bar where the obligation was acquired two years after the agreement."

We ruled then that the appellate court was in serious error. The distinction which said court sought to make with respect to Article 2053 (that "future debts" referred to therein relate to "debts already existing at the time of the constitution of the agreement but the amount [of which] is unknown" and not to debts not yet incurred and existing at that time) has previously been rejected, citing the RCBC and NARIC cases. We further said:

. . . Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent.

Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor.

In Dino vs. Court of Appeals, 19 we again had occasion to discourse on continuing guaranty/suretyship thus:

. . . A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract, of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period; especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is to secure advances to be made 'from time to time' the guaranty will be construed to be a continuing one.

In other jurisdictions, it has been held that the use of particular words and expressions such as payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any time," or "on such time" that the principal debtor may require, have been construed to indicate a continuing guaranty. 20

We have no reason to depart from our uniform ruling in the above-cited cases. The facts of the instant case bring us to no other conclusion than that the surety undertakings executed by Chua and Rodrigueza were continuing guaranties or suretyships covering all future obligations of Fortune Motors (Phils.) Corporation with Filinvest Credit Corporation. This is evident from the written contract itself which contained the words "absolutely, unconditionally and solidarily guarantee(d)" to Respondent Filinvest and its affiliated and subsidiary companies the "full, faithful and prompt performance, payment and discharge of any and all obligations and agreements" of Petitioner Fortune "under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise)" of the latter with Filinvest and its affiliated and subsidiary companies "now in force or hereafter made."

Moreover, Petitioner Rodrigueza and Joseph Chua knew exactly where they stood at the time they executed their respective surety undertakings in favor of Fortune. As stated in the petition:

Before the execution of the new agreement, Edgar L. Rodrigueza and Joseph Chua were required to sign blank surety agreements, without informing them how much amount they would be liable as sureties. However, because of the desire of petitioners, Chua and Rodrigueza to have the cars delivered to petitioner. Fortune, they signed the blank promissory notes. 21 (emphasis supplied)

It is obvious from the foregoing that Rodrigueza and Chua were fully aware of the business of Fortune, an automobile dealer; Chua being the corporate president of Fortune and even a signatory to the Financial Agreement with Filinvest. 22 Both sureties knew the purpose of the surety undertaking which they signed and they must have had an estimate of the amount involved at that time. Their undertaking by way of the surety contracts was critical in enabling Fortune to acquire credit facility from Filinvest and to procure cars for resale, which was the business of Fortune. Respondent Filinvest, for its part, relied on the surety contracts when it agreed to be the assignee of CARCO with respect to the liabilities of Fortune with CARCO. After benefiting therefrom, petitioners cannot now impugn the validity of the surety contracts on the ground that there was no preexisting obligation to be guaranteed at the time said surety contracts were executed. They cannot resort to equity to escape liability for their voluntary acts, and to heap injustice to Filinvest, which relied on their signed word.

This is a clear case of estoppel by deed. By the acts of petitioners, Filinvest was made to believe that it can collect from Chua and/or Rodrigueza in case of Fortune's default. Filinvest relied upon the surety contracts when it demanded payment from the sureties of the unsettled liabilities of Fortune. A refusal to enforce said surety contracts would virtually sanction the perpetration of fraud or injustice. 23

Second Issue: No Novation

Neither do we find merit in the averment of petitioners that the Financing Agreement contained onerous obligations not contemplated in the surety undertakings, thus changing the principal terms thereof and effecting a novation.

We have ruled previously that there are only two ways to effect novation and thereby extinguish an obligation. First, novation must be explicitly stated and declared in unequivocal terms. Novation is never presumed. Second, the old and new obligations must be incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. 24 Novation must be established either by the express terms of the new agreement or by the acts of the parties clearly demonstrating the intent to dissolve the old obligation as a consideration for the emergence of the new one. The will to novate, whether totally or partially, must appear by express agreement of the parties, or by their acts which are too clear and unequivocal to be mistaken. 25

Under the surety undertakings however, the obligation of the sureties referred to absolutely, unconditionally and solidarily guaranteeing the full, faithful and prompt performance, payment and discharge of all obligations of Petitioner Fortune with respect to any and all contracts and other agreements with Respondent Filinvest in force at that time or thereafter made. There were to qualifications, conditions or reservations stated therein as to the extent of the suretyship. The Financing Agreement, on the other hand, merely detailed the obligations of Fortune to CARCO (succeeded by Filinvest as assignee). The allegation of novation by petitioners is, therefore, misplaced. There is no incompatibility of obligations to speak of in the two contracts. They can stand together without conflict.

Furthermore, the parties have not performed any explicit and unequivocal act to manifest their agreement or intention to novate their contract. Neither did the sureties object to the Financing Agreement nor try to avoid liability thereunder at the time of its execution. As aptly discussed by the Court of Appeals:

. . . For another, if Chua and Rodrigueza truly believed that the surety undertakings they executed should not cover Fortune's obligations under the

AWFA (Financing Agreement), then why did they not inform Filinvest of such fact when the latter sent them the aforementioned demand letters (Exhs. "K" and "L") urging them to pay Fortune's liability under the AWFA. Instead, quite uncharacteristic of persons who have just been asked to pay an obligation to which they are not liable, Chua and Rodrigueza elected or chose not to answer said demand letters. Then, too, considering that appellant Chua is the corporate president of Fortune and a signatory to the AWFA, he should have simply had it stated in the AWFA or in a separate document that the 'Surety Undertakings' do not cover Fortune's obligations in the aforementioned AWFA, trust receipts or demand drafts. 26

Third Issue: Amount of Claim Substantiated

The contest on the correct amount of the liability of petitioners is a purely factual issue. It is an oft repeated maxim that the jurisdiction of this Court in cases brought before it from the Court of Appeals under Rule 45 of the Rules of Court is limited to reviewing or revising errors of law. It is not the function of this Court to analyze or weigh evidence all over again unless there is a showing that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute serious abuse of discretion. Factual findings of the Court of Appeals are conclusive on the parties and carry even more weight when said court affirms the factual findings of the trial court. 27

In the case at bar, the findings of the trial court and the Court of Appeals with respect to the assigned error are based on substantial evidence which were not refuted with contrary proof by petitioners. Hence, there is no necessity to depart from the above judicial dictum.

WHEREFORE, premises considered, the petition is DENIED and the assailed Decision of the Court of Appeals concurring with the decision of the trial court is hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

Melo and Francisco, JJ., concur.

Narvasa, C.J. and Davide, Jr., JJ., concur.

Footnotes

1 Rollo, pp. 24-32.

2 Composed of J. Cancio C. Garcia, ponente; JJ. Antonio M. Martinez (division chairman) and Ramon U. Mabutas, Jr., concurring.

3 Records, pp. 262-269.

4 Presided by Judge Rosalio A. De Leon.

5 Acknowledged before a notary public on August 4, 1981; records, pp. 187 & 188.

6 The assailed Decision states "August" but the date appearing in the Agreement is April 5, 1982.

7 Records, pp. 178-186.

8 Records, p. 211.

9 Records, pp. 213 & 215.

10 Records, p. 146.

11 Records, pp. 234-242.

12 Rollo, p. 12.

13 Respondent's Comment, p. 11; rollo, p. 48.

14 RTC Decision, supra note 3 at p. 2, pp. 6-8.

15 Assailed Decision, supra note 1 at p. 2, pp. 6-8.

16 222 SCRA 232, May 18, 1993.

17 103 Phil. 1131 (1958).

18 115 SCRA 777, July 30, 1982.

19 216 SCRA 9, November 26, 1992.

20 Ibid, citing 38 C.J.S. 1142, 1206, and 1209.

21 Petition, p. 4; rollo, p. 11.

22 Decision of the Court of Appeals, supra note 1 at p. 2, p. 7.

23 Komatsu Industries (Phil.), Inc. vs. Court of Appeals, 249 SCRA 361, October 18, 1995.

24 Nyco Sales Corporation vs. BA Finance Corporation, 200 SCRA 637, August 16, 1991, citing Mondragon vs. Intermediate Appellate Court, 184 SCRA 348, April 17, 1990, and Cañeda, Jr. vs. Court of Appeals, 181 SCRA 762, February 5, 1990.

25 Broadway Centrum vs. Tropical Hut, 224 SCRA 302, July 5, 1993; Ajax Marketing vs. Court of Appeals, 248 SCRA 222, September 14, 1995.

26 Supra note 22.

27 Meneses vs. Court of Appeals, 246 SCRA 163, July 14, 1995; Heirs of Jose Olviga vs. Court of Appeals, 227 SCRA 330, October 21, 1993; Pantranco vs. Court of Appeals, 224 SCRA 477, July 5, 1993.

SECOND DIVISION

G.R. No. 142838 August 9, 2001

ABELARDO B. LICAROS, petitioner, vs. ANTONIO P. GATMAITAN, respondent.

GONZAGA-REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court. The petition seeks to reverse and set aside the Decision1 dated February 10, 2000 of the Court of Appeals and its Resolution2 dated April 7, 2000 denying petitioner's Motion for Reconsideration thereto. The appellate court decision reversed the Decision3 dated November 11, 1997 of the Regional Trial Court of Makati, Branch 145 in Civil Case No. 96-1211.

The facts of the case, as stated in the Decision of the Court o Appeals dated February 10, 2000, are as follows:

"The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity), is a private bank registered and organized to do business under the laws of the Republic of Vanuatu but not in the Philippines. Its business consists primarily in receiving fund placements by way of deposits from institutions and individuals investors from different parts of the world and thereafter investing such deposits in money market placements and potentially profitable capital ventures in Hongkong, Europe and the United States for the purpose of maximizing the returns on those investments.

Enticed by the lucrative prospects of doing business with Anglo-Asean, Abelardo Licaros, a Filipino businessman, decided to make a fund placement with said bank sometime in the 1980's. As it turned out, the grim outcome of Licaros' foray in overseas fund investment was not exactly what he envisioned it to be. More particularly, Licaros, after having invested in Anglo-Asean, encountered tremendous and unexplained difficulties in retrieving, not only the interest or profits, but even the very investments he had put in Anglo-Asean.1âwphi1.nêt

Confronted with the dire prospect of not getting back any of his investments, Licaros then decide to seek the counsel of Antonio P. Gatmaitan, a reputable banker and investment manager who had been extending managerial, financial and investment consultancy services to various firms and corporations both here and abroad. To Licaros' relief, Gatmaitan was only too willing enough to help. Gatmaitan voluntarily offered to assume the payment of Anglo-Asean's indebtedness to Licaros subject to certain terms and conditions. In order to effectuate and formalize the parties' respective commitments, the two executed a notarized MEMORANDUM OF AGREEMENT on July 29, 1988 (Exh. "B"); also Exhibit "1"), the full text of which reads:

Memorandum of Agreement

KNOW ALL MEN BY THESE PRESENTS:

This MEMORANDUM OF AGREEMENT made and executed this 29th day of July 1988, at Makati by and between:

ABELARDO B. LICAROS, Filipino, of legal age and holding office at Concepcion Building, Intramuros, Manila hereinafter referred to as THE PARTY OF THE FIRST PART,

and

ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7 Mangyan St., La vista, hereinafter referred to as the PARTY OF THE SECOND PART,

WITNESSETH THAT:

WHEREAS, ANGLO-ASEAN BANK & TRUST, a company incorporated by the Republic of Vanuatu, hereinafter referred to as the OFFSHORE BANK, is indebted to the PARTY OF THE FIRST PART in the amount of US dollars; ONE HUNDRED FIFTY THOUSAND ONLY (US$150,000) which debt is now due and demandable.

WHEREAS, the PARTY OF THE FIRST PART has encountered difficulties in securing full settlement of the said indebtedness from the OFFSHORE BANK and has sought a business arrangement with the PARTY OF THE SECOND PART regarding his claims;

WHEREAS, the PARTY OF THE SECOND PART, with his own resources and due to his association with the OFFSHORE BANK, has offered to the PARTY OF THE FIRST PART to assume the payment of the aforesaid indebtedness, upon certain terms and conditions, which offer, the PARTY OF THE FIRST PART has accepted;

WHREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual prestations which they now record herein with the express conformity of the third parties concerned;

NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants stipulated herein, the PARTY OF THE FIRST PART and the PARTY OF THE SECOND PART have agreed, as they do hereby agree, as follows:

1. The PARTY OF THE SECOND PART hereby undertakes to pay the PARTY OF THE FIRST PART the amount of US DOLLARS ONE HOUNDRED FIFTY THOUSAND (US$150,000) payable in Philippine Currency at the fixed exchange rate of Philippine Pesos 21 to US$1 without interest on or before July 15, 1993.

For this purpose, the PARTY OF THE SECOND PART shall execute and deliver a non negotiable promissory note, bearing the aforesaid material consideration in favor of the PARTY OF THE FIRST PART upon execution of this MEMORANDUM OF AGREEMENT, which promissory note shall form part as ANNEX A hereof.

2. For and in consideration of the obligation of the PARTY OF THE SECOND PART, the PARTY OF THE FIRST does hereby;

a. Sell, assign, transfer and set over unto the PARTY OF THE SECOND PART that certain debt now due and owing to the PARTY OF THE FIRST PART by the OFFSHORE BANK, to the amount of US Dollars One Hundred Fifty Thousand plus interest due and accruing thereon;

b. Grant the PART OF THE SECOND PART the full power and authority, for his own use and benefit, but at his own cost and expense, to demand, collect, receive, compound, compromise and give acquittance for the same or any part thereof, and in the name of the PARTY OF THE FIRST PART, to prosecute, and withdraw any suit or proceedings therefor;

c. Agree and stipulate that the debt assigned herein is justly owing and due to the PARTY OF THE FIRST PART from the said OFFSHORE BANK, and that the PARTY OF THE FIRST PART has not done and will not cause anything to be done to diminish or

discharge said debt, or to delay or prevent the PARTY OF THE SECOND PART from collecting the same; and;

d. At the request of the PARTY OF SECOND PART and the latter's own cost and expense, to execute and do all such further acts and deeds as shall be reasonably necessary for proving said debt and to more effectually enable the PARTY OF THE SECOND PART to recover the same in accordance with the true intent and meaning of the arrangements herein.

IN WITNESS WHEREOF, the parties have caused this MEMORANDUM OF AGREEMENT to be signed on the date and place first written above.

Sgd. Sgd.

ABELARDO B. LICAROS ANTONIO P. GATMAITAN

PARTY OF THE FIRST PART PARTY OF THE FIRST ART

WITH OUR CONFORME:

ANGLO-ASEAN BANK &amp; TRUST

BY: (Unsigned)

SIGNED IN THE PRESENCE OF:

Sgd. (Illegible)

________________________________ ________________________________

Conformably with his undertaking under paragraph 1 of the aforequoted agreement, Gatmaitan executed in favor of Licaros a NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF CASH DIVIDENDS (Exhs. "A"; Also Exh. "2"), which promissory note, appended as Annex "A" to the same Memorandum of Agreement, states in full, thus

"NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF CASH DIVIDENDS

This promissory note is Annex A of the Memorandum of Agreement executed between Abelardo B. Licaros and Antonio P. Gatmaitan, on ______ 1988 at Makati, Philippines and is an integral part of said Memorandum of Agreement.

P3,150.00.

On or before July 15, 1993, I promise to pay to Abelardo B. Licaros the sum of Philippine Pesos 3,150,000 (P3,150,000) without interest as material consideration for the full settlement of his money claims from ANGLO-ASEAN BANK, referred to in the Memorandum of Agreement as the 'OFFSHORE BANK".

As security for the payment of this of Promissory Note. I hereby ASSIGN, CEDE and TRANSFER, Seventy Percent (70%) of ALL CASH DIVIDENDS, that may be due or owing to me as the registered owner of __________________ (______________) shares of stock in the Prudential Life Realty, Inc.

This assignment shall likewise include SEVENTY PERCENT (70%) of cash dividends that may be declared by Prudential Life Realty, Inc. and due or owing to Prudential Life Plan, Inc., of which I am a stockholder, to the extent of or in proportion to my aforesaid shareholding in Prudential Life Plan, Inc, the latter being the holding company of Prudential Life Realty, Inc.

In the event that I decide to sell or transfer my aforesaid shares in either or both the Prudential Life Plan, Inc. or Prudential Life Realty, Inc. and the Promissory Note remains unpaid or outstanding, I hereby give Mr. Abelardo B. Licaros the first option to buy the said shares.

Manila, Philippines

July ______, 1988

(SGD.)

ANTONIO P. GATMAITAN 7 Mangyan St., La Vista QC

SIGNED IN THE PRESENCE OF: (SGD.)

______________________________ ______________________________ Francisco A. Alba President, Prudential Life Plan, Inc."

Thereafter, Gatmaitan presented to Anglo-Asean the Memorandum of Agreement earlier executed by him and Licaros for the purpose of collecting the latter's placement thereat of U.S. $150,000.00. Albeit the officers of Anglo-Asean allegedly committed themselves to "look into [this matter]", no formal response was ever made by said bank to either Licaros or Gatmaitan. To date, Anglo-Asean has not acted on Gatmaitan's monetary claims.

Evidently, because of his inability to collect from Anglo-Asean, Gatmaitan did not bother anymore to make good his promise to pay Licaros the amount stated in his promissory note (Exh. "A"; also Exh. 2"). Licaros, however, thought differently. He felt that he had a right to collect on the basis of the promissory note regardless of the outcome of Gatmaitan's recovery efforts. Thus, in July, 1996, Licaros, thru counsel, addressed successive demand letters to Gatmaitan (Exhs. "C" and "D"), demanding payment of the later's obligations under the promissory note. Gatmaitan, however, did not accede to these demands.

Hence, on August 1, 1996, in the Regional Trial Court at Makati, Licaros filed the complaint in this case. In his complaint, docketed in the court below as Civil case No. 96-1211, Licaros prayed for a judgment ordering Gatmaitan to pay him the following:

'a) Principal Obligation in the amount of Three Million Five Hundred Thousand Pesos (P3,500,000.00);

b) Legal interest thereon at the rate of six (6%) percent per annum from July 16, 1993 when the amount became due until the obligation is fully paid;

b) Twenty percent (20%) of the amount due as reasonable attorney's fees;

d) Costs of the suit.'"4

After trial on the merits, the court a quo rendered judgment in favor of petitioner Licaros and found respondent Gatmaitan liable under the Memorandum of Agreement and Promissory Note for P3,150,000.00 plus 12% interest per annum from July 16, 1993 until the amount is fully paid. Respondent was likewise ordered to pay attorney's fees of P200,000.00.5

Respondent Gatmaitan appealed the trial court's decision to the Court of Appeals. In a decision promulgated on February 10, 2000, the appellate court reversed the decision of the trial court and held that respondent Gatmaitan did not at any point become obligated to pay to petitioner Licaros the amount stated in the promissory note. In a Resolution dated April 7, 2000 the Court of Appeals denied petitioner's Motion for Reconsideration of its February 10, 2000 Decision.

Hence this petition for review on certiorari where petitioner prays for the reversal of the February 10, 2000 Decision of the Court of Appeals and the reinstatement of the November 11, 1997 decision of the Regional Trial Court.

The threshold issue for the determination of this Court is whether the Memorandum of Agreement between petitioner and respondent is one of assignment of credit or one of conventional subrogation. This matter is determinative of whether or not respondent became liable to petitioner under the promissory note considering that its efficacy is dependent on the Memorandum of Agreement, the note being merely an annex to the said memorandum.6

An assignment of credit has been defined as the process of transferring the right of the assignor to the assignee who would then have the right to proceed against the debtor. The assignment may be done gratuitously or onerously, in which case, the assignment has an effect similar to that of a sale.7

On the other hand, subrogation has been defined as the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or convention. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. Conventional subrogation is that which takes place by agreement of parties.8

The general tenor of the foregoing definitions of the terms "subrogation" and "assignment of credit" may make it seem that they are one and the same which they are not. A noted expert in civil law notes their distinctions thus:

"Under our Code, however, conventional subrogation is not identical to assignment of credit. In the former, the debtor's consent is necessary; in the latter it is not required. Subrogation extinguishes the obligation and gives rise to a new one; assignment refers to the same right which passes from one person to another. The nullity of an old obligation may be cured by

subrogation, such that a new obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditor's right to another."9

For our purposes, the crucial distinction deals with the necessity of the consent of the debtor in the original transaction. In an assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully produce legal effects.10 What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him as the assignments takes effect only from the time he has knowledge thereof.11 A creditor may, therefore, validly assign his credit and its accessories without the debtor's consent.12 On the other hand, conventional subrogation requires an agreement among the three parties concerned – the original creditor, the debtor, and the new creditor. It is a new contractual relation based on the mutual agreement among all the necessary parties. Thus, Article 1301 of the Civil Code explicitly states that "(C)onventional subrogation of a third person requires the consent of the original parties and of the third person."

The trial court, in finding for the petitioner, ruled that the Memorandum of Agreement was in the nature of an assignment of credit. As such, the court a quo held respondent liable for the amount stated in the said agreement even if the parties thereto failed to obtain the consent of Anglo-Asean Bank. On the other hand, the appellate court held that the agreement was one of conventional subrogation which necessarily requires the agreement of all the parties concerned. The Court of Appeals thus ruled that the Memorandum of Agreement never came into effect due to the failure of the parties to get the consent of Anglo-Asean Bank to the agreement and, as such, respondent never became liable for the amount stipulated.

We agree with the finding of the Court of Appeals that the Memorandum of Agreement dated July 29, 1988 was in the nature of a conventional subrogation which requires the consent of the debtor, Anglo-Asean Bank, for its validity. We note with approval the following pronouncement of the Court of Appeals:

"Immediately discernible from above is the common feature of contracts involving conventional subrogation, namely, the approval of the debtor to the subrogation of a third person in place of the creditor. That Gatmaitan and Licaros had intended to treat their agreement as one of conventional subrogation is plainly borne by a stipulation in their Memorandum of Agreement, to wit:

"WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual prestations which hey now record herein with the express conformity of the third parties concerned" (emphasis supplied), which third party is admittedly Anglo-Asean Bank.

