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Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

GENERAL MILLING CORPORATION, Petitioner,

- versus -

SPS. LIBRADO RAMOS andREMEDIOS RAMOS,

Respondents.

G.R. No. 193723

Present:

CARPIO, J.,* VELASCO, JR., Chairperson,LEONARDO-DE CASTRO,**

ABAD, andMENDOZA, JJ.

Promulgated:

July 20, 2011x-----------------------------------------------------------------------------------------x

D E C I S I O N

VELASCO, JR., J.:

The Case

This is a petition for review of the April 15, 2010 Decision of the Court of

Appeals (CA) in CA-G.R. CR-H.C. No. 85400 entitled Spouses Librado Ramos &Remedios Ramos v. General Milling Corporation, et al. , which affirmed the May 31,2005 Decision of the Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil CaseNo. 00-0129 for Annulment and/or Declaration of Nullity of ExtrajudicialForeclosure Sale with Damages.
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The Facts

On August 24, 1989, General Milling Corporation (GMC) entered into aGrowers Contract with spouses Librado and Remedios Ramos (Spouses Ramos).Under the contract, GMC was to supply broiler chickens for the spouses to raise ontheir land in Barangay Banaybanay, Lipa City, Batangas .[1] To guarantee fullcompliance, the Growers Contract was accompanied by a Deed of Real EstateMortgage over a piece of real property upon which their conjugal home was built.The spouses further agreed to put up a surety bond at the rate of PhP 20,000 per1,000 chicks delivered by GMC. The Deed of Real Estate Mortgage extended toSpouses Ramos a maximum credit line of PhP 215,000 payable within an indefiniteperiod with an interest of twelve percent (12%) per annum .[2]

The Deed of Real Estate Mortgage contained the following provision:

WHEREAS, the MORTGAGOR/S has/have agreed to guarantee andsecure the full and faithful compliance of [ MORTGAGORS+ obligation/swith the MORTGAGEE by a First Real Estate Mortgage in favor of theMORTGAGEE, over a 1 parcel of land and the improvements existingthereon, situated in the Barrio/s of Banaybanay, Municipality of LipaCity, Province of Batangas, Philippines, his/her/their title/s thereto

being evidenced by Transfer Certificate/s No./s T-9214 of the Registryof Deeds for the Province of Batangas in the amount of TWO HUNDREDFIFTEEN THOUSAND (P 215,000.00