Had the intention been merely to confer on appellant the status of a mere "assignee" of appellee's credit, there is simply no sense for them to have stipulated in their agreement that the same is conditioned on the "express conformity" thereto of Anglo-Asean Bank. That they did so only accentuates their intention to treat the agreement as one of conventional subrogation. And it is basic in the interpretation of contracts that the intention of the parties must be the one pursued (Rule 130, Section 12, Rules of Court).

Given our finding that the Memorandum of Agreement (Exh. "B"; also Exh. "1"), is not one of "assignment of credit" but is actually a "conventional subrogation", the next question that comes to mind is whether such agreement was ever perfected at all. Needless to state, the perfection – or non-perfection – of the subject agreement is of utmost relevance at this point. For, if the same Memorandum of Agreement was actually perfected, then it cannot be denied that Gatmaitan still has a subsisting commitment to pay Licaros on the basis of his promissory note. If not, Licaros' suit for collection must necessarily fail.

Here, it bears stressing that the subject Memorandum of Agreement expressly requires the consent of Anglo-Asean to the subrogation. Upon whom the task of securing such consent

devolves, be it on Licaros or Gatmaitan, is of no significance. What counts most is the hard reality that there has been an abject failure to get Anglo-Asean's nod of approval over Gatmaitan's being subrogated in the place of Licaros. Doubtless, the absence of such conformity on the part of Anglo-Asean, which is thereby made a party to the same Memorandum of Agreement, prevented the agreement from becoming effective, much less from being a source of any cause of action for the signatories thereto"13

Aside for the "whereas clause" cited by the appellate court in its decision, we likewise note that on the signature page, right under the place reserve for the signatures of petitioner and respondent, there is, typewritten, the words "WITH OUR CONFORME." Under this notation, the words "ANGLO-ASEAN BANK AND TRUST" were written by hand.14 To our mind, this provision which contemplates the signed conformity of Anglo-Asean Bank, taken together with the aforementioned preambulatory clause leads to the conclusion that both parties intended that Anglo-Asean Bank should signify its agreement and conformity to the contractual arrangement between petitioner and respondent. The fact that Anglo-Asean Bank did not give such consent rendered the agreement inoperative considering that, as previously discussed, the consent of the debtor is needed in the subrogation of a third person to the rights of a creditor.

In this petition, petitioner assails the ruling of the Court of Appeals that what was entered into by the parties was a conventional subrogation of petitioner's rights as creditor of the Anglo-Asean Bank which necessary requires the consent of the latter. In support, petitioner alleges that: (1) the Memorandum of Agreement did not create a new obligation and, as such, the same cannot be a conventional subrogation; (2) the consent of Anglo-Asean Bank was not necessary for the validity of the Memorandum of Agreement; (3) assuming that such consent was necessary, respondent failed to secure the same as was incumbent upon him; and (4) respondent himself admitted that the transaction was one of assignment of credit.

Petitioner argues that the parties to the Memorandum of Agreement could not have intended the same to be a conventional subrogation considering that no new obligation was created. According to petitioner, the obligation of Anglo-Asean Bank to pay under Contract No. 00193 was not extinguished and in fact, it was the basic intention of the parties to the Memorandum of Agreement to enforce the same obligation of Anglo-Asean Bank under its contract with petitioner. Considering that the old obligation of Anglo-Asean Bank under Contract No. 00193 was never extinguished under the Memorandum of Agreement, it is contended that the same could not be considered as a conventional subrogation.

We are not persuaded.

It is true that conventional subrogation has the effect of extinguishing the old obligation and giving rise to a new one. However, the extinguishment of the old obligation is the effect of the establishment of a contract for conventional subrogation. It is not a requisite without which a contract for conventional subrogation may not be created. As such, it is not determinative of whether or not a contract of conventional subrogation was constituted.

Moreover, it is of no moment that the subject of the Memorandum of Agreement was the collection of the obligation of Anglo-Asean Bank to petitioner Licaros under Contract No. 00193. Precisely, if conventional subrogation had taken place with the consent of Anglo-Asian Bank to effect a change in the person of its creditor, there is necessarily created a new obligation whereby Anglo-Asean Bank must now give payment to its new creditor, herein respondent.

Petitioner next argues that the consent or conformity of Anglo-Asean Bank is not necessary to the validity of the Memorandum of Agreement as the evidence on record allegedly shows that it was never the intention of the parties thereto to treat the same as one of conventional subrogation. He claims that the preambulatory clause requiring the express conformity of third parties, which admittedly was Anglo-Asean Bank, is a mere surplusage which is not necessary to the validity of the agreement.

As previously discussed, the intention of the parties to treat the Memorandum of Agreement as embodying a conventional subrogation is shown not only by the "whereas clause" but also by the signature space captioned "WITH OUR CONFORME" reserved for the signature of a representative of Anglo-Asean Bank. These provisions in the aforementioned Memorandum of Agreement may not simply be disregarded or dismissed as superfluous.

It is a basic rule in the interpretation of contracts that "(t)he various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly."15 Moreover, under our Rules of Court, it is mandated that "(I)n the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all."16 Further, jurisprudence has laid down the rule that contracts should be so construed as to harmonize and give effect to the different provisions thereof.17

In the case at bench, the Memorandum of Agreement embodies certain provisions that are consistent with either a conventional subrogation or assignment of credit. It has not been shown that any clause or provision in the Memorandum of Agreement is inconsistent or incompatible with a conventional subrogation. On the other hand, the two cited provisions requiring consent of the debtor to the memorandum is inconsistent with a contract of assignment of credit. Thus, if we were to interpret the same as one of assignment of credit, then the aforementioned stipulations regarding the consent of Anglo-Asean Bank would be rendered inutile and useless considering that, as previously discussed, the consent of the debtor is not necessary in an assignment of credit.

Petitioner next argues that assuming that the conformity of Anglo-Asean was necessary to the validity of the Memorandum of Agreement, respondently only had himself to blame for the failure to secure such conformity as was, allegedly, incumbent upon him under the memorandum.

As to this argument regarding the party responsible for securing the conformity of Anglo-Asean Bank, we fail to see how this question would have any relevance on the outcome of this case. Having ruled that the consent of Anglo-Asean was necessary for the validity of the Memorandum of Agreement, the determinative fact is that such consent was not secured by either petitioner or respondent which consequently resulted in the invalidity of the said memorandum.

With respect to the argument of petitioner that respondent himself allegedly admitted in open court that an assignment of credit was intended, it is enough to say that respondent apparently used the word "assignment" in his testimony in the general sense. Respondent is not a lawyer and as such, he is no so well versed in law that he would be able to distinguish between the concepts of conventional subrogation and of assignment of credit. Moreover, even assuming that there was an admission on his part, such admission is not conclusive on this court as the nature and interpretation of the Memorandum of Agreement is a question of law which may not be the subject of stipulations and admission.18

Considering the foregoing, it cannot then be said that the consent of the debtor Anglo-Asean Bank is not necessary to the validity of the Memorandum of Agreement. As above stated, the Memorandum of Agreement embodies a contract for conventional subrogation and in such a case, the consent of the original parties and the third person is required.19 The absence of such conformity by Anglo-Asean Bank prevented the Memorandum of Agreement from becoming valid and effective. Accordingly, the Court of Appeals did not err when it ruled that the Memorandum of Agreement was never perfected.

Having arrived at the above conclusion, the Court finds no need to discuss the other issues raised by petitioner.

WHEREFORE, the instant petition is DENIED and the Decision of the Court of Appeals dated February 10, 2000 and its Resolution dated April 7, 2000 are hereby AFFIRMED.1âwphi1.nêt

Melo, Vitug, and Panganiban, JJ., concur.

Sandoval-Gutierrez, J. On leave.

Footnotes:

1 Penned by Associate Justice Cancio Garcia and concurred in by Associate Justices Romeo J. Callejo and Presbitero J. Velasco, Jr.; Rollo, pp. 38-

53.

2 Rollo, pp. 55-56.

3 Penned by Judge Francisco Donato Villanueva; Rollo, pp. 77-92.

4 Court of Appeals Decision dated February 10, 2000, pp. 1-7; Rollo, pp. 39-45.

5 Rollo, p. 92.

6 Rollo, p 78.

7 Rodriguez vs. Court of Appeals, 207 SCRA 533; Nyco Sales Corp. vs. BA Finance Corp., 200 SCRA 637.

8 Chemphil Import and Export Corp. vs. Court of Appeals, 251 SCRA 257 citing Tolentino, Commentaries and Jurisprudence on the Civil Code of the

Philippines, Volume IV, pp. 401-402.

9 Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 1991 Edition, Volume IV, p. 401.

10 Rodriguez vs. Court of Appeals, supra, citing Sison and Sison vs. Yap Tico and Avancena, 37 Phil. 587.

11 Article 1626, New Civil Code.

12 National Investment and Development Co. vs. De los Angeles, 40 SCRA 489.

13 Court of Appeals Decision dated February 10, 2000, pp. 12-13; Rollo, pp. 50-51.

14 Rollo, p. 81.

15 Article 1374, New Civil Code; China Banking Corporation vs. Court of Appeals, 265 SCRA 327.

16 Section 11, Rule 130, Revised Rules of Court.

17 Phil-Am General Insurance vs. Court of Appeals, 114 SCRA 4; Reparations Commission vs. Northern Lines, Inc., 34 SCRA 203.

18 PCI Automation Center vs. NLRC, 252 SCRA 493; Tabas vs. California Manufacturing Corp., 169 SCRA 497.

19 Art. 1301, New Civil Code.

FIRST DIVISION

G.R. No. 118248 April 5, 2000

DKC HOLDINGS CORPORATION,petitioner, vs. COURT OF APPEALS, VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA, DISTRICT III, respondents.

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari seeking the reversal of the December 5, 1994 Decision of the Court of Appeals in CA-G.R. CV No. 40849 entitled "DKC Holdings Corporation vs. Victor U. Bartolome, et al.",1 affirming in toto the January 4, 1993 Decision of the Regional Trial Court of Valenzuela, Branch 172,2 which dismissed Civil Case No. 3337-V-90 and ordered petitioner to pay P30,000.00 as attorney's fees.

The subject of the controversy is a 14,021 square meter parcel of land located in Malinta, Valenzuela, Metro Manila which was originally owned by private respondent Victor U. Bartolome's deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of one of the textile plants of petitioner and, as such, was seen by the latter as a potential warehouse site.

On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with Encarnacion Bartolome, whereby petitioner was given the option to lease or lease with purchase the subject land, which option must be exercised within a period of two years counted from the signing of the Contract. In turn, petitioner undertook to pay P3,000.00 a month as consideration for the reservation of its option. Within the two-year period, petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome of its desire to exercise its option. The contract also provided that in case petitioner chose to lease the property, it may take actual possession of the premises. In such an event, the lease shall be for a period of six years, renewable for another six years, and the monthly rental fee shall be P15,000.00 for the first six years and P18,000.00 for the next six years, in case of renewal.

Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion until her death in January 1990. Thereafter, petitioner coursed its payment to private respondent Victor Bartolome, being the sole heir of Encarnacion. Victor, however, refused to accept these payments.

Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the properties of Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds cancelled Transfer Certificate of Title No. B-37615 and issued Transfer Certificate of Title No. V-14249 in the name of Victor Bartolome.

On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising its option to lease the property, tendering the amount of P15,000.00 as rent for the month of March. Again, Victor refused to accept the tendered rental fee and to surrender possession of the property to petitioner.

Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking Corporation, Cubao Branch, in the name of Victor Bartolome and deposited therein the P15,000.00 rental fee for March as well as P6,000.00 reservation fees for the months of February and March.

Petitioner also tried to register and annotate the Contract on the title of Victor to the property. Although respondent Register of Deeds accepted the required fees, he nevertheless refused to register or annotate the same or even enter it in the day book or primary register.1âwphi1.nêt

Thus, on April 23, 1990, petitioner filed a complaint for specific performance and damages against Victor and the Register of Deeds,3 docketed as Civil Case No. 3337-V-90 which was raffled off to Branch 171 of the Regional Trial Court of Valenzuela. Petitioner prayed for the surrender and delivery of possession of the subject land in accordance with the Contract terms; the surrender of title for registration and annotation thereon of the Contract; and the payment of P500,000.00 as actual damages, P500,000.00 as moral damages, P500,000.00 as exemplary damages and P300,000.00 as attorney's fees.

Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss4 was filed by one Andres Lanozo, who claimed that he was and has been a tenant-tiller of the subject property, which was agricultural riceland, for forty-five years. He questioned the jurisdiction of the lower court over the property and invoked the Comprehensive Agrarian Reform Law to protect his rights that would be affected by the dispute between the original parties to the case.

On May 18, 1990, the lower court issued an Order5 referring the case to the Department of Agrarian Reform for preliminary determination and certification as to whether it was proper for trial by said court.

On July 4, 1990, the lower court issued another Order6 referring the case to Branch 172 of the RTC of Valenzuela which was designated to hear cases involving agrarian land, after the Department of Agrarian Reform issued a letter-certification stating that referral to it for preliminary determination is no longer required.

On July 16, 1990, the lower court issued an Order denying the Motion to Intervene,7 holding that Lanozo's rights may well be ventilated in another proceeding in due time.

After trial on the merits, the RTC of Valenzuela, Branch 172 rendered its Decision on January 4, 1993, dismissing the Complaint and ordering petitioner to pay Victor P30,000.00 as attorney's fees. On appeal to the CA, the Decision was affirmed in toto.

Hence, the instant Petition assigning the following errors:

(A)

FIRST ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PROVISION ON THE NOTICE TO EXERCISE OPTION WAS NOT TRANSMISSIBLE.

(B)

SECOND ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE NOTICE OF OPTION MUST BE SERVED BY DKC UPON ENCARNACION BARTOLOME PERSONALLY.

(C)

THIRD ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACT WAS ONE-SIDED AND ONEROUS IN FAVOR OF DKC.

(D)

FOURTH ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE EXISTENCE OF A REGISTERED TENANCY WAS FATAL TO THE VALIDITY OF THE CONTRACT.

(E)

FIFTH ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PLAINTIFF-APPELLANT WAS LIABLE TO DEFENDANT-APPELLEE FOR ATTORNEY'S FEES.8

The issue to be resolved in this case is whether or not the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with petitioner was terminated upon her death or whether it binds her sole heir, Victor, even after her demise.

Both the lower court and the Court of Appeals held that the said contract was terminated upon the death of Encarnacion Bartolome and did not bind Victor because he was not a party thereto.

Art. 1311 of the Civil Code provides, as follows —

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

x x x x x x x x x

The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law.

In the case at bar, there is neither contractual stipulation nor legal provision making the rights and obligations under the contract intransmissible. More importantly, the nature of the rights and obligations therein are, by their nature, transmissible.

The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows:

Among contracts which are intransmissible are those which are purely personal, either by provision of law, such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated that contracts for the payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate. Thus, where the client in a contract for professional services of a lawyer died, leaving minor heirs, and the lawyer, instead of presenting his claim for professional services under the contract to the probate court, substituted the minors as parties for his client, it was held that the contract could not be enforced against the minors; the lawyer was limited to a recovery on the basis of quantum meruit.9

In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal qualification of one or both parties, the agreement is of a personal nature, and terminates on the death of the party who is required to render such service." 10

It has also been held that a good measure for determining whether a contract terminates upon the death of one of the parties is whether it is of such a character that it may be performed by the promissor's personal representative. Contracts to perform personal acts which cannot be as well performed by others are discharged by the death of the promissor. Conversely, where the service or act is of such a character that it may as well be performed by another, or where the contract, by its terms, shows that performance by others was contemplated, death does not terminate the contract or excuse nonperformance. 11

In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner upon the exercise by the latter of its option to lease the same may very well be performed by her heir Victor.

As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." 12 In 1952, it was ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the reconveyance had not been made, the heirs can be compelled to execute the proper deed for reconveyance. This was grounded upon the principle that heirs cannot escape the legal consequence of a transaction entered into by their predecessor-in-interest because they have inherited the property subject to the liability affecting their common ancestor. 13

It is futile for Victor to insist that he is not a party to the contract because of the clear provision of Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and binding as against him. 14 This is clear from Parañaque Kings Enterprises vs. Court of Appeals, 15 where this Court rejected a similar defense —

With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal.

In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy.

In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death of a party does not excuse nonperformance of a contract which involves a property right, and the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract. 16

Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the subject Contract of Lease with Option to Buy.

That being resolved, we now rule on the issue of whether petitioner had complied with its obligations under the contract and with the requisites to exercise its option. The payment by petitioner of the reservation fees during the two-year period within which it had the option to lease or purchase the property is not disputed. In fact, the payment of such reservation fees, except those for February and March, 1990 were admitted by Victor. 17 This is clear from the transcripts, to wit —

ATTY. MOJADO:

One request, Your Honor. The last payment which was allegedly made in January 1990 just indicate in that stipulation that it was issued November of 1989 and postdated January 1990 and then we will admit all.

COURT:

All reservation fee?

ATTY. MOJADO:

Yes, Your Honor.

COURT:

All as part of the lease?

ATTY. MOJADO:

Reservation fee, Your Honor. There was no payment with respect to payment of rentals. 18

Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the same in China Bank Savings Account No. 1-04-02558-I-1, in the name of Victor as the sole heir of Encarnacion Bartolome, 19 for the months of March to July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn over the subject property. 20

Likewise, petitioner complied with its duty to inform the other party of its intention to exercise its option to lease through its letter dated Match 12, 1990, 21 well within the two-year period for it to exercise its option. Considering that at that time Encarnacion Bartolome had already passed away, it was legitimate for petitioner to have addressed its letter to her heir.1âwphi1

It appears, therefore, that the exercise by petitioner of its option to lease the subject property was made in accordance with the contractual provisions. Concomitantly, private respondent Victor Bartolome has the obligation to surrender possession of and lease the premises to petitioner for a period of six (6) years, pursuant to the Contract of Lease with Option to Buy.

Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in the present petition. We note that the Motion to Intervene and to Dismiss of the alleged tenant, Andres Lanozo, was denied by the lower court and that such denial was never made the subject of an appeal. As the lower court stated in its Order, the alleged right of the tenant may well be ventilated in another proceeding in due time.

WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional Trial Court of Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and a new one rendered ordering private respondent Victor Bartolome to:

(a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of Title No. V-14249 by way of lease to petitioner and to perform all obligations of his predecessor-in-interest, Encarnacion Bartolome, under the subject Contract of Lease with Option to Buy;

(b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent Register of Deeds for registration and annotation thereon of the subject Contract of Lease with Option to Buy;

(c) pay costs of suit.

Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject Contract of Lease with Option to Buy at the back of Transfer Certificate of Title No. V-14249 upon submission by petitioner of a copy thereof to his office.

SO ORDERED.1âwphi1.nêt

Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.

Footnotes

1 Penned by Associate Justice Corona Ibay-Somera, concurred in by Justices Asaali S. Isnani and Celia Lipana-Reyes.

2 Penned by Judge Teresita Dizon-Capulong.

3 Records, Civil Case No. 3337-V-90, pp. 1-28.

4 Id., pp. 35-43.

5 Id., p. 60.

6 Id., p. 129.

7 Id., p. 130.

8 Petition for Review, pp. 9-10; Rollo, pp. 10-11.

9 IV Tolentino, CIVIL CODE OF THE PHILIPPINES, 430 (1986).

10 Kanawha Banking & Trust Co. v. Gilbert, 46 S.E. 2d 225, 131 W. Va. 88; Rowe v. Compensation Research Bureau, Inc., 62 N.W. 2d 581, 265 Wis. 589; Fressil v. Nichols, 114 So. 431, 94 Fla. 403; Cutler v. United Shoe Manufacturing Corporation, 174 N.E. 507, 274 Mass. 341, cited in 17A C.J.S. Sec. 465.

11 17 Am. Jur. 2d, Sec. 413, p. 866.

12 Eleizegui v. Lawn Tennis Club, G.R. No. 967, 2 Phil. 309, 313 (1903), citing Article 1257 of the old Civil Code.

13 Carillo v. Salak de Paz, G.R. No. L-4133, 91 Phil. 265 (1952).

14 See Galsinao v. Austria, G.R. No. L-7918, 97 Phil. 82, 87 (1955).

15 G.R. No. 111538, 268 SCRA 727, 745 (1997).

16 17A C.J.S. Section 465, p. 627.

17 See T.S.N., 19 October 1991, pp. 11-12, 14, 16, 19 and 20-21.

18 T.S.N., 29 October 1991, pp. 20-21.

19 See Exhibit "K"; Records, Civil Case No. 3337-V-90, pp. 274-276.

20 See T.S.N., 9 January 1992, pp. 16-17.

21 Exh. "J", Records, Civil Case No. 3337-V-90, pp. 272-273.

THIRD DIVISION

G.R. No. 119850 June 20, 1996

MANDARIN VILLA, INC., petitioner, vs. COURT OF APPEALS, and CLODUALDO DE JESUS, respondents.

R E S O L U T I O N

FRANCISCO, J.:p

With ample evidentiary support are the following antecedent facts:

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

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

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

WHEREFORE, the decision appealed from is hereby MODIFIED by:

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

2. Absolving appellant BANKARD of any responsibility for damages;

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

4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and 00/100 (P10,000.00) PESOS;

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

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

Costs against appellant Mandarin.

SO ORDERED. 5

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

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

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

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

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

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

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

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

xxx xxx xxx

CARD EXPIRED

a. Check expiry date on card.

b. If unexpired, refer to CB.

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

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

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

c. If expired, do not honor card. 12

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

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

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

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

private respondent's BPI Express Credit Card after verifying its validity, 17 a fact which all the more refutes petitioner's imputation of negligence on the private respondent.

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

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.

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

Narvasa, C.J., took no part.

Footnotes

1 TSN, Clodualdo de Jesus, October 7, 1990, p. 5.

2 Id., p. 6.

3 Id., p. 8.

4 Exhibit E; Records, p. 119.

5 Court of Appeals Decision, promulgated on March 21, 1995, p. 8; Rollo, p. 49. Ninth Division, penned by Justice Cañizares-Nye with Justices Imperial and Callejo concurring.

6 Exhibit 13; Records, p. 189.

7 Exhibit 13-D; Records, p. 189.

8 See Kauffman v. Philippine National Bank, 42 Phil. 182 (1921).

9 TSN, Clodualdo de Jesus, October 7, 1990, p. 25.10 Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it and cannot be denied or disapproved as against the person relying thereon (Civil Code).

11 See Picart v. Smith, 37 Phil. 809; Cangco v. Manila Railroad Co., 38 Phil. 768.

12 Rollo, pp. 17-18.

13 Exhibit D; Records, p. 118.

14 Rollo, p. 18.

15 "Clody, may problema ba? Baka kailangang maghugas na kami ng pinggan?"

16 Sec. 2. Judicial notice, when discretionary. -- A court may take judicial notice of matters which are of public knowledge, or are capable of unquestionable demonstration, or ought to be known to judges because of their judicial functions. Rule 129, Revised Rules of Court.

17 TSN, Clodualdo de Jesus, October 7, 1990, p. 8; Exhibit E, Records, p. 119.

FIRST DIVISION

G.R. No. 78903 February 28, 1990

SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners, vs. THE HONORABLE COURT OF APPEALS AND RUPERTO SABESAJE, JR., respondents.

Francisco A. Puray, Sr. for petitioners.

Gabriel N. Duazo for private respondent.

MEDIALDEA, J.:

This is a petition to annul and set aside the decision of the Court of Appeals rendered on May 26, 1987, upholding the validity of the sale of a parcel of land by petitioner Segundo Dalion (hereafter, "Dalion") in favor of private respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"), described thus:

A parcel of land located at Panyawan, Sogod, Southern Leyte, declared in the name of Segundo Dalion, under Tax Declaration No. 11148, with an area of 8947 hectares, assessed at P 180.00, and bounded on the North, by Sergio Destriza and Titon Veloso, East, by Feliciano Destriza, by Barbara Bonesa (sic); and West, by Catalino Espina. (pp. 36-37, Rollo)

The decision affirms in toto the ruling of the trial court 1 issued on January 17, 1984, the dispositive portion of which provides as follows:

WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby renders judgment.

(a) Ordering the defendants to deliver to the plaintiff the parcel of land subject of this case, declared in the name of Segundo Dalion previously under Tax Declaration No. 11148 and lately under Tax Declaration No. 2297 (1974) and to execute the corresponding formal deed of conveyance in a public document in favor of the plaintiff of the said property subject of this case, otherwise, should defendants for any reason fail to do so, the deed shall be executed in their behalf by the Provincial Sheriff or his Deputy;

(b) Ordering the defendants to pay plaintiff the amount of P2,000.00 as attorney's fees and P 500.00 as litigation expenses, and to pay the costs; and

(c) Dismissing the counter-claim. (p. 38, Rollo)

The facts of the case are as follows:

On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land, based on a private document of absolute sale, dated July 1, 1965 (Exhibit "A"), allegedly executed by Dalion, who, however denied the fact of sale, contending that the document sued upon is fictitious, his signature thereon, a forgery, and that subject land is conjugal property, which he and his wife acquired in 1960 from Saturnina Sabesaje as evidenced by the "Escritura de Venta Absoluta" (Exhibit "B"). The spouses denied claims of Sabesaje that

after executing a deed of sale over the parcel of land, they had pleaded with Sabesaje, their relative, to be allowed to administer the land because Dalion did not have any means of livelihood. They admitted, however, administering since 1958, five (5) parcels of land in Sogod, Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje, who died in 1956. They never received their agreed 10% and 15% commission on the sales of copra and abaca, respectively. Sabesaje's suit, they countered, was intended merely to harass, preempt and forestall Dalion's threat to sue for these unpaid commissions.

From the adverse decision of the trial court, Dalion appealed, assigning errors some of which, however, were disregarded by the appellate court, not having been raised in the court below. While the Court of Appeals duly recognizes Our authority to review matters even if not assigned as errors in the appeal, We are not inclined to do so since a review of the case at bar reveals that the lower court has judicially decided the case on its merits.

As to the controversy regarding the identity of the land, We have no reason to dispute the Court of Appeals' findings as follows:

To be sure, the parcel of land described in Exhibit "A" is the same property deeded out in Exhibit "B". The boundaries delineating it from adjacent lots are identical. Both documents detail out the following boundaries, to wit:

On the North-property of Sergio Destriza and Titon Veloso;

On the East-property of Feliciano Destriza;

On the South-property of Barbara Boniza and

On the West-Catalino Espina.

(pp. 41-42, Rollo)

The issues in this case may thus be limited to: a) the validity of the contract of sale of a parcel of land and b) the necessity of a public document for transfer of ownership thereto.

The appellate court upheld the validity of the sale on the basis of Secs. 21 and 23 of Rule 132 of the Revised Rules of Court.

SEC. 21. Private writing, its execution and authenticity, how proved.-Before any private writing may be received in evidence, its due execution and authenticity must be proved either:

(a) By anyone who saw the writing executed;

(b) By evidence of the genuineness of the handwriting of the maker; or

(c) By a subscribing witness

xxx xxx xxx

SEC. 23. Handwriting, how proved. — The handwriting of a person may be proved by any witness who believes it to be the handwriting of such person, and has seen the person write, or has seen writing purporting to be his upon which the witness has acted or been charged, and has thus acquired knowledge of the

handwriting of such person. Evidence respecting the handwriting may also be given by a comparison, made by the witness or the court, with writings admitted or treated as genuine by the party against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge. (Rule 132, Revised Rules of Court)

And on the basis of the findings of fact of the trial court as follows:

Here, people who witnessed the execution of subject deed positively testified on the authenticity thereof. They categorically stated that it had been executed and signed by the signatories thereto. In fact, one of such witnesses, Gerardo M. Ogsoc, declared on the witness stand that he was the one who prepared said deed of sale and had copied parts thereof from the "Escritura De Venta Absoluta" (Exhibit B) by which one Saturnina Sabesaje sold the same parcel of land to appellant Segundo Dalion. Ogsoc copied the bounderies thereof and the name of appellant Segundo Dalion's wife, erroneously written as "Esmenia" in Exhibit "A" and "Esmenia" in Exhibit "B". (p. 41, Rollo)

xxx xxx xxx

Against defendant's mere denial that he signed the document, the positive testimonies of the instrumental Witnesses Ogsoc and Espina, aside from the testimony of the plaintiff, must prevail. Defendant has affirmatively alleged forgery, but he never presented any witness or evidence to prove his claim of forgery. Each party must prove his own affirmative allegations (Section 1, Rule 131, Rules of Court). Furthermore, it is presumed that a person is innocent of a crime or wrong (Section 5 (a), Idem), and defense should have come forward with clear and convincing evidence to show that plaintiff committed forgery or caused said forgery to be committed, to overcome the presumption of innocence. Mere denial of having signed, does not suffice to show forgery.

In addition, a comparison of the questioned signatories or specimens (Exhs. A-2 and A-3) with the admitted signatures or specimens (Exhs. X and Y or 3-C) convinces the court that Exhs. A-2 or Z and A-3 were written by defendant Segundo Dalion who admitted that Exhs. X and Y or 3-C are his signatures. The questioned signatures and the specimens are very similar to each other and appear to be written by one person.

Further comparison of the questioned signatures and the specimens with the signatures Segundo D. Dalion appeared at the back of the summons (p. 9, Record); on the return card (p. 25, Ibid.); back of the Court Orders dated December 17, 1973 and July 30, 1974 and for October 7, 1974 (p. 54 & p. 56, respectively, Ibid.), and on the open court notice of April 13, 1983 (p. 235, Ibid.) readily reveal that the questioned signatures are the signatures of defendant Segundo Dalion.

It may be noted that two signatures of Segundo D. Dalion appear on the face of the questioned document (Exh. A), one at the right corner bottom of the document (Exh. A-2) and the other at the left hand margin thereof (Exh. A-3). The second signature is already a surplusage. A forger would not attempt to forge another signature, an unnecessary one, for fear he may commit a revealing error or an erroneous stroke. (Decision, p. 10) (pp. 42-43, Rollo)

We see no reason for deviating from the appellate court's ruling (p. 44, Rollo) as we reiterate that

Appellate courts have consistently subscribed to the principle that conclusions and findings of fact by the trial courts are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons, since it is undeniable that the trial court is in a more advantageous position to examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the case (Chase v. Buencamino, Sr., G.R. No. L-20395, May 13, 1985, 136 SCRA 365; Pring v. Court of Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA 185)

Assuming authenticity of his signature and the genuineness of the document, Dalion nonetheless still impugns the validity of the sale on the ground that the same is embodied in a private document, and did not thus convey title or right to the lot in question since "acts and contracts which have for their object the creation, transmission, modification or extinction of real rights over immovable property must appear in a public instrument" (Art. 1358, par 1, NCC).

This argument is misplaced. The provision of Art. 1358 on the necessity of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument.

A contract of sale is a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance (Art. 1475, NCC), i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold (Art. 1458, NCC).

The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land and to execute corresponding formal deed of conveyance in a public document. Under Art. 1498, NCC, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing. Delivery may either be actual (real) or constructive. Thus delivery of a parcel of land may be done by placing the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive).

As regards petitioners' contention that the proper action should have been one for specific performance, We believe that the suit for recovery of ownership is proper. As earlier stated, Art. 1475 of the Civil Code gives the parties to a perfected contract of sale the right to reciprocally demand performance, and to observe a particular form, if warranted, (Art. 1357). The trial court, aptly observed that Sabesaje's complaint sufficiently alleged a cause of action to compel Dalion to execute a formal deed of sale, and the suit for recovery of ownership, which is premised on the binding effect and validity inter partes of the contract of sale, merely seeks consummation of said contract.

... . A sale of a real property may be in a private instrument but that contract is valid and binding between the parties upon its perfection. And a party may compel the other party to execute a public instrument embodying their contract affecting real rights once the contract appearing in a private instrument hag been perfected (See Art. 1357).

... . (p. 12, Decision, p. 272, Records)

ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals upholding the ruling of the trial court is hereby AFFIRMED. No costs.

SO ORDERED.

Narvasa, Cruz, Gancayco and Grino-Aquino, JJ., concur.

Footnotes

1 Presiding Judge, Lucio F. Saavedra, RTC, Br. XXIV, Maasin, Southern Leyte.

FIRST DIVISION

G.R. No. 159310 February 24, 2009

CAMILO F. BORROMEO, Petitioner, vs. ANTONIETTA O. DESCALLAR, Respondent.

D E C I S I O N

PUNO, C.J.:

What are the rights of an alien (and his successor-in-interest) who acquired real properties in the country as against his former Filipina girlfriend in whose sole name the properties were registered under the Torrens system?

The facts are as follows:

Wilhelm Jambrich, an Austrian, arrived in the Philippines in 1983 after he was assigned by his employer, Simmering-Graz Panker A.G., an Austrian company, to work at a project in Mindoro. In 1984, he transferred to Cebu and worked at the Naga II Project of the National Power Corporation. There, he met respondent Antonietta Opalla-Descallar, a separated mother of two boys who was working as a waitress at St. Moritz Hotel. Jambrich befriended respondent and asked her to tutor him in English. In dire need of additional income to support her children, respondent agreed. The tutorials were held in Antonietta’s residence at a squatters’ area in Gorordo Avenue.

Jambrich and respondent fell in love and decided to live together in a rented house in Hernan Cortes, Mandaue City. Later, they transferred to their own house and lots at Agro-Macro Subdivision, Cabancalan, Mandaue City. In the Contracts to Sell dated November 18, 19851 and March 10, 19862 covering the properties, Jambrich and respondent were referred to as the buyers. A Deed of Absolute Sale dated November 16, 19873 was likewise issued in their favor. However, when the Deed of Absolute Sale was presented for registration before the Register of Deeds, registration was refused on the ground that Jambrich was an alien and could not acquire alienable lands of the public domain. Consequently, Jambrich’s name was erased from the document. But it could be noted that his signature remained on the left hand margin of page 1, beside respondent’s signature as buyer on page 3, and at the bottom of page 4 which is the last page. Transfer Certificate of Title (TCT) Nos. 24790, 24791 and 24792 over the properties were issued in respondent’s name alone.

Jambrich also formally adopted respondent’s two sons in Sp. Proc. No. 39-MAN,4 and per Decision of the Regional Trial Court of Mandaue City dated May 5, 1988.5

However, the idyll lasted only until April 1991. By then, respondent found a new boyfriend while Jambrich began to live with another woman in Danao City. Jambrich supported respondent’s sons for only two months after the break up.

Jambrich met petitioner Camilo F. Borromeo sometime in 1986. Petitioner was engaged in the real estate business. He also built and repaired speedboats as a hobby. In 1989, Jambrich purchased an engine and some accessories for his boat from petitioner, for which he became indebted to the latter for about P150,000.00. To pay for his debt, he sold his rights and interests in the Agro-Macro properties to petitioner for P250,000, as evidenced by a "Deed of Absolute Sale/Assignment."6 On July 26, 1991, when petitioner sought to register the deed of assignment, he discovered that titles to the three lots have been transferred in the name of respondent, and that the subject property has already been mortgaged.

On August 2, 1991, petitioner filed a complaint against respondent for recovery of real property before the Regional Trial Court of Mandaue City. Petitioner alleged that the Contracts to Sell dated November 18, 1985 and March 10, 1986 and the Deed of Absolute Sale dated November 16, 1987 over the properties which identified both Jambrich and respondent as buyers do not reflect the true agreement of the parties since respondent did not pay a single centavo of the purchase price and was not in fact a buyer; that it was Jambrich alone who paid for the properties using his exclusive funds; that Jambrich was the real and absolute owner of the properties; and, that petitioner acquired absolute ownership by virtue of the Deed of Absolute Sale/Assignment dated July 11, 1991 which Jambrich executed in his favor.

In her Answer, respondent belied the allegation that she did not pay a single centavo of the purchase price. On the contrary, she claimed that she "solely and exclusively used her own personal funds to defray and pay for the purchase price of the subject lots in question," and that Jambrich, being an alien, was prohibited to acquire or own real property in the Philippines.

At the trial, respondent presented evidence showing her alleged financial capacity to buy the disputed property with money from a supposed copra business. Petitioner, in turn, presented Jambrich as his witness and documentary evidence showing the substantial salaries which Jambrich received while still employed by the Austrian company, Simmering-Graz Panker A.G.

In its decision, the court a quo found—

Evidence on hand clearly show that at the time of the purchase and acquisition of [the] properties under litigation that Wilhelm Jambrich was still working and earning much. This fact of Jambrich earning much is not only supported by documentary evidence but also by the admission made by the defendant Antoniet[t]a Opalla. So that, Jambrich’s financial capacity to acquire and purchase the properties . . . is not disputed.7

x x x

On the other hand, evidence . . . clearly show that before defendant met Jambrich sometime in the latter part of 1984, she was only working as a waitress at the St. Moritz Hotel with an income of P1,000.00 a month and was . . . renting and living only in . . . [a] room at . . . [a] squatter area at Gorordo Ave., Cebu City; that Jambrich took pity of her and the situation of her children that he offered her a better life which she readily accepted. In fact, this miserable financial situation of hers and her two children . . . are all stated and reflected in the Child Study Report dated April 20, 1983 (Exhs. "G" and "G-1") which facts she supplied to the Social Worker who prepared the same when she was personally interviewed by her in connection with the adoption of her two children by Wilhelm Jambrich. So that, if such facts were not true because these are now denied by her . . . and if it was also true that during this time she was already earning as much as P8,000.00 to P9,000.00 as profit per month from her copra business, it would be highly unbelievable and impossible for her to be living only in such a miserable condition since it is the observation of this Court that she is not only an extravagant but also an expensive person and not thrifty as she wanted to impress this Court in order to have a big saving as clearly shown by her actuation when she was already cohabiting and living with Jambrich that according to her . . . the allowance given . . . by him in the amount of $500.00 a month is not enough to maintain the education and maintenance of her children.8

This being the case, it is highly improbable and impossible that she could acquire the properties under litigation or could contribute any amount for their acquisition which according to her is worth more than P700,000.00 when while she was working as [a] waitress at St. Moritz Hotel earning P1,000.00 a month as salary and tips of more or less P2,000.00 she could not even provide [for] the daily needs of her family so much so that it is safe to conclude that she was really in financial distress when she met and accepted the offer of Jambrich to come and live with him because that was a big financial opportunity for her and her children who were already abandoned by her husband.9

x x x

The only probable and possible reason why her name appeared and was included in [the contracts to sell dated November 18, 1985 and March 10, 1986 and finally, the deed of absolute sale dated November 16, 1987] as buyer is because as observed by the Court, she being a scheming and exploitive woman, she has taken advantage of the goodness of Jambrich who at that time was still bewitched by her beauty, sweetness, and good attitude shown by her to him since he could still very well provide for everything she needs, he being earning (sic) much yet at that time. In fact, as observed by this Court, the acquisition of these properties under litigation was at the time when their relationship was still going smoothly and harmoniously.10 [Emphasis supplied.]

The dispositive portion of the Decision states:

WHEREFORE, . . . Decision is hereby rendered in favor of the plaintiff and against the defendant Antoniet[t]a Opalla by:

1) Declaring plaintiff as the owner in fee simple over the residential house of strong materials and three parcels of land designated as Lot Nos. 1, 3 and 5 which are covered by TCT Nos. 24790, 24791 and 24792 issued by the Register of Deeds of Mandaue City;

2) Declaring as null and void TCT Nos. 24790, 24791 and 24792 issued in the name of defendant Antoniet[t]a Descallar by the Register of Deeds of Mandaue City;

3) Ordering the Register of Deeds of Mandaue City to cancel TCT Nos. 24790, 24791 and 24792 in the name of defendant Antoniet[t]a Descallar and to issue new ones in the name of plaintiff Camilo F. Borromeo;

4) Declaring the contracts now marked as Exhibits "I," "K" and "L" as avoided insofar as they appear to convey rights and interests over the properties in question to the defendant Antoniet[t]a Descallar;

5) Ordering the defendant to pay plaintiff attorney’s fees in the amount of P25,000.00 and litigation expenses in the amount of P10,000.00; and,

6) To pay the costs.11

Respondent appealed to the Court of Appeals. In a Decision dated April 10, 2002,12 the appellate court reversed the decision of the trial court. In ruling for the respondent, the Court of Appeals held:

We disagree with the lower court’s conclusion. The circumstances involved in the case cited by the lower court and similar cases decided on by the Supreme Court which upheld the validity of the title of the subsequent Filipino purchasers are absent in the case at bar. It should be noted that in said cases, the title to the subject property has been issued in the name of the alien transferee (Godinez et al., vs. Fong Pak Luen et al., 120 SCRA 223 citing Krivenko vs. Register of Deeds of Manila, 79 Phils. 461; United Church Board for World Ministries vs. Sebastian, 159 SCRA 446, citing the case of Sarsosa Vda. De Barsobia vs. Cuenco, 113 SCRA 547; Tejido vs. Zamacoma, 138 SCRA 78). In the case at bar, the title of the subject property is not in the name of Jambrich but in the name of defendant-appellant. Thus, Jambrich could not have transferred a property he has no title thereto.13

Petitioner’s motion for reconsideration was denied.

Hence, this petition for review.

Petitioner assigns the following errors:

I. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING RESPONDENT’S JUDICIAL ADMISSION AND OTHER OVERWHELMING EVIDENCE ESTABLISHING JAMBRICH’S PARTICIPATION, INTEREST AND OWNERSHIP OF THE PROPERTIES IN QUESTION AS FOUND BY THE HONORABLE TRIAL COURT.

II. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT JAMBRICH HAS NO TITLE TO THE PROPERTIES IN QUESTION AND MAY NOT THEREFORE TRANSFER AND ASSIGN ANY RIGHTS AND INTERESTS IN FAVOR OF PETITIONER.

III. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE WELL-REASONED DECISION OF THE TRIAL COURT AND IN IMPOSING DOUBLE COSTS AGAINST HEREIN PETITIONER (THEN, PLAINTIFF-APPELLEE).14

First, who purchased the subject properties?

The evidence clearly shows, as pointed out by the trial court, who between respondent and Jambrich possesses the financial capacity to acquire the properties in dispute. At the time of the acquisition of the properties in 1985 to 1986, Jambrich was gainfully employed at Simmering-Graz Panker A.G., an Austrian company. He was earning an estimated monthly salary of P50,000.00. Then, Jambrich was assigned to Syria for almost one year where his monthly salary was approximately P90,000.00.

On the other hand, respondent was employed as a waitress from 1984 to 1985 with a monthly salary of not more than P1,000.00. In 1986, when the parcels of land were acquired, she was unemployed, as admitted by her during the pre-trial conference. Her allegations of income from a copra business were unsubstantiated. The supposed copra business was actually the business of her mother and their family, with ten siblings. She has no license to sell copra, and had not filed any income tax return. All the motorized bancas of her mother were lost to fire, and the last one left standing was already scrap. Further, the Child Study Report15 submitted by the Department of Social Welfare and Development (DSWD) in the adoption proceedings of respondent’s two sons by Jambrich disclosed that:

Antonietta tried all types of job to support the children until she was accepted as a waitress at St. Moritz Restaurant in 1984. At first she had no problem with money because most of the customers of St. Moritz are (sic) foreigners and they gave good tips but towards the end of 1984 there were no more foreigners coming because of the situation in the Philippines at that time. Her financial problem started then. She was even renting a small room in a squatters area in Gorordo Ave., Cebu City. It was during her time of great financial distress that she met Wilhelm Jambrich who later offered her a decent place for herself and her children.16

The DSWD Home Study Report17 further disclosed that:

[Jambrich] was then at the Restaurant of St. Moritz when he saw Antonietta Descallar, one of the waitresses of the said Restaurants. He made friends with the girl and asked her to tutor him in [the] English language. Antonietta accepted the offer because she was in need of additional income to support [her] 2 young children who were abandoned by their father. Their session was agreed to be scheduled every afternoon at the residence of Antonietta in the squatters area in Gorordo Avenue, Cebu City. The Austrian was observing the situation of the family particularly the children who were malnourished. After a few months sessions, Mr. Jambrich offered to transfer the family into a decent place. He told Antonietta that the place is not good for the children. Antonietta who was miserable and financially distressed at that time accepted the offer for the sake of the children.18

Further, the following additional pieces of evidence point to Jambrich as the source of fund used to purchase the three parcels of land, and to construct the house thereon:

(1) Respondent Descallar herself affirmed under oath, during her re-direct examination and during the proceedings for the adoption of her minor children, that Jambrich was the owner of the properties in question, but that his name was deleted in the Deed of Absolute Sale because of legal constraints. Nonetheless, his signature remained in the deed of sale, where he signed as buyer.

(2) The money used to pay the subject parcels of land in installments was in postdated checks issued by Jambrich. Respondent has never opened any account with any bank. Receipts of the installment payments were also in the name of Jambrich and respondent.

(3) In 1986-1987, respondent lived in Syria with Jambrich and her two children for ten months, where she was completely under the support of Jambrich.

(4) Jambrich executed a Last Will and Testament, where he, as owner, bequeathed the subject properties to respondent.

Thus, Jambrich has all authority to transfer all his rights, interests and participation over the subject properties to petitioner by virtue of the Deed of Assignment he executed on July 11, 1991.

Well-settled is the rule that this Court is not a trier of facts. The findings of fact of the trial court are accorded great weight and respect, if not finality by this Court, subject to a number of exceptions. In the instant case, we find no reason to disturb the factual findings of the trial court. Even the appellate court did not controvert the factual findings of the trial court. They differed only in their conclusions of law.

Further, the fact that the disputed properties were acquired during the couple’s cohabitation also does not help respondent. The rule that co-ownership applies to a man and a woman living exclusively with each other as husband and wife without the benefit of marriage, but are otherwise capacitated to marry each other, does not apply.19 In the instant case, respondent was still legally married to another when she and Jambrich lived together. In such an adulterous relationship, no co-ownership exists between the parties. It is necessary for each of the partners to prove his or her actual contribution to the acquisition of property in order to be able to lay claim to any portion of it. Presumptions of co-ownership and equal contribution do not apply.20

Second, we dispose of the issue of registration of the properties in the name of respondent alone. Having found that the true buyer of the disputed house and lots was the Austrian Wilhelm Jambrich, what now is the effect of registration of the properties in the name of respondent?

It is settled that registration is not a mode of acquiring ownership.21 It is only a means of confirming the fact of its existence with notice to the world at large.22 Certificates of title are not a source of right. The mere possession of a title does not make one the true owner of the property. Thus, the mere fact that respondent has the titles of the disputed properties in her name does not necessarily, conclusively and absolutely make her the owner. The rule on indefeasibility of title likewise does not apply to respondent. A certificate of title implies that the title is quiet,23 and that it is perfect, absolute and indefeasible.24 However, there are well-defined exceptions to this rule, as when the transferee is not a holder in good faith and did not acquire the subject properties for a valuable consideration.25 This is the situation in the instant case. Respondent did not contribute a single centavo in the acquisition of the properties. She had no income of her own at that time, nor did she have any savings. She and her two sons were then fully supported by Jambrich.

Respondent argued that aliens are prohibited from acquiring private land. This is embodied in Section 7, Article XII of the 1987 Constitution,26 which is basically a reproduction of Section 5, Article XIII of the 1935 Constitution,27 and Section 14, Article XIV of the 1973 Constitution.28 The capacity to acquire private land is dependent on the capacity "to acquire or hold lands of the public domain." Private land may be transferred only to individuals or entities "qualified to acquire or hold lands of the public domain." Only

Filipino citizens or corporations at least 60% of the capital of which is owned by Filipinos are qualified to acquire or hold lands of the public domain. Thus, as the rule now stands, the fundamental law explicitly prohibits non-Filipinos from acquiring or holding title to private lands, except only by way of legal succession or if the acquisition was made by a former natural-born citizen.29

Therefore, in the instant case, the transfer of land from Agro-Macro Development Corporation to Jambrich, who is an Austrian, would have been declared invalid if challenged, had not Jambrich conveyed the properties to petitioner who is a Filipino citizen. In United Church Board for World Ministries v. Sebastian,30 the Court reiterated the consistent ruling in a number of cases31 that if land is invalidly transferred to an alien who subsequently becomes a Filipino citizen or transfers it to a Filipino, the flaw in the original transaction is considered cured and the title of the transferee is rendered valid. Applying United Church Board for World Ministries, the trial court ruled in favor of petitioner, viz.:

[W]hile the acquisition and the purchase of (sic) Wilhelm Jambrich of the properties under litigation [were] void ab initio since [they were] contrary to the Constitution of the Philippines, he being a foreigner, yet, the acquisition of these properties by plaintiff who is a Filipino citizen from him, has cured the flaw in the original transaction and the title of the transferee is valid.

The trial court upheld the sale by Jambrich in favor of petitioner and ordered the cancellation of the TCTs in the name of respondent. It declared petitioner as owner in fee simple of the residential house of strong materials and three parcels of land designated as Lot Nos. 1, 3 and 5, and ordered the Register of Deeds of Mandaue City to issue new certificates of title in his name. The trial court likewise ordered respondent to pay petitioner P25,000 as attorney’s fees and P10,000 as litigation expenses, as well as the costs of suit.

We affirm the Regional Trial Court.

The rationale behind the Court’s ruling in United Church Board for World Ministries, as reiterated in subsequent cases,32 is this – since the ban on aliens is intended to preserve the nation’s land for future generations of Filipinos, that aim is achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization or those transfers made by aliens to Filipino citizens. As the property in dispute is already in the hands of a qualified person, a Filipino citizen, there would be no more public policy to be protected. The objective of the constitutional provision to keep our lands in Filipino hands has been achieved.

IN VIEW WHEREOF, the petition is GRANTED. The Decision of the Court of Appeals in C.A. G.R. CV No. 42929 dated April 10, 2002 and its Resolution dated July 8, 2003 are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Mandaue City in Civil Case No. MAN-1148 is REINSTATED.

SO ORDERED.

REYNATO S. PUNO Chief Justice

WE CONCUR:

ANTONIO T. CARPIO Associate Justice

RENATO C. CORONA Associate Justice

TERESITA J. LEONARDO-DE CASTRO Associate Justice

ARTURO D. BRION Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO Chief Justice

Footnotes

1 Exhibit "I," Original Records, p. 104.

2 Exhibit "K," id. at 105.

3 Exhibit "L," id. at 106-109.

4 Exhibit "C," id. at 87-89.

5 Exhibit "H," id. at 101-103.

6 Exhibit "O," id. at 155.

7 Decision, id. at 294.

8 Id. at 295-296.

9 Id. at 296.

10 Id. at 297.

11 Id. at 297-298.

12 Id. at 71-83.

13 CA rollo, pp. 225-226.

14 Rollo, p. 15.

15 Exhibit "G," Original Records, pp. 97-100.

16 Id. at 100.

17 Exhibit "F," id. at 92-96.

18 Id. at 93.

19 Art. 144, Civil Code; Art. 147, Family Code.

20 Art. 148, Family Code; Rivera v. Heirs of Romualdo Villanueva, G.R. No. 141501, July 21, 2006, 496 SCRA 135.

21 Bollozos v. Yu Tieng Su, No. L-29442, November 11, 1987, 155 SCRA 506.

22 Id. at 517, citing Bautista v. Dy Bun Chin, CA-L-6983-R, 49 O.G. 179.

23 Legarda and Prieto v. Saleeby, 31 Phil. 590 (1915).

24 Government v. Avila, 38 Phil. 38 (1918).

25 Ignacio v. Chua Beng, 52 Phil. 940 (1929); Acosta v. Gomez, 52 Phil. 744 (1929); Cruz v. Fabie, 35 Phil. 144 (1916).

26 SECTION 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.

27 SECTION 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines.

28 SECTION 14. Save in cases of hereditary succession, no private land shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.

29 1987 Constitution, Art. XII, Sec. 8. Notwithstanding the provisions of Section 7 of this Article, a natural-born citizen of the Philippines who has lost his Philippine citizenship may be a transferee of private lands, subject to limitations provided by law.

30 G.R. No. L-34672, March 30, 1988, 159 SCRA 446.

31 Sarsosa Vda. de Barsobia v. Cuenco, G.R. No. L-33048, April 16, 1982, 113 SCRA 547; Godinez v. Pak Luen, G.R. No. L-36731, January 27, 1983, 120 SCRA 223, Vasquez v. Li Seng Giap & Sons, 96 Phil. 447 (1955); Herrera v. Luy King Guan, G.R. No. L-17043, January 31, 1961, 1 SCRA 406; Yap v. Maravillas, G.R. No. L-31606, March 28, 1983, 121 SCRA 244; and De Castro v. Tan, G.R. No. L-31956, April 30, 1984, 129 SCRA 85.

32 Hko Ah Pao v. Ting, G.R. No. 153476, September 27, 2006, 503 SCRA 551; Muller v. Muller, G.R. No. 149615, August 29, 2006, 500 SCRA 65; Lee v. Republic, G.R. No. 128195, October 3, 2001, 366 SCRA 524.

SECOND DIVISION

G.R. No. L-60174 February 16, 1983

EDUARDO FELIPE, HERMOGENA V. FELIPE AND VICENTE V. FELIPE, petitioners, vs. HEIRS OF MAXIMO ALDON, NAMELY: GIMENA ALMOSARA, SOFIA ALDON, SALVADOR ALDON, AND THE HONORABLE COURT OF APPEALS, respondents.

Romulo D. San Juan for petitioner.

Gerundino Castillejo for private respondent.

ABAD SANTOS, J.:

Maximo Aldon married Gimena Almosara in 1936. The spouses bought several pieces of land sometime between 1948 and 1950. In 1960-62, the lands were divided into three lots, 1370, 1371 and 1415 of the San Jacinto Public Land Subdivision, San Jacinto, Masbate.

In 1951, Gimena Almosara sold the lots to the spouses Eduardo Felipe and Hermogena V. Felipe. The sale was made without the consent of her husband, Maximo.

On April 26, 1976, the heirs of Maximo Aldon, namely his widow Gimena and their children Sofia and Salvador Aldon, filed a complaint in the Court of First Instance of Masbate against the Felipes. The complaint which was docketed as Civil Case No. 2372 alleged that the plaintiffs were the owners of Lots 1370, 1371 and 1415; that they had orally mortgaged the same to the defendants; and an offer to redeem the mortgage had been refused so they filed the complaint in order to recover the three parcels of land.

The defendants asserted that they had acquired the lots from the plaintiffs by purchase and subsequent delivery to them. The trial court sustained the claim of the defendants and rendered the following judgment:

a. declaring the defendants to be the lawful owners of the property subject of the present litigation;

b. declaring the complaint in the present action to be without merit and is therefore hereby ordered dismissed;

c. ordering the plaintiffs to pay to the defendants the amount of P2,000.00 as reasonable attorney's fees and to pay the costs of the suit.

The plaintiffs appealed the decision to the Court of Appeals which rendered the following judgment:

PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and SET ASIDE, and a new one is hereby RENDERED, ordering the defendants-appellees to surrender the lots in question as well as the plaintiffs'-appellants' muniments of title thereof to said plaintiffs-appellants, to make an accounting of the produce derived from the lands including expenses incurred since 1951, and to solidarity turn over to the plaintiffs-appellants the NET monetary value of the

profits, after deducting the sum of P1,800.00. No attorney's fees nor moral damages are awarded for lack of any legal justification therefor. No. costs.

The ratio of the judgment is stated in the following paragraphs of the decision penned by Justice Edgardo L. Paras with the concurrence of Justices Venicio Escolin and Mariano A. Zosa:

One of the principal issues in the case involves the nature of the aforementioned conveyance or transaction, with appellants claiming the same to be an oral contract of mortgage or antichresis, the redemption of which could be done anytime upon repayment of the P1,800.00 involved (incidentally the only thing written about the transaction is the aforementioned receipt re the P1,800). Upon the other hand, appellees claim that the transaction was one of sale, accordingly, redemption was improper. The appellees claim that plaintiffs never conveyed the property because of a loan or mortgage or antichresis and that what really transpired was the execution of a contract of sale thru a private document designated as a 'Deed of Purchase and Sale' (Exhibit 1), the execution having been made by Gimena Almosara in favor of appellee Hermogena V. Felipe.

After a study of this case, we have come to the conclusion that the appellants are entitled to recover the ownership of the lots in question. We so hold because although Exh. 1 concerning the sale made in 1951 of the disputed lots is, in Our opinion, not a forgery the fact is that the sale made by Gimena Almosara is invalid, having been executed without the needed consent of her husband, the lots being conjugal. Appellees' argument that this was an issue not raised in the pleadings is baseless, considering the fact that the complaint alleges that the parcels 'were purchased by plaintiff Gimena Almosara and her late husband Maximo Aldon' (the lots having been purchased during the existence of the marriage, the same are presumed conjugal) and inferentially, by force of law, could not, be disposed of by a wife without her husband's consent.

The defendants are now the appellants in this petition for review. They invoke several grounds in seeking the reversal of the decision of the Court of Appeals. One of the grounds is factual in nature; petitioners claim that "respondent Court of Appeals has found as a fact that the 'Deed of Purchase and Sale' executed by respondent Gimena Almosara is not a forgery and therefore its authenticity and due execution is already beyond question." We cannot consider this ground because as a rule only questions of law are reviewed in proceedings under Rule 45 of the Rules of Court subject to well-defined exceptions not present in the instant case.

The legal ground which deserves attention is the legal effect of a sale of lands belonging to the conjugal partnership made by the wife without the consent of the husband.

It is useful at this point to re-state some elementary rules: The husband is the administrator of the conjugal partnership. (Art. 165, Civil Code.) Subject to certain exceptions, the husband cannot alienate or encumber any real property of the conjugal partnership without the wife's consent. (Art. 166, Idem.) And the wife cannot bind the conjugal partnership without the husband's consent, except in cases provided by law. (Art. 172, Idem.)

In the instant case, Gimena, the wife, sold lands belonging to the conjugal partnership without the consent of the husband and the sale is not covered by the phrase "except in cases provided by law." The Court of Appeals described the sale as "invalid" - a term which is imprecise when used in relation to contracts because the Civil Code uses specific names in designating defective contracts, namely: rescissible (Arts. 1380 et seq.), voidable (Arts. 1390 et seq.), unenforceable (Arts. 1403, et seq.), and void or inexistent (Arts. 1409 et seq.)

The sale made by Gimena is certainly a defective contract but of what category? The answer: it is a voidable contract.

According to Art. 1390 of the Civil Code, among the voidable contracts are "[T]hose where one of the parties is incapable of giving consent to the contract." (Par. 1.) In the instant case-Gimena had no capacity to give consent to the contract of sale. The capacity to give consent belonged not even to the husband alone but to both spouses.

The view that the contract made by Gimena is a voidable contract is supported by the legal provision that contracts entered by the husband without the consent of the wife when such consent is required, are annullable at her instance during the marriage and within ten years from the transaction questioned. (Art. 173, Civil Code.)

Gimena's contract is not rescissible for in such contract all the essential elements are untainted but Gimena's consent was tainted. Neither can the contract be classified as unenforceable because it does not fit any of those described in Art. 1403 of the Civil Code. And finally, the contract cannot be void or inexistent because it is not one of those mentioned in Art. 1409 of the Civil Code. By process of elimination, it must perforce be a voidable contract.

The voidable contract of Gimena was subject to annulment by her husband only during the marriage because he was the victim who had an interest in the contract. Gimena, who was the party responsible for the defect, could not ask for its annulment. Their children could not likewise seek the annulment of the contract while the marriage subsisted because they merely had an inchoate right to the lands sold.

The termination of the marriage and the dissolution of the conjugal partnership by the death of Maximo Aldon did not improve the situation of Gimena. What she could not do during the marriage, she could not do thereafter.

The case of Sofia and Salvador Aldon is different. After the death of Maximo they acquired the right to question the defective contract insofar as it deprived them of their hereditary rights in their father's share in the lands. The father's share is one-half (1/2) of the lands and their share is two-thirds (2/3) thereof, one-third (1/3) pertaining to the widow.

The petitioners have been in possession of the lands since 1951. It was only in 1976 when the respondents filed action to recover the lands. In the meantime, Maximo Aldon died.

Two questions come to mind, namely: (1) Have the petitioners acquired the lands by acquisitive prescription? (2) Is the right of action of Sofia and Salvador Aldon barred by the statute of limitations?

Anent the first question, We quote with approval the following statement of the Court of Appeals:

We would like to state further that appellees [petitioners herein] could not have acquired ownership of the lots by prescription in view of what we regard as their bad faith. This bad faith is revealed by testimony to the effect that defendant-appellee Vicente V. Felipe (son of appellees Eduardo Felipe and Hermogena V. Felipe) attempted in December 1970 to have Gimena Almosara sign a ready-made document purporting to self the disputed lots to the appellees. This actuation clearly indicated that the appellees knew the lots did not still belong to them, otherwise, why were they interested in a document of sale in their favor? Again why did Vicente V. Felipe tell Gimena that the purpose of the document was to obtain Gimena's consent to the construction of an irrigation pump on the lots in question? The only possible reason for purporting to obtain such consent is that the appellees knew the lots were not theirs. Why was there an attempted improvement (the irrigation tank) only in 1970? Why was the declaration of

property made only in 1974? Why were no attempts made to obtain the husband's signature, despite the fact that Gimena and Hermogena were close relatives? An these indicate the bad faith of the appellees. Now then, even if we were to consider appellees' possession in bad faith as a possession in the concept of owners, this possession at the earliest started in 1951, hence the period for extraordinary prescription (30 years) had not yet lapsed when the present action was instituted on April 26, 1976.

As to the second question, the children's cause of action accrued from the death of their father in 1959 and they had thirty (30) years to institute it (Art. 1141, Civil Code.) They filed action in 1976 which is well within the period.

WHEREFORE, the decision of the Court of Appeals is hereby modified. Judgment is entered awarding to Sofia and Salvador Aldon their shares of the lands as stated in the body of this decision; and the petitioners as possessors in bad faith shall make an accounting of the fruits corresponding to the share aforementioned from 1959 and solidarity pay their value to Sofia and Salvador Aldon; costs against the petitioners.

SO ORDERED.

Concepcion Jr., Guerrero and De Castro, JJ., concur.

Makasiar, (Chairman), J., In the result.

Escolin J., took no part.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The issue is whether the wife's sale in 1651 of an unregistered sixteen-hectare conjugal land, without the consent of her husband (he died in 1959), can be annulled in 1976 by the wife and her two children.

As a rule, the husband cannot dispose of the conjugal realty without the wife's consent (Art. 166, Civil Code). Thus, a sale by the husband of the conjugal realty without the wife's consent was declared void (Tolentino vs. Cardenas, 123 Phil. 517; Villocino vs. Doyon, L-19797, December 17, 1966, 18 SCRA 1094 and L-28871, April 25, 1975, 63 SCRA 460; Reyes vs. De Leon, L-22331, June 6,1967, 20 SCRA 369; Bucoy vs. Paulino, L-25775, April 26, 1968, 23 SCRA 248; Tinitigan vs. Tinitigan, L-45418, October 30,1980, 100 SCRA 619).

With more reason, the wife cannot make such a disposition without the husband's consent since the husband is the administrator of the conjugal assets.

In the instant case, the Court of Appeals did not err in voiding the wife's sale of the conjugal land without the husband's consent. As that sale is contrary to law, the action to have it declared void or inexistent does not prescribe.

Moreover, there are indications that the contract between the parties was an antichresis, a transaction which is very common in rural areas.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The issue is whether the wife's sale in 1651 of an unregistered sixteen-hectare conjugal land, without the consent of her husband (he died in 1959), can be annulled in 1976 by the wife and her two children.

As a rule, the husband cannot dispose of the conjugal realty without the wife's consent (Art. 166, Civil Code). Thus, a sale by the husband of the conjugal realty without the wife's consent was declared void (Tolentino vs. Cardenas, 123 Phil. 517; Villocino vs. Doyon, L-19797, December 17, 1966, 18 SCRA 1094 and L-28871, April 25, 1975, 63 SCRA 460; Reyes vs. De Leon, L-22331, June 6,1967, 20 SCRA 369; Bucoy vs. Paulino, L-25775, April 26, 1968, 23 SCRA 248; Tinitigan vs. Tinitigan, L-45418, October 30,1980, 100 SCRA 619).

With more reason, the wife cannot make such a disposition without the husband's consent since the husband is the administrator of the conjugal assets.

In the instant case, the Court of Appeals did not err in voiding the wife's sale of the conjugal land without the husband's consent. As that sale is contrary to law, the action to have it declared void or inexistent does not prescribe.

Moreover, there are indications that the contract between the parties was an antichresis, a transaction which is very common in rural areas.

FIRST DIVISION

G.R. No. 134685 November 19, 1999

MARIA ANTONIA SIGUAN, petitioner, vs. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents.

DAVIDE, JR., C.J.:

May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her children be rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan? This is the pivotal issue to be resolved in this petition for review on certiorari under Rule 45 of the Revised Rules of Court.

The relevant facts, as borne out of the records, are as follows:

On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000 and P241,668, respectively, payable to "cash." Upon presentment by petitioner with the drawee bank, the checks were dishonored for the reason "account closed." Demands to make good the checks proved futile. As a consequence, a criminal case for violation of Batas Pambansa Blg. 22, docketed as Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23 of the Regional Trial Court (RTC) of Cebu City. In its decision 1 dated 29 December 1992, the court a quo convicted LIM as charged. The case is pending before this Court for review and docketed as G.R. No. 134685.

It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in Criminal Case No. Q-89-2216 2 filed by a certain Victoria Suarez. This decision was affirmed by the Court of Appeals. On appeal, however, this Court, in a decision 3 promulgated on 7 April 1997, acquitted LIM but held her civilly liable in the amount of P169,000, as actual damages, plus legal interest.

Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was registered with the Office of the Register of Deeds of Cebu City:

(1) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 563 sq. m. and covered by TCT No. 93433;

(2) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 600 sq. m. and covered by TCT No. 93434;

(3) a parcel of land situated at Cebu City containing an area of 368 sq. m. and covered by TCT No. 87019; and

(4) a parcel of land situated at Cebu City, Cebu containing an area of 511 sq. m. and covered by TCT No. 87020.

New transfer certificates of title were thereafter issued in the names of the donees. 5

On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch 18 of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null and void the new transfer certificates of title issued for the lots covered by the questioned Deed. The complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed therein that sometime in July 1991, LIM, through a Deed of Donation, fraudulently transferred all her real property to her children in bad faith and in fraud of creditors, including her; that LIM conspired and confederated with her children in antedating the questioned Deed of Donation, to petitioner's and other creditors' prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient properties to pay her obligations.

On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in Criminal Cases Nos. 22127-28 were erroneous, which was the reason why she appealed said decision to the Court of Appeals. As regards the questioned Deed of Donation, she maintained that it was not antedated but was made in good faith at a time when she had sufficient property. Finally, she alleged that the Deed of Donation was registered only on 2 July 1991 because she was seriously ill.

In its decision of 31 December 1994, 6 the trial court ordered the rescission of the questioned deed of donation; (2) declared null and void the transfer certificates of title issued in the names of private respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the petitioner, jointly and severally, the sum of P10,000 as moral damages; P10,000 as attorney's fees; and P5,000 as expenses of litigation.

On appeal, the Court of Appeals, in a decision 7 promulgated on 20 February 1998, reversed the decision of the trial court and dismissed petitioner's accion pauliana. It held that two of the requisites for filing an accion pauliana were absent, namely, (1) there must be a credit existing prior to the celebration of the contract; and (2) there must be a fraud, or at least the intent to commit fraud, to the prejudice of the creditor seeking the rescission.

According to the Court of Appeals, the Deed of Donation, which was executed and acknowledged before a notary public, appears on its face to have been executed on 10 August 1989. Under Section 23 of Rule 132 of the Rules of Court, the questioned Deed, being a public document, is evidence of the fact which gave rise to its execution and of the date thereof. No antedating of the Deed of Donation was made, there being no convincing evidence on record to indicate that the notary public and the parties did antedate it. Since LIM's indebtedness to petitioner was incurred in August 1990, or a year after the execution of the Deed of Donation, the first requirement for accion pauliana was not met.

Anent petitioner's contention that assuming that the Deed of Donation was not antedated it was nevertheless in fraud of creditors because Victoria Suarez became LIM's creditor on 8 October 1987, the Court of Appeals found the same untenable, for the rule is basic that the fraud must prejudice the creditor seeking the rescission.

Her motion for reconsideration having been denied, petitioner came to this Court and submits the following issue:

WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO IN FRAUD OF [THE] CREDITORS OF RESPONDENT ROSA [LIM].

Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not in fraud of creditors is contrary to well-settled jurisprudence laid down by this Court as early as 1912 in the case of Oria v. McMicking, 8 which enumerated the various circumstances indicating the existence of fraud in a transaction. She reiterates her arguments below, and adds that another fact found by the trial court and admitted by the parties but untouched by the Court of Appeals is the existence of a prior final judgment against LIM in Criminal Case No. Q-89-2216 declaring Victoria Suarez as LIM's judgment creditor before the execution of the Deed of Donation.

Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section 23, 9 Rule 132 of the Rules of Court, in holding that "being a public document, the said deed of donation is evidence of the fact which gave rise to its execution and of the date of the latter." Said provision should be read with Section 30 10 of the same Rule which provides that notarial documents are prima facie evidence of their execution, not "of the facts which gave rise to their execution and of the date of the latter."

Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the New Civil Code, which provides: "The donation is always presumed to be in fraud of creditors when at the time of the execution thereof the donor did not reserve sufficient property to pay his debts prior to the donation." In this case, LIM made no reservation of sufficient property to pay her creditors prior to the execution of the Deed of Donation.

On the other hand, respondents argue that (a) having agreed on the law and requisites of accion pauliana, petitioner cannot take shelter under a different law; (b) petitioner cannot invoke the credit of Victoria Suarez, who is not a party to this case, to support her accion pauliana; (c) the Court of Appeals correctly applied or interpreted Section 23 of Rule 132 of the Rules of Court; (d) petitioner failed to present convincing evidence that the Deed of Donation was antedated and executed in fraud of petitioner; and (e) the Court of Appeals correctly struck down the awards of damages, attorney's fees and expenses of litigation because there is no factual basis therefor in the body of the trial court's decision.

The primordial issue for resolution is whether the questioned Deed of Donation was made in fraud of petitioner and, therefore, rescissible. A corollary issue is whether the awards of damages, attorney's fees and expenses of litigation are proper.

We resolve these issues in the negative.

The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of Appeals via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of fact of the latter court are conclusive, except in a number of instances. 11 In the case at bar, one of the recognized exceptions warranting a review by this Court of the factual findings of the Court of Appeals exists, to wit, the factual findings and conclusions of the lower court and Court of Appeals are conflicting, especially on the issue of whether the Deed of Donation in question was in fraud of creditors.

Art. 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are "those contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them."

The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the alienation, 12 although demandable later; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; 13 (4) the act being impugned is fraudulent; 14 (5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud. 15

The general rule is that rescission requires the existence of creditors at the time of the alleged fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement setting aside the contract. 16 Without any prior existing debt, there can neither be injury nor fraud. While it is necessary that the credit of the plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to the date when the credit was constituted. 17

In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while the deed of donation was purportedly executed on 10 August 1989.

We are not convinced with the allegation of the petitioner that the questioned deed was antedated to make it appear that it was made prior to petitioner's credit. Notably, that deed is a public document, it having been acknowledged before a notary public. 18 As such, it is evidence of the fact which gave rise to its execution and of its date, pursuant to Section 23, Rule 132 of the Rules of Court.

Petitioner's contention that the public documents referred to in said Section 23 are only those entries in public records made in the performance of a duty by a public officer does not hold water. Section 23 reads:

Sec. 23. Public documents as evidence. — Documents consisting of entries in public records made in the performance of a duty by a public officer are prima facie evidence of the facts therein stated. All other public documents are evidence, even against a third person, of the fact which gave rise to their execution and of the date of the latter. (Emphasis supplied).

The phrase "all other public documents" in the second sentence of Section 23 means those public documents other than the entries in public records made in the performance of a duty by a public officer. And these include notarial documents, like the subject deed of donation. Section 19, Rule 132 of the Rules of Court provides:

Sec. 19. Classes of docum/ents. — For the purpose of their presentation in evidence, documents are either public or private.

Public documents are:

(a) . . .

(b) Documents acknowledged before a notary public except last wills and testaments. . . .

It bears repeating that notarial documents, except last wills and testaments, are public documents and are evidence of the facts that gave rise to their execution and of their date.

In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not enough to overcome the presumption as to the truthfulness of the statement of the date in the questioned deed, which is 10 August 1989. Petitioner's claim against LIM was constituted only in August 1990, or a year after the questioned alienation. Thus, the first two requisites for the rescission of contracts are absent.

Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the contract of donation, still her action for rescission would not fare well because the third requisite was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors may be rescinded only when the creditors cannot in any manner collect the claims due them. Also, Article 1383 of the same Code provides that the action for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. The term "subsidiary remedy" has been defined as "the exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted to." 19 It is, therefore, "essential that the party asking for rescission prove that he has exhausted all other legal means to obtain satisfaction of his claim. 20 Petitioner neither alleged nor proved that she did so. On this score, her action for the rescission of the questioned deed is not maintainable even if the fraud charged actually did exist." 21

The fourth requisite for an accion pauliana to prosper is not present either.

Art. 1387, first paragraph, of the Civil Code provides: "All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not reserve sufficient property to pay all debts contracted before the donation. Likewise, Article 759 of the same Code, second paragraph, states that the donation is always presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient property to pay his debts prior to the donation.

For this presumption of fraud to apply, it must be established that the donor did not leave adequate properties which creditors might have recourse for the collection of their credits existing before the execution of the donation.

As earlier discussed, petitioner's alleged credit existed only a year after the deed of donation was executed. She cannot, therefore, be said to have been prejudiced or defrauded by such alienation. Besides, the evidence disclose that as of 10 August 1989, when the deed of donation was executed, LIM had the following properties:

(1) A parcel of land containing an area of 220 square meters, together with the house constructed thereon, situated in Sto. Niño Village, Mandaue City, Cebu, registered in the name of Rosa Lim and covered by TCT No. 19706; 22

(2) A parcel of land located in Benros Subdivision, Lawa-an, Talisay, Cebu; 23

(3) A parcel of land containing an area of 2.152 hectares, with coconut trees thereon, situated at Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13572. 24

(4) A parcel of land containing an area of 3.6 hectares, with coconut trees thereon, situated at Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13571. 25

During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was bought by her in the amount of about P800,000 to P900,000. 26 Thus:

ATTY. FLORIDO:

Q These properties at the Sto. Niño Village, how much did you acquire this property?

A Including the residential house P800,000.00 to P900,000.00.

Q How about the lot which includes the house. How much was the price in the Deed of Sale of the house and lot at Sto. Niño Violage [sic]?

A I forgot.

Q How much did you pay for it?

A That is P800,000.00 to P900,000.00.

Petitioner did not adduce any evidence that the price of said property was lower. Anent the property in no. 2, LIM testified that she sold it in 1990. 27 As to the properties in nos. 3 and 4, the total market value stated in the tax declarations dated 23 November 1993 was P56,871.60. Aside from these tax declarations, petitioner did not present evidence that would indicate the actual market value of said properties. It was not, therefore, sufficiently established that the properties left behind by LIM were not sufficient to cover her debts existing before the donation was made. Hence, the presumption of fraud will not come into play.

Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and 1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be proved in any other manner recognized by the law of evidence. Thus in the consideration of whether certain transfers are fraudulent, the Court has laid down specific rules by which the character of the transaction may be determined. The following have been denominated by the Court as badges of fraud:

(1) The fact that the consideration of the conveyance is fictitious or is inadequate;

(2) A transfer made by a debtor after suit has begun and while it is pending against him;

(3) A sale upon credit by an insolvent debtor;

(4) Evidence of large indebtedness or complete insolvency;

(5) The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially;

(6) The fact that the transfer is made between father and son, when there are present other of the above circumstances; and

(7) The failure of the vendee to take exclusive possession of all the property. 28

The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud are as varied as the men who perpetrate the fraud in each case. This Court has therefore declined to define it, reserving the liberty to deal with it under whatever form it may present itself. 29

Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or any other circumstance from which fraud can be inferred. Accordingly, since the four requirements for the rescission of a gratuitous contract are not present in this case, petitioner's action must fail.

In her further attempt to support her action for rescission, petitioner brings to our attention the 31 July 1990 Decision 30 of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216. LIM was therein held guilty of estafa and was ordered to pay complainant Victoria Suarez the sum of P169,000 for the obligation LIM incurred on 8 October 1987. This decision was affirmed by the Court of Appeals. Upon appeal, however, this Court acquitted LIM of estafa but held her civilly liable for P169,000 as actual damages.

It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code provides that rescission shall only be to the extent necessary to cover the damages caused. Under this Article, only the

creditor who brought the action for rescission can benefit from the rescission; those who are strangers to the action cannot benefit from its effects. 31 And the revocation is only to the extent of the plaintiff creditor's unsatisfied credit; as to the excess, the alienation is maintained. 32 Thus, petitioner cannot invoke the credit of Suarez to justify rescission of the subject deed of donation.

Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses of litigation in favor of the petitioner. We have pored over the records and found no factual or legal basis therefor. The trial court made these awards in the dispositive portion of its decision without stating, however, any justification for the same in the ratio decidendi. Hence, the Court of Appeals correctly deleted these awards for want of basis in fact, law or equity.

WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of Appeals in CA-G.R. CV. No. 50091 is AFFIRMED in toto.

No pronouncement as to costs.

SO ORDERED.

Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.

Footnotes

1 Original Record (OR), 42.

2 Id., 135.

3 G.R. No. 102784, 271 SCRA 12 [1997].

4 OR, 10-12.

5 Id., 6-9.

6 OR, 160; Rollo, 22. Per Judge Galicano C. Arriesgado.

7 Rollo, 31. Per Tuquero, A., J., with Imperial, J., and Verzola, E., JJ., concurring.

8 21 Phil. 243 [1912].

9 Sec. 23. Public documents as evidence. — Documents consisting of entries in public records made in the performance of a duty by a public officer are prima facie evidence of the facts therein stated. All other public documents are evidence, even against a third person, of the fact which gave rise to their execution and of the date of the latter.

10 Sec. 30. Proof of notarial documents. — Every instrument duly acknowledged or proved and certified as provided by law may be presented in evidence without further proof, the certificate of acknowledgment being prima facie evidence of the execution of the instrument or document involved.

11 In Sta. Maria v. Court of Appeals, 285 SCRA 351 [1998], the Court enumerated some of the instances when the factual findings of the Court of Appeals are not deemed conclusive, to wit: (1) when the findings are grounded

entirely on speculation, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record.

12 Panlilio v. Victoria, 35 Phil. 706 [1916]; Solis v. Chua Pua Hermanos, 50 Phil. 636 [1927].

13 Art. 1383, Civil Code.

14 4 TOLENTINO, ARTURO M., CIVIL CODE OF THE PHILIPPINES 576 (1991), [hereafter 4 TOLENTINO]; citing 8 MANRESA 756, 2 Castan 543-555, and 3 Camus 207.

15 4 TOLENTINO 576, citing 2 Castan 543-555 and 3 Camus 107.

16 Solis v. Chua Pua Hernanes, supra note 12, at 639.

17 4 TOLENTINO 576-577, citing Sentencia (Cuba) of 7 May 1910 and 1 Gasperi 484-485.

18 Sec. 19(b), Rule 132, Rules of Court.

19 MORENO, FEDERICO B., PHILIPPINE LAW DICTIONARY 915 (1988).

20 Art. 1177, Civil Code.

21 See Goquiolay v. Sycip, 9 SCRA 663, 677 [1963]; Solis v. Chua Pua Hermanos, supra note 12, at 639-640.

22 Exhibit "M"; Exhibit "2"; OR, 114.

23 TSN, 12 November 1993, 4.

24 Exhibit "N"; OR, 146.

25 Exhibit "O"; Id., 147.

26 TSN, 12 November 1993, 7.

27 Id., 6.

28 Oria v. McMicking, supra note 8.

29 Rivera v. Litam & Co., 4 SCRA 1072 [1962].

30 Exhibit "K"; OR, 135.

31 4 PARAS, EDGARDO L., CIVIL CODE OF THE PHILIPPINES, 70 (1994); 4 TOLENTINO 586, citing 7 Planiol & Ripert 274-275.

32 4 TOLENTINO 586, Citing 7 Planiol & Ripert 271-272.

THIRD DIVISION

G.R. No. 74938-39 January 17, 1990

ANGELINA J. MALABANAN, petitioner, vs. GAW CHING and THE INTERMEDIATE APPELLATE COURT, respondents.

G.R. No. L-75524-25 January 17, 1990

LEONIDA CHY SENOLOS, LEONARD CHAN and LEONSO CHY CHAN, petitioners, vs. INTERMEDIATE APPELLATE COURT and GAW CHING, respondents.

Puruganan, Chato, Chato, Chato & Tan and Romero, Lagman, Torres, Arrieta & Evangelista for petitioners in 75524-25.

Quiason, Makalintal, Barot & Torres for petitioners in 74938-39.

Limqueco & Macaraeg Law Office and Herminio T. Sugay for respondent Gaw Ching.

R E S O L U T I O N

FELICIANO, J.:

The two (2) Petitions before us — G.R. Nos. 74938-39 and 75524-25 — assail the decision of the then Intermediate Appellate Court in A.C.-G.R. CV Nos. 05136-05137 dated 31 January 1986, which reversed the decision of the Regional Trial Court in two (2) consolidated cases, namely: Civil Case No. R-81-416 and Civil Case No. R-82-6789. Upon motion of petitioners, we ordered the consolidation of the two (2) Petitions.

Respondent Gaw Ching instituted two (2) cases against petitioners Angelina Malabanan, Leonida Senolos, et al. in connection with the sale of piece of land located in Binondo, Manila. The first case, Civil Case No. R-81-416, sought to annul such sale and to enjoin the demolition of a building standing on that piece of land, and also prayed for the award of damages. The second case, Civil Case No. G.R. 82-6798, demanded damages from petitioner Senolos for bringing about the demolition of the building.

The following facts found by the trial court, and adopted and incorporated by the appellate court, are undisputed:

Evidence for plaintiff showed that Gaw Ching has been leasing the house and lot located [in] 697-699 Asuncion Street, Binondo, Manila from Mr. Jabit since 1951. Plaintiff conducted his business (Victoria Blacksmith Shop) on the ground floor and lived on the second floor. When Mr. Jabit died, his daughter, defendant Malabanan continued to lease the premises to plaintiff but at an increased rental of P1,000.00 per month. Before the increase, Gaw Ching paid P700.00 per month, as evidenced by receipts of rentals. There

was no written contract of lease between plaintiff and Mr. Jabit as to its duration but the rentals were evidently, paid monthly. On April 27, 1980, Angelina Malabanan told him that she was selling the house and lot for P5,000.00 per square meter. Plaintiff told her however, that the price is prohibitive. On May 13, 1980, defendant Malabanan wrote plaintiff, reiterating that she was selling the house and lot at P5,000.00 per square meter and that if he is not agreeable, she will sell it to another person. After receiving the letter, plaintiff turned over the letter to his counsel, Atty. Sugay. Gaw Ching claims that he is not in a position to buy the property at P5,000.00 per square meter because it was expensive. Subsequently, Gaw Ching tried to pay the rent for June, 1980, but Malabanan refused to accept it. Plaintiff's counsel advised him to deposit the rentals in a bank which he did, after which, his counsel wrote Malabanan informing her about the deposit (Exh. B). On October 2, 1980, plaintiff received another letter from defendant Malabanan which he gave to his counsel who told him that said defendant is offering the house and lot at P5,000.00 per square meter and that if he is not agreeable, she will sell the premises to another person at P4,000.00 per square meter. Plaintiff testified that he was willing to buy the subject property at P4,000.00 but hastened to add that it was still expensive and did not ask his counsel to write Malabanan about it. So, also, it was the opinion of his counsel that it was not necessary to reply because the context of the letter was invariably a threat. On November 3, 1980, plaintiff received another letter from Defendant Malabanan, informing him that the premises in question had already been sold to defendant Leonida Senolos. This time, Atty. Sugay sent a reply dated November 24, 1980, requesting that the pertinent documents of the sale be sent to them but according to plaintiff, they were not furnished a copy of said sale. Consequently, plaintiff received a letter from Atty. Techico dated December 5, 1980 demanding that he vacate the premises and to pay the arrearages in rentals from October to December, as they were more importantly, going to repair and convert the dwelling into a warehouse. Atty. Sugay sent a reply dated February 17, 1981 (Exh. C) requesting Atty. Techico to furnish them with the Deed of Sale and TCT because he doubted the veracity of the sale. It took a long time before Atty. Sugay's letter was answered and he was never furnished a copy of the Deed of Sale and Transfer Certificate of Title. After exerting all efforts, plaintiff finally was able to procure a copy of the Deed of Sale and TCT No. 14789 (Exh- A) which reflected that the date of entry of the Deed of Sale was December 9, 1980, whereas the Deed of Sale was dated August 23, 1979 (Exh. I). Plaintiff then told Atty. Sugay to file a civil case against defendants. On October 7, 1981, Atty. Techico sent a reply to Atty. Sugay's letter of February 17, 1981 (Exh K). Plaintiff presented the receipt of rentals he paid (Exhs. L to L-6). He deposited the monthly rentals which Malabanan refused to accept, with the Pacific Banking Corporation (Exh. M). At a later period, plaintiff had to move out of the premises when it was demolished by the defendant. Gaw Ching however, admitted that he was not yet a Filipino Citizen at the time the offer to sell was made, i.e., on April 27, 1980, May 13, 1980 and October 2, 1980 and that he became a Filipino citizen only on October 7, 1980, when he was issued a certificate of naturalization (Exh. 1-Malabanan). He did not, however, inform Malabanan on the matter of his newly acquired citizenship. Likewise, Gaw Ching admitted that he did not make any counter-offer in writing so as to price the property.

As to plaintiffs claim for damages, he testified, that this was motivated by the incident on November 16, 1981, while he was on the ground floor, when there was a sudden brownout, and around 50 people came thereat, climbed

the roof with the use of a ladder, cut the electric wires and started banging the roof. Plaintiff, his wife, and mother-in-law were in the house and about 7 laborers were in the shop when the incident happened. Plaintiff then immediately called up Atty. Sugay and told him that Leonida Senolos called some people to demolish the house. Plaintiff further testified that ... he was not notified of the demolition. . . . On that same day, Atty. Sugay arrived at about 10:00 a.m. and told plaintiff that he was going to the City Hall. When Atty. Sugay came back, he was with Roldan (Building Inspector), who ordered that the demolition be stopped, but Leonida Senolos refused to heed the order. Atty. Sugay and Roldan went back to the City Hall. . . . At about 3:00 p.m., Atty. Sugay came back with another person from the City Hall who presented a letter to Leonida Senolos to which defendant affixed her signature. The formal letter was dated November 6, 1981 addressed to Leonida Senolos by Romulo del Rosario, City Engineer and Building Officer. Upon receipt of the letter, the policeman remained but the demolition continued. Plaintiff together with Atty. Sugay, and the City Hall official, went to the police precinct where the City Hall Official talked with somebody in the precinct. It was only when they returned to the premises at about 4:00 p.m. with a policeman that the demolition was stopped. . . .

On cross examination, plaintiff admitted that he received a letter from the Office of the City Engineer dated July 29, 1981 (Exh. 1-Senolos) condemning the building. He also admitted that he was furnished a copy of the Demolition Order (Exh. 2-Senolos) to which he affixed his signature.

After receiving Exhibits "I" and "2," Gaw Ching still refused to vacate the premises because he was told that the building was still in good condition and he continued paying the monthly rental.

On redirect, plaintiff declared that after receiving the notice of the City Engineer, he filed a complaint with the Ministry of Public Works and Highways by reason of which, the MPWH issued an order that the demolition to be stopped. (Exh. 3).

xxx xxx xxx

Another witness presented by plaintiff was Felix Tienzo, Actg. Chief of Enforcement Division, (Ministry of Public Works and Highways). . .

Mr. Felix Tienzo believes that the City of Manila was correct in ordering the demolition of the building but he intended to hold in abeyance the demolition of the building only in obedience to the order of the MPWH. However, both Mr. Tienzo and Mr. Roldan claim that they do not usually receive an order from the MPWH stopping the demolitions.

xxx xxx xxx 1

On 10 August 1984, the trial court rendered a decision which upheld the validity of the contract of sale between petitioner Malabanan and petitioner Senolos. The trial court declared that petitioner Malabanan had not violated Sections 4 and 6 of Presidential Decree No. 1517 in relation to Presidential Proclamation No. 1893 and Letter of Instruction (LOI) No. 935 which provide for a preemptive right on the part of a lessee over leased property. The trial court stressed that respondent Gaw Ching had been given ample opportunity to exercise any right of first refusal he might have had, but he had chosen not to do so.

Respondent Gaw Ching went on appeal to the then Intermediate Appellate Court. By a vote of three (3) to two (2), the appellate court voted to reverse the decision of the trial court and hence to nullify the contract of sale between petitioners Malabanan and Senolos inter se. 2 The majority also held that the transaction between petitioners was vitiated by fraud, deceit and bad faith allegedly causing damage to respondent Gaw Ching. Petitioners were held liable jointly and severally to respondent for moral, exemplary and actual damages in the amount of P350,000.00 and for attorney's fees in the amount of P20,000.00 —

for the indulgence in inequitous conduct to plaintiff-appellant's (respondent Gaw Ching) prejudice and for the unwarranted demolition of the building by defendants-appellees (petitioners herein) after the issuance of the cease-and-desist order on October 30, 1981.

While holding that the land in question was located outside the Urban Land Reform Zone declared by Proclamations Nos. 1767 and 1967, the majority ruled that circumstances surrounding the sale of the land to petitioner Senolos had rendered that sale null and void. The majority were here referring to the finding that when petitioner Malabanan offered in October 1980 to sell the land involved to respondent Gaw Ching at P5,000.00 per square meter, that land had already been sold to petitioner Senolos as early as August 1979 for only P1,176.48 per square meter. On the matter of the demolition of the building, the majority held that the same was unwarranted and that even if petitioner Senolos had a demolition order,

that order of demolition was valid only if there are no more tenants residing in the building. If there are tenants and they refused to vacate, the order of demolition is unavailing. It could not rise higher than the Civil Code and the Rules of Court. 3

In the instant Petitions for Certiorari, petitioners assail both the annulment of the deed of sale and the grant of P350,000.00 worth of "moral, exemplary and actual damages" to respondent Gaw Ching.

We believe that the Petitions must be granted.

I

The firmly settled rule is that strangers to a contract cannot sue either or both of the contracting parties to annul and set aside that contract. Article 1397 of the Civil Code embodies that rule in the following formulation:

Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. (Emphasis supplied)

Article 1397 itself follows from Article 1311 of the Civil Code which establishes the fundamental rule that:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by

provision of law. The heir is not liable beyond the value of the property he received from the decedent.

xxx xxx xxx

(Emphasis supplied)

As long ago as 1912, this Court in Ibanez v. Hongkong and Shanghai Bank, 4 pointed out that it is the existence of an interest in a particular contract that is the basis of one's right to sue for nullification of that contract and that essential interest in a given contract is, in general, possessed only by one who is a party to the contract. In Ibanez, Mr. Justice Torres wrote:

From these legal provisions it is deduced that it is the interest had in a given contract, that is the determining reason of the right which lies in favor of the party obligated principally or subsidiarily to enable him to bring an action for the nullity of the contract in which he intervened, and, therefore, he who has no right in a contract is not entitled to prosecute an action for nullity, for, according to the precedents established by the courts, the person who is not a party to a contract nor has any cause of action or representation from those who intervened therein, is manifestly without right of action and personality such as to enable him to assail the validity of the contract. (Decisions of the Supreme Court of Spain, of April 18, 1901, and November 23, 1903, pronounced in cases requiring an application of the preinserted article 1302 of the Civil Code. 5

Mr. Justice Torres went on to indicate a possible qualification to the above general principle, that is, a situation where a non-party to a contract could be allowed to bring an action for declaring that contract null:

He who is not the party obligated principally or subsidiarily in a contract may perhaps be entitled to exercise an action for nullity, if he is prejudiced in his rights with respect to one of the contracting parties; but, in order that such be the case, it is indispensable to show the detriment which positively would result to him from the contract in which he had no intervention

xxx xxx xxx

(Emphasis supplied)

There is an important and clear, albeit implicit, limitation upon the right of a person who is in fact injured by the very operation of a contract between two (2) third parties to sue to nullify that contract: that contract may be nullified only to the extent that such nullification is absolutely necessary to protect the plaintiff's lawful rights. It may be expected that in most instances, an injunction restraining the carrying out of acts in fact injurious to the plaintiff's rights would be sufficient and that there should be no need to set aside the contract itself which is a res inter alios acta and which may have any number of other provisions, implementation of which might have no impact at all upon the plaintiff's rights and interests.

What is important for present purposes is that respondent Gaw Ching, admittedly a stranger to the contract of sale of a piece of land between petitioners Malabanan and Senolos inter se, does not fall within the possible exception recognized in Ibanez v. Hongkong & Shanghai Bank. In the first place, Gaw Ching had no legal right of preemption in respect of the house and lot here

involved. The majority opinion of the appellate court itself explicitly found that the subject piece of land is located outside the Urban Land Reform Zones declared pursuant to P.D. No. 1517. 7 Even assuming for purposes of argument merely, that the land here involved was in fact embraced in a declared Urban Land Reform Zone (which it was not), Gaw Ching would still not have been entitled to a right of preemption in respect of the land sold. In Santos v. Court of Appeals, 8 this Court held that the preemptive or redemptive rights of a lessee under P.D. No. 1517 exists only in respect of the urban land under lease on which the tenant or lessee had built his home and in which he had resided for ten (10) years or more and that, in consequence, where both land and building belong to the lessor, that preemptive or redemptive right was simply not available under the law.

Finally, we are unable to understand the respondent appellate court's view that respondent Gaw Ching having been a long-time tenant of the property in question, had acquired a preferred right to purchase that property. This holding is simply bereft of any legal basis. We know of no law, outside the Urban Land Reform Zone or P.D. No. 1517, that grants such a right to a lessee no matter how long the period of the lease has been. If such right existed at all, it could only have been created by contract; 9 respondent Gaw Ching does not, however, pretend that there had been such a contractual stipulation between him and petitioners.

In the second place, assuming once again, for present purposes only, that respondent Gaw Ching did have a preemptive right to purchase the land from petitioner Malabanan (which he did not), it must be stressed that petitioner Malabanan did thrice offer the land to Gaw Ching but the latter had consistently refused to buy. Since Gaw Ching did not in fact accept the offer to sell and did not buy the land, he suffered no prejudice, and could not have suffered any prejudice, by the sale of the same piece of land to petitioner Senolos. No fraud was thus worked upon him notwithstanding his insinuation that the sale of the land to petitioner Senolos had preceded the offer of the same piece of land to himself.

In the third place, and contrary to the holding of the majority appellate court opinion, the fact that Gaw Ching had been lessee of the house and lot was simply not enough basis for a right to bring an action to set aside the contract of sale between the petitioners inter se. A lessee, it is elementary, cannot attack the title of his lessor over the subject matter of the lease. 10 Moreover, the lease contract between petitioner Malabanan and respondent Gaw Ching must in any case be held to have lapsed when the leased house was condemned and the order of demolition issued.

II

We consider next petitioners' claim that the appellate court erred grievously in imposing upon them an award of P350,000.00 for "moral, exemplary and actual damages" not only because petitioners had "indulged in inequitous conduct to [respondent Gaw Ching's] prejudice" but also "for the unwarranted demolition of the building by [petitioners] after the issuance of the cease and desist order on October 30, 1981."

Here again, we are compelled to hold that the appellate court lapsed into reversible error. The relevant conclusions of fact which the trial court arrived at are set out in its decision in the following manner:

On the legality of the demolition necessarily raising the question: (3) whether or not plaintiff was notified within a reasonable period of time of the demolition, and a fortiori whether this admittedly exercise of police power, the validity of which was already being determined by the Court could be stopped by a pretenatural [sic] administrative order from the office of the Assistant Secretary for Operation of the MPWH brought about by an appeal by a person other than the owner of the building, which office

had not done anything to immediately forestall the imminent injury to person and damage to property. (Please see P.D. 1096, Rule XII, Sec. 5 thereof).

In the first place, the claim of the plaintiff that the demolition of the house rented by him came as a surprise, is fiercely contradicted by his own evidence. A copy of the demolition order is attached to the complaint as Annex "L", now marked as Exhibit "9" for the defendant Senolos, unmistakably show that plaintiff received a copy of the order of demolition from the City Engineer's Office, approved by the Mayor, on October 5, 1981.

Verily, the present action before the Court is procedurally and substantially correct in abating a nuisance. This exercise of police power is not only being cordoned sanitaired [sic] by the doctrinal pronouncements, the provisions of Art. 482 in relation to Art. 436 of the Civil Code, Sections 275 and 276 of the compilation of ordinances of the City of Manila but also by Rule VII, par. 5 of the implementing Rules and Regulations of the National Building Code of the Philippines (P.D. 1096). Indeed, the latter law does not authorize any person other than the owner, to appeal the order of the City Engineer to the Ministry of Public Works and Highways. This is the position espoused by the City Legal Officer of Manila in defense of the City Engineer and the Mayor, in opposition to the move of the plaintiff to dismiss the order of demolition as improvidently issued.

The demolition was invariably a valid exercise of police power which may be ordered done by the authorities or caused to be done at the expense of the owner. The exigency is made more demanding especially, the demolition, when it was ordered stopped thru an order inadvertently issued, as it was not as a consequence of an appeal by the owner of the building, but by the lessee, was during its last stages.

It therefore stands to reason that the order of demolition which is unquestionably legal could not be stopped by an inoperative administrative order, assuming that the appeal to the MPWH could validly be filed by the lessee, as it was filed only during the finishing touches of a demolition. Decidedly, the move exude physiological features of delay. This is compounded by the failure of the MPWH to act assertively, which in a sense, could be interpreted as an admission that the issuance of the order was inopportune.

On the claim for damages predicated on (4) whether or not there was an indscriminate careless handling and pilferage of the properties of the plaintiff, causing their loss or destruction:

It is readily explained that between October 5, 1981 to November 6,1981, plaintiff could have avoided the misplaced fear, but assuming without having necessarily to concede that he was not able to guard against an actual demolition on November 6, 1981, rendering him so helpless, and prompting him to just sit on the sidewalk and watch the demolition team wreck the building indiscriminately, thereby causing destruction and loss of his personal properties, such as: (a) office equipment; (b) assorted tools; (c) machines; (d) finished products; and (e) steel box containing jewelries. The claim is almost too good to be true, considering first, that these items were so huge that they could not be spirited away without being noticed and, secondly; it has been established that there was a

policeman detailed to the demolition scene from the start of the said demolition, to whom he could have easily reported the matter, caused the apprehension of the culprits, and prevent the loss of his personal properties, thirdly, he could have grabbed the steel box containing jewelries if this were the last thing he would have done. Waiting idly by the sidewalk and watching your properties pilfered by persons whom you could have successfully identified at the time and referring the matter to the policeman on duty, which plaintiff did not do, is certainly against the natural order of things and the legal presumption that a person takes great care of his concern. Plaintiff strongly relies on the alleged illegal and indiscriminate destruction of his properties as basis for his claim for damages. Truth to tell, there was no suddenness or indiscriminate destruction of plaintiffs property nor pilferage thereof, as alleged, in the demolition of the house owned by the defendant. The order was lawful as it was an abatement of a nuisance and the dismantling of the house owned by defendant Senolos could only be conceived as having been carried out in a manner consistent only with utmost care. Conversely, its indiscriminate destruction is contrary to the interest of the defendant Senolos as it is a truism that every bit of useful material should be preserved either for use of, or for profit of the owner. It would be sheer folly to assume that the demolition team would have taken a selective method of care for the still serviceable materials of the house and a destructive stance for the properties of the occupants. Understandably, the unorthodox position taken by plaintiff would not only lose his residence but also his place of business.

By and large, the basis for the claim for damages do not physically nor imaginatively exist, for it has defied reason and common sense. 11

We note that the majority opinion chose to disregard the above conclusions of fact of the trial court and instead quoted extensively from respondent Gaw Ching's brief and, presumably relied upon such brief The majority opinion, however, failed to indicate why it preferred Gaw Ching's version of the facts set out in his brief over the trial court's findings. No indication was offered where the trial court had fallen into error or what evidence had been misapprehended by it. In this situation, the Court considers that it must go back to the trial court's findings of fact in line with the time-honored rule that such findings are entitled to great respect from appellate courts since the trial court judge had the opportunity to examine the evidence directly and to listen to the witnesses and observe their demeanor while testifying.

It appears therefore that firstly, the order of condemnation or demolition had been issued by the proper authorities which order was valid and subsisting at the time the demolition was actually carried out. Secondly, under Section 5.3 of Rule VII entitled "Abandonment/Demolition of Buildings" of the Rules and Regulations Implementing the National Building Code of the Philippines (P.D. No. 1096, as amended dated 19 February 1977), an order for demolition may be appealed, by the owner of the building or installation to be demolished, to the Secretary of Public Works and Highways. In the case at bar, it was respondent Gaw Ching, a lessee merely of the building condemned that sought to block the implementation of the demolition order. It does not even appear from the record whether or not Gaw Ching actually filed a formal appeal to the Secretary, even though he was not entitled to do so. What does appear from the record 12 is that Gaw Ching's counsel, Atty. Sugay, was able to obtain a letter dated 6 November 1981 from the Office of the City Engineer and Building Official, enclosing a xerox copy of a letter from the Assistant Secretary for Operations, Ministry of Public Works and Highways, "directing this office to hold the demolition in abeyance." This letter, which did not purport to set aside the order of

demolition, was served upon the demolition team on site while the demolition was in progress. After some hesitation, the demolition was in fact stopped. 13

It is worth noting that officials from the Office of the City Engineer, City of Manila, testified that it was not "normal practice to receive an order from the Ministry of Public Works and Highways stopping demolitions."

In the fourth place, respondent Gaw Ching, in the action that he had filed before the Regional Trial Court of Manila to set aside the contract of sale between petitioners Malabanan and Senolos, had sought preliminary injunction precisely to restrain the implementation of the order for demolition. That application for preliminary injunction was denied by the trial court and the order for demolition was implemented only after such denial. Thus, there was no subsisting court order restraining the demolition at the time such demolition was carried out.

In the fifth place, Gaw Ching had ample notice of the demolition order and had adequate time to remove his belongings from the premises if he was minded to obey the order for demolition. He chose not to obey that order. If he did suffer any losses—the trial court did not believe his claims that he did—he had only himself to blame.

ACCORDINGLY, The Court Resolved to GRANT the Petition and to REVERSE and SET ASIDE the Decision of the then Intermediate Appellate Court dated 31 January 1986 and its Resolution dated 5 June 1986, in AC-G.R. CV Nos. 05136-05137. The Decision of the trial court dated 10 August 1984 in consolidated Civil Cases Nos. R-81-416 and R-82-6798, is hereby REINSTATED. No pronouncement as to costs.

Fernan C.J., Gutierrez, Jr. and Cortés, JJ., concur.

Bidin J., took no part.

Footnotes

1 Decision, Regional Trial Court, Rollo, pp. 42-48; G.R. Nos. 75524-25.

2 Sison, P.V., J., ponente; Pascual and Britanico, JJ., concurring; Bidin and Veloso, JJ., dissented in a Separate Opinion.

3 Decision, Intermediate Appellate Court; Rollo, p. 54; G.R. Nos. 74938-39.

4 22 Phil. 572 (1912).

5 22 Phil. at 584; emphasis supplied.

6 2 Phil. at 584-585. See also Teves v. People's Homesite and Housing Corporation, 23 SCRA 1141 (1968).

7 Sison, P.V., J., said: "The said parcel of land is outside the declared Urban Land Reform Zone as per Proclamations Nos. 1767 and 1967" Rollo, p. 47. The reference to Proclamation No. 1767 is erroneous. Upon the other hand, Proclamation No. 1967, dated 14 May 1980 (78 O.G. 6809 (19821) declared certain sites in Metropolitan Manila as "areas for priority development in Urban Land Reform Zones" and limited the application of

provisions of P.D. Nos. 1517, 1640 and 1642 and of L01 No. 935 to said zones. The subject land is not embraced in any of these zones.

8 128 SCRA 428 (1984).

9 Lopez v. De la Cruz. et al., 94 Phil. 517 (1954).

10 Article 1436, Civil Code; e.g.: Lizada v. Omanan 59 Phil. 547 (1934); and Pascual v. Angeles, 4 Phil. 604 (1905).

11 Rollo, pp. 80-82; G.R. Nos. 75524-25.

12 Rollo, p. 44; pp. 47-48; G.R. Nos. 75524-25.

13 Rollo, p. 45; G.R. Nos. 75524-25.

THIRD DIVISION

G.R. No. 118509 December 1, 1995

LIMKETKAI SONS MILLING, INC., petitioner, vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK STORE, respondents.

MELO, J.:

The issue in the petition before us is whether or not there was a perfected contract between petitioner Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI) covering the sale of a parcel of land, approximately 3.3 hectares in area, and located in Barrio Bagong Ilog, Pasig City, Metro Manila.

Branch 151 of the Regional Trial Court of the National Capital Judicial Region stationed in Pasig ruled that there was a perfected contract of sale between petitioner and BPI. It stated that there was mutual consent between the parties; the subject matter is definite; and the consideration was determined. It concluded that all the elements of a consensual contract are attendant. It ordered the cancellation of a sale effected by BPI to respondent National Book Store (NBS) while the case was pending and the nullification of a title issued in favor of said respondent NBS.

Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was perfected because there was no concurrence of the three requisites enumerated in Article 1318 of the Civil Code. The decision of the trial court was reversed and the complaint dismissed.

Hence, the instant petition.

Shorn of the interpretations given to the acts of those who participated in the disputed sale, the findings of facts of the trial court and the Court of Appeals narrate basically the same events and occurrences. The records show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI as its trustee to manage, administer, and sell its real estate property. One such piece of property placed under trust was the disputed lot, a 33,056-square meter lot at Barrio Bagong Ilog, Pasig, Metro Manila covered by Transfer Certificate of Title No. 493122.

On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI to sell the lot for P1,000.00 per square meter. This arrangement was concurred in by the owners of the Philippine Remnants.

Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 8, 1988, petitioner's officials and Revilla were given permission by Rolando V. Aromin, BPI Assistant Vice-President, to enter and view the property they were buying.

On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner. On July 11, 1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale. They were entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner asked that the price of P1,000.00 per square meter be reduced to P900.00 while Albano stated the price to be P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per square meter to be paid

in cash. Since the authority to sell was on a first come, first served and non-exclusive basis, it may be mentioned at this juncture that there is no dispute over petitioner's being the first comer and the buyer to be first served.

Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso Lim asked if it was possible to pay on terms. The bank officials stated that there was no harm in trying to ask for payment on terms because in previous transactions, the same had been allowed. It was the understanding, however, that should the term payment be disapproved, then the price shall be paid in cash.

It was Albano who dictated the terms under which the installment payment may be approved, and acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano embodying the payment initially of 10% and the remaining 90% within a period of 90 days.

Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso Lim went to BPI on July 18, 1988 and tendered the full payment of P33,056,000.00 to Albano. The payment was refused because Albano stated that the authority to sell that particular piece of property in Pasig had been withdrawn from his unit. The same check was tendered to BPI Vice-President Nelson Bona who also refused to receive payment.

An action for specific performance with damages was thereupon filed on August 25, 1988 by petitioner against BPI. In the course of the trial, BPI informed the trial court that it had sold the property under litigation to NBS on July 14, 1989. The complaint was thus amended to include NBS.

On June 10, 1991, the trial court rendered judgment in the case as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants Bank of the Philippine Islands and National Book Store, Inc.: —

1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the name of the Bank of the Philippine Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, in favor of National Book Store, Inc., null and void;

2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer Certificate of Title which may have been issued in favor of National Book Store, Inc. by virtue of the aforementioned Deed of Sale dated July 14, 1989;

3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of P33,056,000.00, to execute a Deed of Sale in favor of plaintiff of the aforementioned property at the price of P1,000.00 per square meter; in default thereof, the Clerk of this Court is directed to execute the said deed;

4. Ordering the Register of Deeds of Pasig, upon registration of the said deed, whether executed by defendant BPI or the Clerk of Court and payment of the corresponding fees and charges, to cancel said T.C.T. No. 493122 and to issue, in lieu thereof, another transfer certificate of title in the name of plaintiff;

5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and severally, to the plaintiff the sums of P10,000,000.00 as actual and consequential damages and P150,000.00 as attorney's fees and litigation expenses, both with interest at 12% per annum from date hereof;

6. On the cross-claim of defendant bank against National Book Store, ordering the latter to indemnify the former of whatever amounts BPI shall have paid to the plaintiff by reason hereof; and

7. Dismissing the counterclaims of the defendants against the plaintiff and National Book Store's cross-claim against defendant bank.

Costs against defendants.

(pp. 44-45, Rollo.)

As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, and Mabutas, JJ.), on August 12, 1994, reversed the trial court's decision and dismissed petitioner's complaint for specific performance and damages.

The issues raised by the parties revolve around the following four questions:

(1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to the subject matter of the contract and the cause of the obligation?

(2) Were the bank officials involved in the transaction authorized by BPI to enter into the questioned contract?

(3) Is there competent and admissible evidence to support the alleged meeting of the minds?

(4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good faith?

There is no dispute in regard to the following: (a) that BPI as trustee of the property of Philippine Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per square meter; (b) that Philippine Remnants confirmed the authority to sell of Revilla and the price at which he may sell the lot; (c) that petitioner and Revilla agreed on the former buying the property; (d) that BPI Assistant Vice-President Rolando V. Aromin allowed the broker and the buyer to inspect the property; and (e) that BPI was formally informed about the broker having procured a buyer.

The controversy revolves around the interpretation or the significance of the happenings or events at this point.

Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its top officials and broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano and Rolando V. Aromin at the BPI offices.

Respondents, however, contend that what transpired on this date were part of continuing negotiations to buy the land and not the perfection of the sale. The arguments of respondents center on two propositions — (1) Vice-Presidents Aromin and Albano had no authority to bind BPI on this particular transaction and (2) the subsequent attempts of petitioner to pay under terms instead of full payment in cash constitutes a counter-offer which negates the existence of a perfected contract.

The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the record.

At the start of the transactions, broker Revilla by himself already had full authority to sell the disputed lot. Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on an as is, where is basis the property located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony that the authority given to him was to sell and not merely to look for a buyer, as contended by respondents.

Revilla testified that at the time he perfected the agreement to sell the litigated property, he was acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up the sale of the land, Revilla saw it fit to bring BPI officials into the transaction. If BPI could give the authority to sell to a licensed broker, we see no reason to doubt the authority to sell of the two BPI Vice-Presidents whose precise job in the Bank was to manage and administer real estate property.

Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made up of top bank officials. It appears from the record that this trust committee meets rather infrequently and it does not have to pass on regular transactions.

Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI Real Property Management Unit. He had been in the Real Estate Division since 1985 and was the head supervising officer of real estate matters. Aromin had been with the BPI Trust Department since 1968 and had been involved in the handling of properties of beneficial owners since 1975 (tsn., December 3, 1990, p. 5).

Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo Barcelon, while purporting to inform Aromin of his poor performance, is an admission of BPI that Aromin was in charge of Torrens titles, lease contracts, problems of tenants, insurance policies, installment receivables, management fees, quitclaims, and other matters involving real estate transactions. His immediate superior, Vice-President Merlin Albano had been with the Real Estate Division for only one week but he was present and joined in the discussions with petitioner.

There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident. Revilla brought the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a perfectly natural manner on the transaction before him with not the slightest indication that he was acting ultra vires. This shows that BPI held Aromin out to the public as the officer routinely handling real estate transactions and, as Trust Officer, entering into contracts to sell trust properties.

Respondents state and the record shows that the authority to buy and sell this particular trust property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have any authority to act as alleged, there was no need to withdraw authority which he never possessed.

Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank vs. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs. Dakota Trust Co. (52 ND 752, 204 NW 818, 40 ALR 1021), to wit:

Accordingly a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person for his own ultimate benefit.

(at pp. 652-653.)

In the present case, the position and title of Aromin alone, not to mention the testimony and documentary evidence about his work, leave no doubt that he had full authority to act for BPI in the questioned transaction. There is no allegation of fraud, nor is there the least indication that Aromin was acting for his own ultimate benefit. BPI later dismissed Aromin because it appeared that a top official of the bank was personally interested in the sale of the Pasig property and did not like Aromin's testimony. Aromin was charged with poor performance but his dismissal was only sometime after he testified in court. More than two long years after the disputed transaction, he was still Assistant Vice-President of BPI.

The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine Remnants Co. regarding the sale of the firm's property was addressed to Aromin. The P1,000.00 figure on the first page of broker Revilla's authority to sell was changed to P1,100.00 by Aromin. The price was later brought down again to P1,000.00, also by Aromin. The permission given to petitioner to view the lot was signed by Aromin and honored by the BPI guards. The letter dated July 9, 1988 from broker Revilla informing BPI that he had a buyer was addressed to Aromin. The conference on July 11, 1988 when the contract was perfected was with Aromin and Vice-President Albano. Albano and Aromin were the ones who assured petitioner Limketkai's officers that term payment was possible. It was Aromin who called up Miguel Bicharra of Philippine Remnants to state that the BPI rejected payment on terms and it was to Aromin that Philippine Remnants gave the go signal to proceed with the cash sale. Everything in the record points to the full authority of Aromin to bind the bank, except for the self-serving memoranda or letters later produced by BPI that Aromin was an inefficient and undesirable officer and who, in fact, was dismissed after he testified in this case. But, of course, Aromin's alleged inefficiency is not proof that he was not fully clothed with authority to bind BPI.

Respondents' second contention is that there was no perfected contract because petitioner's request to pay on terms constituted a counter-offer and that negotiations were still in progress at that point.

Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial. Among his statements is one to the effect that —

. . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano counter-offered to sell the property at P1,100.00 per square meter but after the usual haggling, we finally agreed to sell the property at the price of P1,000.00 per square meter . . .

(tsn, 12-3-90, p. 17; Emphasis supplied.)

Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of P1,000.00 per square meter, Aromin answered:

Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price is concerned, sir.

(ibid, p. 17.)

The requirements in the payment of the purchase price on terms instead of cash were suggested by BPI Vice-President Albano. Since the authority given to broker Revilla specified cash payment, the possibility of paying on terms was referred to the Trust Committee but with the mutual agreement that "if the proposed payment on terms will not be approved by our Trust Committee, Limketkai should pay in cash . . . the amount was no longer subject to the approval or disapproval of the Committee, it is only on the terms." (ibid, p. 19). This is incontrovertibly established in the following testimony of Aromin:

A. After you were able to agree on the price of P1,000.00/sq. m., since the letter or authority says the payment must be in cash basis, what transpired later on?

B. After we have agreed on the price, the Lim brothers inquired on how to go about submitting the covering proposal if they will be allowed to pay on terms. They requested us to give them a guide on how to prepare the corresponding letter of proposal. I recall that, upon the request of Mr. Albino Limketkai, we dictated a guide on how to word a written firm offer that was to be submitted by Mr. Lim to the bank setting out the terms of

payment but with the mutual agreement that if his proposed payment on terms will not be approved by our trust committee, Limketkai should pay the price in cash.

Q And did buyer Limketkai agree to pay in cash in case the offer of terms will be cash (disapproved).

A Yes, sir.

Q At the start, did they show their willingness to pay in cash?

A Yes, sir.

Q You said that the agreement on terms was to be submitted to the trust committee for approval, are you telling the Court that what was to be approved by the trust committee was the provision on the payment on terms?

A Yes, sir.

Q So the amount was no longer subject to the approval or disapproval of the committee, it is only on the terms?

A Yes, sir.

(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)

The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But because petitioner took advantage of the suggestion of Vice-President Albano, the matter was sent to higher officials. Immediately upon learning that payment on terms was frozen and/or denied, Limketkai exercised his right within the period given to him and tendered payment in full. The BPI rejected the payment.

In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602 [1994]) to bolster its case. Contrarywise, it would seem that the legal principles found in said case strengthen and support petitioner's submission that the contract was perfected upon the meeting of the minds of the parties.

The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property and finally (d) the negotiations with Aromin and Albano at the BPI offices.

The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per square meter. Aside from this there was the earlier agreement between petitioner and the authorized broker. There was a concurrence of offer and acceptance, on the object, and on the cause thereof.

The phases that a contract goes through may be summarized as follows:

a. preparation, conception or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties;

b. perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and

c. consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract (Toyota Shaw, Inc. vs. Court of Appeals, G.R. No. 116650, May 23, 1995).

But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:

. . . A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees.

(238 SCRA 602; 611 [1994].)

In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual antecendents similar to this case, the Court, through Justice Aquino (later to be Chief Justice), quoting authorities, upheld the perfection of the contract of sale thusly:

The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (Art. 1475, Ibid.)

xxx xxx xxx

Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer (Art. 1319, Civil Code). "An acceptance may be express or implied." (Art. 1320, Civil Code).

xxx xxx xxx

It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. "So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not, a contract is formed." (Stuart vs. Franklin Life Ins. Co., 105 Fed. 2nd 965, citing Sec. 79, Williston on Contracts).

xxx xxx xxx

. . . the vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender or a counter-offer. (Stuart vs. Franklin Life Ins. Co., supra.)

(at pp. 362-363; 365-366.)

In the case at bench, the allegation of NBS that there was no concurrence of the offer and acceptance upon the cause of the contract is belied by the testimony of the very BPI official with whom the contract was perfected. Aromin and Albano concluded the sale for BPI. The fact that the deed of sale still had to be signed and notarized does not mean that no contract had already been perfected. A sale of land is valid regardless of the form it may have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article 1458 of the Civil Code is merely for greater efficacy or convenience and the failure to comply therewith does not affect the validity and binding effect of the act between the parties (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552). If the law requires a document or other special form, as in the sale of real property, the contracting parties may compel each other to observe that form, once the contract has been perfected. Their right may be exercised simultaneously with action upon the contract (Article 1359, Civil Code).

Regarding the admissibility and competence of the evidence adduced by petitioner, respondent Court of Appeals ruled that because the sale involved real property, the statute of frauds is applicable.

In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that contracts infringing the Statute of Frauds are ratified when the defense fails to object, or asks questions on cross-examination. The succinct words of Justice Araullo still ring in judicial cadence:

As no timely objection or protest was made to the admission of the testimony of the plaintiff with respect to the contract; and as the motion to strike out said evidence came too late; and, furthermore, as the defendants themselves, by the cross-questions put by their counsel to the witnesses in respect to said contract, tacitly waived their right to have it stricken out, that evidence, therefore, cannot be considered either inadmissible or illegal, and court, far from having erred in taking it into consideration and basing his judgment thereon, notwithstanding the fact that it was ordered to be stricken out during the trial, merely corrected the error he committed in ordering it to be so stricken out and complied with the rules of procedure hereinbefore cited.

(at p. 748.)

In the instant case, counsel for respondents cross-examined petitioner's witnesses at length on the contract itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla, and other details of the litigated contract. Under the Abrenica rule (reiterated in a number of cases, among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence was initially inadmissible, the same became competent and admissible because of the cross-examination, which elicited evidence proving the evidence of a perfected contract. The cross-examination on the contract is

deemed a waiver of the defense of the Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. 563).

The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses were stricken out, the cross-examination could have no object whatsoever, and if the questions were put to the witnesses and answered by them, they could only be taken into account by connecting them with the answers given by those witnesses on direct examination" (pp. 747-748).

Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts pursuant to the Statute of Frauds is the existence of a written note or memorandum evidencing the contract. The memorandum may be found in several writings, not necessarily in one document. The memorandum or memoranda is/are written evidence that such a contract was entered into.

We cite the findings of the trial court on this matter:

In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a written contract of the sale is not necessary so long as the agreement to sell real property is evidenced by a written note or memorandum, embodying the essentials of the contract and signed by the party charged or his agent. Thus, it has been held:

The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not require that the contract itself be written. The plain test of Article 1403, Paragraph (2) is clear that a written note or memorandum, embodying the essentials of the contract and signed by the party charged, or his agent suffices to make the verbal agreement enforceable, taking it out of the operation of the statute. (Emphasis supplied)

xxx xxx xxx

In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by letter and telegram (Record on Appeal, p. 2), and the letter referred to was evidently the one copy of which was appended as Exhibit A to plaintiffs opposition to the motion to dismiss. The letter, transcribed above in part, together with the one marked as Appendix B, constitute an adequate memorandum of the transaction. They are signed by the defendant-appellant; refer to the property sold as a Lot in Puerto Princesa, Palawan, covered by T.C.T. No. 62, give its area as 1,825 square meters and the purchase price of four (P4.00) pesos per square meter payable in cash. We have in them, therefore, all the essential terms of the contract and they satisfy the requirements of the Statute of Frauds.

(Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).

While there is no written contract of sale of the Pasig property executed by BPI in favor of plaintiff, there are abundant notes and memoranda extant in the records of this case evidencing the elements of a perfected contract. There is Exhibit P, the letter of Kenneth Richard Awad addressed to Roland Aromin, authorizing the sale of the subject property at the price of P1,000.00 per square meter giving 2% commission to the broker and instructing that the sale be on cash basis. Concomitantly, on the basis of the instruction of Mr. Awad, (Exh. P), an authority

to sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing Assetrade Co., authorizing the latter to sell the property at the initial quoted price of P1,000.00 per square meter which was altered on an unaccepted offer by Technoland. After the letter authority was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin allowing the buyer to enter the premises of the property to inspect the same (Exh. C). On July 9, 1988, Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI informing it that he had procured a buyer in the name of Limketkai Sons Milling, Inc. with offices at Limketkai Bldg., Greenhills, San Juan, Metro Manila, represented by its Exec. Vice-President, Alfonso Lim (Exh. D). On July 11, 1988, the plaintiff, through Alfonso Lim, wrote a letter to the bank, through Merlin Albano, confirming their transaction regarding the purchase of the subject property (Exh. E). On July 18, 1988, the plaintiff tendered upon the officials of the bank a check for P33,056,000.00 covered by Check No. CA510883, dated July 18, 1988. On July 1, 1988, Alfonso Zamora instructed Mr. Aromin in a letter to resubmit new offers only if there is no transaction closed with Assetrade Co. (Exh. S). Combining all these notes and memoranda, the Court is convinced of the existence of perfected contract of sale. Aptly, the Supreme Court, citing American cases with approval, held:

No particular form of language or instrument is necessary to constitute a memorandum or note in writing under the statute of frauds; any document or writing, formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose, which satisfies all the requirements of the statute as to contents and signature, as discussed respectively infra secs. 178-200, and infra secs. 201-205, is a sufficient memorandum or note. A memorandum may be written as well with lead pencil as with pen and ink. It may also be filled in on a printed form. (37 C.J.S., 653-654).

The note or memorandum required by the statute of frauds need not be contained in a single document, nor, when contained in two or more papers, need each paper be sufficient as to contents and signature to satisfy the statute. Two or more writings properly connected may be considered together, matters missing or uncertain in one may be supplied or rendered certain by another, and their sufficiency will depend on whether, taken together, they meet the requirements of the statute as to contents and the requirements of the statutes as to signature, as considered respectively infra secs. 179-200 and secs. 201-215.

(pp. 460-463, Original RTC Record).

The credibility of witnesses is also decisive in this case. The trial court directly observed the demeanor and manner of testifying of the witnesses while the Court of Appeals relied merely on the transcript of stenographic notes.

In this regard, the court of origin had this to say:

Apart from weighing the merits of the evidence of the parties, the Court had occasion to observe the demeanor of the witnesses they presented. This is one important factor that inclined the Court to believe in the version given by the plaintiff because its witnesses, including hostile witness Roland V. Aromin, an assistant vice-president of the bank, were straightforward, candid and unhesitating in giving their respective testimonies. Upon the other hand, the

witnesses of BPI were evasive, less than candid and hesitant in giving their answers to cross examination questions. Moreover, the witnesses for BPI and NBS contradicted each other. Fernando Sison III insisted that the authority to sell issued to Mr. Revilla was merely an evidence by which a broker may convince a prospective buyer that he had authority to offer the property mentioned therein for sale and did not bind the bank. On the contrary, Alfonso Zamora, a Senior Vice-President of the bank, admitted that the authority to sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding upon the bank being signed by two class "A" signatories and that the bank cannot back out from its commitment in the authority to sell to Mr. Revilla.

While Alfredo Ramos of NBS insisted that he did not know personally and was not acquainted with Edmundo Barcelon, the latter categorically admitted that Alfredo Ramos was his friend and that they have even discussed in one of the luncheon meetings the matter of the sale of the Pasig property to NBS. George Feliciano emphatically said that he was not a consultant of Mr. Ramos nor was he connected with him in any manner, but his calling card states that he was a consultant to the chairman of the Pacific Rim Export and Holdings Corp. whose chairman is Alfredo Ramos. This deliberate act of Mr. Feliciano of concealing his being a consultant to Mr. Alfredo Ramos evidently was done by him to avoid possible implication that he committed some underhanded maneuvers in manipulating to have the subject property sold to NBS, instead of being sold to the plaintiff.

(pp. 454-455, Original RTC Record.)

On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals and the trial court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of Appeals (196 SCRA 107 [1991]) bears stressing:

It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of witnesses are entitled to great respect from the appellate courts because the trial court had an opportunity to observe the demeanor of witnesses while giving testimony which may indicate their candor or lack thereof. While the Supreme Court ordinarily does not rule on the issue of credibility of witnesses, that being a question of fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in exceptional situations where, for instance, as here, the trial court and the Court of Appeals arrived at divergent conclusions on questions of fact and the credibility of witnesses.

(at p. 110.)

On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows that it is not. It acted in bad faith.

Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It was the willingness and design of NBS to buy property already sold to another party which led BPI to dishonor the contract with Limketkai.

Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent petitioner from paying the agreed price and getting possession of the property:

1. The sale was supposed to be done through an authorized broker, but top officials of BPI personally and directly took over this particular sale when a close friend became interested.

2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo Ramos, was his friend; that they had lunch meetings before this incident and discussed NBS's purchase of the lot. Barcelon's father was a business associate of Ramos.

3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would drop the case and give up the lot. Feliciano went to petitioner's office and haggled with Alfonso Lim but failed to convince him inspite of various and increasing offers.

4. In a place where big and permanent buildings abound, NBS had constructed only a warehouse marked by easy portability. The warehouse is bolted to its foundations and can easily be dismantled.

It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly negates any allegation of good faith on the part of the buyer. Instead of the vendee insisting that the vendor guarantee its title to the land and recognize the right of the vendee to proceed against the vendor if the title to the land turns out to be defective as when the land belongs to another person, the reverse is found in the deed of sale between BPI and NBS. Any losses which NBS may incur in the event the title turns out to be vested in another person are to be borne by NBS alone. BPI is expressly freed under the contract from any recourse of NBS against it should BPI's title be found defective.

NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It simply cites the badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the enumeration there is exclusive. The decision in said case plainly states "the following are some of the circumstances attending sales which have been denominated by courts (as) badges of fraud." There are innumerable situations where fraud is manifested. One enumeration in a 1912 decision cannot possibly cover all indications of fraud from that time up to the present and into the future.

The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the amended complaint to implead NBS, sheriffs fees, registration fees, plane fare and hotel expenses of Cebu-based counsel. Petitioner also claimed, and the trial court awarded, damages for the profits and opportunity losses caused to petitioner's business in the amount of P10,000,000.00.

We rule that the profits and the use of the land which were denied to petitioner because of the non-compliance or interference with a solemn obligation by respondents is somehow made up by the appreciation in land values in the meantime.

Prescinding from the above, we rule that there was a perfected contract between BPI and petitioner Limketkai; that the BPI officials who transacted with petitioner had full authority to bind the bank; that the evidence supporting the sale is competent and admissible; and that the sale of the lot to NBS during the trial of the case was characterized by bad faith.

WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET ASIDE. The June 10, 1991 judgment of Branch 151 of the Regional Trial Court of The National Capital Judicial Region stationed in Pasig, Metro Manila is REINSTATED except for the award of Ten Million Pesos (P10,000,000.00) damages which is hereby DELETED.

SO ORDERED.

Feliciano, Romero, Vitug and Panganiban, JJ., concur.

FIRST DIVISION

G.R. No. 80965 June 6, 1990

SYLVIA LICHAUCO DE LEON, petitioner, vs. THE HON. COURT OF APPEALS, MACARIA DE LEON AND JOSE VICENTE DE LEON, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

De Jesus & Associates for Macaria de Leon.

Quisumbing, Torres & Evangelista for Jose Vicente de Leon.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. CV No. 06649 dated June 30, 1987 the decision of the Regional Trial Court of Pasig in SP Proc. No. 8492 dated December 29, 1983; and its resolution dated November 24, 1987 denying the motion for reconsideration.

The antecedent facts are as follows:

On October 18, 1969, private respondent Jose Vicente De Leon and petitioner Sylvia Lichauco De Leon were united in wedlock before the Municipal Mayor of Binangonan, Rizal. On August 28, 1971, a child named Susana L. De Leon was born from this union.

Sometime in October, 1972, a de facto separation between the spouses occured due to irreconcilable marital differences, with Sylvia leaving the conjugal home. Sometime in March, 1973, Sylvia went to the United States where she obtained American citizenship.

On November 23, 1973, Sylvia filed with the Superior Court of California, County of San Francisco, a petition for dissolution of marriage against Jose Vicente. In the said divorce proceedings, Sylvia also filed claims for support and distribution of properties. It appears, however, that since Jose Vicente was then a Philippine resident and did not have any assets in the United States, Sylvia chose to hold in abeyance the divorce proceedings, and in the meantime, concentrated her efforts to obtain some sort of property settlements with Jose Vicente in the Philippines.

Thus, on March 16, 1977, Sylvia succeeded in entering into a Letter-Agreement with her mother-in-law, private respondent Macaria De Leon, which We quote in full, as follows (pp. 40-42, Rollo):

March 16, 1977 Mrs. Macaria Madrigal de Leon 12 Jacaranda, North Forbes Park Makati, Metro Manila Dear Dora Macaria:

This letter represents a contractual undertaking among (A) the undersigned (B) your son, Mr. Jose Vicente de Leon, represented by you, and (C) yourself in your personal capacity.

You hereby bind yourself jointly and severally to answer for the undertakings of Joe Vincent under this contract.

In consideration for a peaceful and amicable termination of relations between the undersigned and her lawfully wedded husband, Jose Vicente de Leon, your son, the following are agreed upon:

Obligations of Jose Vicente de Leon and/ or yourself in a joint and several capacity:

1. To deliver with clear title free from all liens and encumbrances and subject to no claims in any form whatsoever the following properties to Sylvia Lichauco-de Leon hereinafter referred to as the wife:

A. Suite 11-C, Avalon Condominium, Ortigas Ave., corner Xavier St., Mandaluyong, Rizal, Philippines.

B. Apartment 702, Wack Wack Condominium, Mandaluyong, Rizal, Philippines.

C. The rights to assignment of 2 Ayala lots in Alabang, Rizal (Corner lots, 801 s q. meters each). (Fully paid).

D. 2470 Wexford Ave., South San Francisco, California, U.S.A. (Lot 18 Block 22 Westborough Unit No. 2). (Fully paid).

E. 1) The sum of One Hundred Thousand Pesos (P100,000)

2) $30,000

3) $5,000

2. To give monthly support payable six (6) months in advance every year to any designated assignee of the wife for the care and upbringing of Susana Lichauco de Leon which is hereby pegged at the exchange rate of 7.50 to the dollar subject to adjustments in the event of monetary exchange fluctuations. Subsequent increase on actual need upon negotiation.

3. To respect the custody of said minor daughter as pertaining exclusively to the wife except as herein provided.

Obligations of the wife:

1. To agree to a judicial separation of property in accordance with Philippine law and in this connection to do all that may be necessary to secure said separation of property including her approval in writing of a joint petition or consent decree.

2. To amend her complaint in the United States before the Federal Court of California, U.S.A. entitled "Sylvia Lichauco de Leon vs. Jose V. de Leon" in a

manner compatible with the objectives of this herein agreement. It is the stated objective of this agreement that said divorce proceedings will continue.

3. All the properties herein described for assignment to the wife must be assigned to Sylvia Lichauco de Leon upon the decree of the Court of First Instance in the Joint Petition for Separation of Property; except for the P100,000, $30,000 and $5,000 which will be paid immediately.

4. This contract is intended to be applicable both in the Republic of the Philippines and in the United States of America. It is agreed that this will constitute an actionable document in both jurisdictions and the parties herein waive their right to object to the use of this document in the event a legal issue should arise relating to the validity of this document. In the event of a dispute, this letter is subject to interpretation under the laws of California, U.S.A.

5. To allow her daughter to spend two to three months each year with the father upon mutual convenience.

Very truly yours,

(Sgd.) Sylvia de Leon t/ SYLVIA L. DE LEON CONFORME: s/t/MACARIA M. DE LEON with my marital consent: s/t/JUAN L. DE LEON

On the same date, Macaria made cash payments to Sylvia in the amount of P100,000 and US$35,000.00 or P280,000.00, in compliance with her obligations as stipulated in the aforestated Letter-Agreement.

On March 30, 1977, Sylvia and Jose Vicente filed before the then Court of First Instance of Rizal a joint petition for judicial approval of dissolution of their conjugal partnership, the main part of which reads as follows (pp. 37-38, Rollo):

5. For the best interest of each of them and of their minor child, petitioners have agreed to dissolve their conjugal partnership and to partition the assets thereof, under the following terms and conditions-this document, a pleading being intended by them to embody and evidence their agreement:

xxx xxx xxx

(c) The following properties shall be adjudicated to petitioner Sylvia Lichauco De Leon. These properties will be free of any and all liens and encumbrances, with clear title and subject to no claims by third parties. Petitioner Jose Vicente De Leon fully assumes all responsibility and liability in the event these properties shall not be as described in the previous sentence:

Sedan (1972 model)

Suite 11-C, Avalon Condominium, Ortigas Ave., comer Xavier St., Mandaluyong, Rizal, Philippines

Apt. 702, Wack-Wack Condominium, Mandaluyong, Rizal, Philippines

The rights to assignment of 2 Ayala lots in Alabang Rizal (corner lots, 801 sq. meters each) (Fully paid)

2470 Wexford Ave., South San Francisco, California, U.S.A. (Lot 18, Block 22 Westborough Unit 2) (Fully paid)

The sum of One Hundred Thousand Pesos (P100,000.00)

$30,000.00 at current exchange rate $5,000.00 at current exchange rate

After ex-parte hearings, the trial court issued an Order dated February 19, 1980 approving the petition, the dispositive portion of which reads (p. 143, Rollo):

WHEREFORE, it is hereby declared that the conjugal partnership of the Spouses is DISSOLVED henceforth, without prejudice to the terms of their agreement that each spouse shall own, dispose of, possess, administer and enjoy his or her separate estate, without the consent of the other, and all earnings from any profession, business or industries shall likewise belong to each spouse.

On March 17, 1980, Sylvia moved for the execution of the above-mentioned order. However, Jose Vicente moved for a reconsideration of the order alleging that Sylvia made a verbal reformation of the petition as there was no such agreement for the payment of P4,500.00 monthly support to commence from the alleged date of separation in April, 1973 and that there was no notice given to him that Sylvia would attempt verbal reformation of the agreement contained in the joint petition

While the said motion for reconsideration was pending resolution, on April 20, 1980, Macaria filed with the trial court a motion for leave to intervene alleging that she is the owner of the properties involved in the case. The motion was granted. On October 29, 1980, Macaria, assisted by her husband Juan De Leon, filed her complaint in intervention. She assailed the validity and legality of the Letter-Agreement which had for its purpose, according to her, the termination of marital relationship between Sylvia and Jose Vicente. However, before any hearing could be had, the judicial reorganization took place and the case was transferred to the-Regional Trial Court of Pasig. On December 29, 1983, the trial court rendered judgment, the dispositive portion of which reads (pp. 35-36, Rollo):

WHEREFORE, judgment is hereby rendered on the complaint in intervention in favor of the intervenor, declaring null and void the letter agreement dated March 16, 1977 (Exhibits 'E' to 'E-2'), and ordering petitioner Sylvia Lichauco De Leon to restore to intervenor the amount of P380,000.00 plus legal interest from date of complaint, and to pay intervenor the amount of P100,000.00 as and for attorney's fees, and to pay the costs of suit.

Judgment is likewise rendered affirming the order of the Court dated February 19, 1980 declaring the conjugal partnership of the spouses Jose Vicente De Leon and Sylvia Lichauco De Leon DISSOLVED; and adjudicating to each of them his or her share of the properties and assets of said conjugal partnership in accordance with the agreement embodied in paragraph 5 of the petition, except insofar as the adjudication to petitioner Sylvia L. De Leon of the properties belonging to and owned by Intervenor Macaria De Leon is concerned.

Henceforth, (a) each spouse shall own, dispose of, possess, administer and enjoy his or her separate estate, present and future without the consent of the other; (b) an earnings from any profession, business or industry shall likewise belong to each of them separately; (c) the minor child Susana De Leon shall stay with petitioner Sylvia Lichauco De Leon for two to three months every year-the transportation both ways of the child for the trip to the Philippines to be at the expense of the petitioner Jose Vicente De Leon; and (d) petitioner Jose Vicente De Leon shall give petitioner Sylvia Lichauco De Leon the sum of P4,500.00 as monthly support for the minor child Susana to commence from February 19, 1980.

Sylvia appealed to the respondent Court of Appeals raising the following errors:

1) The trial court erred in finding that the cause or consideration of the Letter- Agreement is the termination of marital relations;

2) The trial court failed to appreciate testimonial and documentary evidence proving that Macaria de Leon's claims of threat, intimidation and mistake are baseless; and

3) The trial court erred in finding that Sylvia Lichauco de Leon committed breach of the Letter-Agreement; and further, failed to appreciate evidence proving Macaria de Leon's material breach thereof.

The respondent court affirmed the decision in toto. The motion for reconsideration was denied. Hence, the present petition.

The only basis by which Sylvia may lay claim to the properties which are the subject matter of the Letter-Agreement, is the Letter-Agreement itself. The main issue, therefore, is whether or not the Letter-Agreement is valid. The third paragraph of the Letter-Agreement, supra, reads:

In consideration for a peaceful and amicable termination of relations between the undersigned and her lawfully wedded husband, Jose Vicente De Leon, your son, the following are agreed upon: (emphasis supplied)

It is readily apparent that the use of the word "relations" is ambiguous, perforce, it is subject to interpretation. There being a doubt as to the meaning of this word taken by itself, a consideration of the general scope and purpose of the instrument in which it occurs (see Germann and Co. v. Donaldson, Sim and Co., 1 Phil. 63) and Article 1374 of the Civil Code which provides that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly, is necessary.

Sylvia insists that the consideration for her execution of the Letter-Agreement was the termination of property relations with her husband. Indeed, Sylvia and Jose Vicente subsequently filed a joint petition for judicial approval of the dissolution of their conjugal partnership, sanctioned by Article 191 of the Civil Code. On the other hand, Macaria and Jose Vicente assert that the consideration was the termination of marital relationship.

We sustain the observations and conclusion made by the trial court, to wit (pp. 44- 46, Rollo):

On page two of the letter agreement (Exhibit' E'), the parties contemplated not only to agree to a judicial separation of property of the spouses but likewise to continue with divorce proceedings (paragraphs 1 and 2, Obligations of the Wife, Exhibit 'E-1'). If taken with the apparently ambiguous provisions in Exhibit E' regarding termination of 'relations', the parties clearly contemplated not only the

termination of property relationship but likewise of marital relationship in its entirety. Furthermore, it would be safe to assume that the parties in Exhibit 'E' not having specified the particular relationship which they wanted to peacefully and amicably terminate had intended to terminate all kinds of relations, both marital and property. While there could be inherent benefits to a termination of conjugal property relationship between the spouses, the court could not clearly perceive the underlying benefit for the intervenor insofar as termination of property relationship between petitioners is concerned, unless the underlying consideration for intervenor is the termination of marital relationship by divorce proceedings between her son Jose Vicente and his wife petitioner Sylvia. The last sentence of paragraph 2 under "Obligations of the Wife" unequivocally states: "It is the stated objective of this agreement that said divorce proceedings (in the United States) will continue. "There is merit in concluding that the consideration by which Intervenor executed Exhibit 'E' to 'E-2' was to secure freedom for her son petitioner Jose Vicente De Leon, especially if Exhibit 'R'-Intervenor, which is (sic) agreement signed by petitioner Sylvia to consent to and pardon Jose Vicente De Leon for adultery and concubinage (among others) would be considered. In the light, therefore, of the foregoing circumstances, this Court finds credible the testimony of intervenor as follows:

Q Will you please go over the Exhibit 'E' to 'E-2'- intervenor consisting of three pages and inform us whether or not this is the letter of March 16, 1977 which you just referred to?

A Yes, this is the letter.

Why did you affix your signature to this Exh. 'E'-intervenor (sic)?

A Because at that time when I signed it I want to buy peace for myself and for the whole family.

Q From whom did you want to buy peace and/or what kind of peace?

A I wanted to buy peace from Sylvia Lichauco whom I knew was kind of 'matapang;' so I want peace for me and primarily for the peaceful and amicable termination of marital relationship between my son, Joe Vincent and Sylvia. (Deposition dated September 6, 1983-Macaria de Leon, p. 6-7)

This Court, therefore, finds and holds that the cause or consideration for the intervenor Macaria De Leon in having executed Exhibits 'E' to 'E-2' was the termination of the marital relationship between her son Jose Vicente De Leon and Sylvia Lichauco de Leon.

Article 1306 of the New Civil Code provides:

Art. 1306. The contracting parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.

If the stipulation is contrary to law, morals or public policy, the contract is void and inexistent from the beginning.

Art. 1409. The following contracts are inexistent and void from the beginning:

Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

xxx xxx xxx

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

But marriage is not a mere contract but a sacred social institution. Thus, Art. 52 of the Civil Code provides:

Art. 52. Marriage is not a mere contract but an inviolable social institution. Its nature, consequences and incidents are governed by law and not subject to stipulations...

From the foregoing provisions of the New Civil Code, this court is of the considered opinion and so holds that intervenor's undertaking under Exhibit 'E' premised on the termination of marital relationship is not only contrary to law but contrary to Filipino morals and public Policy. As such, any agreement or obligations based on such unlawful consideration and which is contrary to public policy should be deemed null and void. (emphasis supplied)

Additionally, Article 191 of the Civil Case contemplates properties belonging to the spouses and not those belonging to a third party, who, in the case at bar., is Macaria. In the petition for the dissolution of the conjugal partnership, it was made to appear that the said properties are conjugal in nature. However, Macaria was able to prove that the questioned properties are owned by her. Neither Sylvia nor Jose Vicente adduced any contrary evidence.

Granting, in gratia argumenti, that the consideration of the Letter-Agreement was the termination of property relations, We agree with the respondent court that (pp. 46-47, Rollo):

... the agreement nevertheless is void because it contravenes the following provisions of the Civil Code:

Art. 221. The following shall be void and of no effect:

(1) Any contract for personal separation between husband and wife;

(2) Every extra-judicial agreement, during marriage, for the dissolution of the conjugal partnership of gains or of the absolute community of property between husband and wife;

Besides, the Letter-Agreement shows on its face that it was prepared by Sylvia, and in this regard, the ambiguity in a contract is to be taken contra proferentem, i.e., construed against the party who caused the ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides: "The interpretation of obscure words of stipulations in a contract shall not favor the party who caused the obscurity" (see Equitable Banking Corp. vs. IAC, G.R. No. 74451, May 25, 1988, 161 SCRA 518).

Sylvia alleges further that since the nullity of the Letter-Agreement proceeds from the unlawful consideration solely of Macaria, applying the pari delicto rule, it is clear that she cannot recover what she has given by reason of the Letter-Agreement nor ask for the fulfillment of what has been promised her. On her part, Macaria raises the defenses of intimidation and mistake which led her to execute the Letter-Agreement. In resolving this issue, the trial court said (pp. 148-151, Rollo):

In her second cause of action, intervenor claims that her signing of Exhibits 'E' to 'E- 2' was due to a fear of an unpeaceful and troublesome separation other son with petitioner Sylvia Lichauco de Leon. In support of her claim, intervenor testified as follows:

Q Will you please inform us how did Sylvia Lichauco disturb or threaten your son or yourself?

A Despite the fact that Sylvia Lichauco voluntarily left my son Joe Vincent and abandoned him, she unashamedly nagged Joe and me to get money and when her demands were not met she resorted to threats like, she threatened to bring Joe to court for support. Sylvia threatened to scandalize our family by these baseless suits; in fact she caused the service of summons to Joe when he went to the United States. (Intervenor's deposition dated Sept. 6, 1983, p. 8).

On the other hand, petitioner Sylvia claims that it was intervenor and petitioner Jose Vicente who initiated the move to convince her to agree to a dissolution of their conjugal partnership due to the alleged extra-marital activities of petitioner Jose Vicente de Leon. She testified as follows:

Q Now in her testimony, Macaria Madrigal de Leon also said that you threatened her by demanding money and nagged her until she agreed to the letter agreement of March 1977, what can you say about that?

A I think with all the people sitting around with Atty. Quisumbing, Atty. Chuidian, my father-in-law, my sister-in-law and I, you know, it can be shown that this was a friendly amicable settlement that they were much really interested in settling down as I was. I think there were certain reasons that they wanted to get done or planned, being at that time Jose was already remarried and had a child. That since she then found out that since she was worried about what might be, you know, involved in any future matters. She just wanted to do what she could. She just want me out of the picture. So in no way, it cannot be said that I nagged and threatened her. (TSN dated December 8, 1983, p. 137-138)

In resolving this issue, this Court leans heavily on Exhibit 'R'-intervenor, which was not controverted by petitioner Sylvia. A reading of Exhibit 'R' would show that petitioner Sylvia would consent to and pardon petitioner Jose Vicente, son of intervenor, for possible crimes of adultery and/or concubinage, with a sizing attached; that is, the transfer of the properties subject herein to her. There appears some truth to the apprehensions of intervenor for in petitioner Sylvia's testimony she confirms the worry of intervenor as follows:'... being at that time Jose (De Leon) was already remarried and had a child. That since she

(intervenor) found out that, she was worried about what might be, you know, involved in any future matters. She just want me out of the picture." The aforesaid fear of intervenor was further corroborated by her witness Concepcion Tagudin who testified as follows:

Q Now, you mentioned that you were present when Mrs. Macaria De Leon signed this Exhibit 'E-2, ' will you inform us whether there was anything unusual which you noticed when Mrs. Macaria M. De Leon signed this Exhibit 'E-2'?

A Mrs. Macaria M. De Leon was in a state of tension and anger. She was so mad that she remarked: 'Punetang Sylvia ito bakit ba niya ako ginugulo. Ipakukulong daw niya si Joe Vincent kung hindi ko pipirmahan ito. Sana matapos na itong problemang ito pagkapirmang ito,' sabi niya.' (Deposition-Concepcion Tagudin, Oct. 21, 1983, pp. 10-11)

In her third cause of action, intervenor claims mistake or error in having signed Exhibits '1' to 'E-2' alleging in her testimony as follows:

Q Before you were told such by your lawyers what if any were your basis to believe that Sylvia would no longer have inheritance rights from your son, Joe Vincent?

A Well, that was what Sylvia told me. That she will eliminate any inheritance rights from me or my son Joe Vincent's properties if I sign the document amicably. ... (Intervenor's deposition-Sept. 6, 1983, pp. 9-10).

On the other hand, petitioner Sylvia claims that intervenor could not have been mistaken in her having signed the document as she was under advice of counsel during the time that Exhibits 'E' to 'E-2' was negotiated. To support such claims by Sylvia Lichauco De Leon, the deposition testimony of Atty. Vicente Chuidian was presented before this Court:

Atty. Herbosa: Now you mentioned Atty. Norberto Quisumbing, would you be able to tell us in what capacity he was present in that negotiation?

Atty. Chuidian: He was counsel for Dona Macaria and for Joe Vincent, the spouse of Sylvia. (Deposition of V. Chuidian, December 16, 1983, p. 8)

The New Civil Code provides:

Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable.

Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into a contract. ...

The preponderance of evidence leans in favor of intervenor who even utilized the statement of the divorce lawyer of petitioner Sylvia (Mr. Penrod) in support of the fact that intervenor was mistaken in having signed Exhibits 'E' to 'E-2' because when she signed said Exhibits she believed that fact that petitioner Sylvia would eliminate her inheritance rights and there is no showing that said intervenor was properly advised by any American lawyer on the fact whether petitioner Sylvia, being an American citizen, could rightfully do the same. Transcending, however, the issue of whether there was mistake of fact on the part of intervenor or not, this Court could not. see a valid cause or consideration in favor of intervenor Macaria De Leon having signed Exhibits 'E' to 'E-2.' For even if petitioner Sylvia had confirmed Mr. Penrod's statement during the divorce proceedings in the United States that she would undertake to eliminate her hereditary rights in the event of the property settlement, under Philippine laws, such contract would likewise be voidable, for under Art. 1347 of the New Civil Code 'no contract may be entered into upon future inheritance.

We do not subscribe to the aforestated view of the trial court. Article 1335 of the Civil Code provides:

xxx xxx xxx

There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.

To determine the degree of the intimidation, the age, sex and condition of the person shall be borne in mind.

A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent.

In order that intimidation may vitiate consent and render the contract invalid, the following requisites must concur: (1) that the intimidation must be the determining cause of the contract, or must have caused the consent to be given; (2) that the threatened act be unjust or unlawful; (3) that the threat be real and serious, there being an evident disproportion between the evil and the resistance which all men can offer, leading to the choice of the contract as the lesser evil; and (4) that it produces a reasonable and well-grounded fear from the fact that the person from whom it comes has the necessary means or ability to inflict the threatened injury. Applying the foregoing to the present case, the claim of Macaria that Sylvia threatened her to bring Jose Vicente to court for support, to scandalize their family by baseless suits and that Sylvia would pardon Jose Vicente for possible crimes of adultery and/or concubinage subject to the transfer of certain properties to her, is obviously not the intimidation referred to by law. With respect to mistake as a vice of consent, neither is Macaria's alleged mistake in having signed the Letter-Agreement because of her belief that Sylvia will thereby eliminate inheritance rights from her and Jose Vicente, the mistake referred to in Article 1331 of the Civil Code, supra. It does not appear that the condition that Sylvia "will eliminate her inheritance rights" principally moved Macaria to enter into the contract. Rather, such condition was but an incident of the consideration thereof which, as discussed earlier, is the termination of marital relations.

In the ultimate analysis, therefore, both parties acted in violation of the laws. However, the pari delicto rule, expressed in the maxims "Ex dolo malo non oritur actio" and "In pari delicto potior est conditio defendentis," which refuses remedy to either party to an illegal agreement and leaves them where they are, does not apply in this case. Contrary to the ruling of the respondent Court that (pp. 47-48, Rollo):

... [C]onsequently, intervenor appellees' obligation under the said agreement having been annulled, the contracting parties shall restore to each other that things which have been subject matter of the contract, their fruits and the price or its interest, except as provided by law (Art. 1398, Civil Code).

Article 1414 of the Civil Code, which is an exception to the pari delicto rule, is the proper law to be applied. It provides:

When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public interest wig thus be subserved, allow the party repudiating the contract to recover the money or property.

Since the Letter-Agreement was repudiated before the purpose has been accomplished and to adhere to the pari delicto rule in this case is to put a premium to the circumvention of the laws, positive relief should be granted to Macaria. Justice would be served by allowing her to be placed in the position in which she was before the transaction was entered into.

With the conclusions thus reached, We find it unnecessary to discuss the other issues raised.

ACCORDINGLY, the petition is hereby DENIED. The decision of the respondent Court of Appeals dated June 30, 1987 and its resolution dated November 24, 1987 are AFFIRMED.

SO ORDERED.

Narvasa (Chairman), Cruz and Gancayco, JJ., concur.

Griño-Aquino, J., is on leave.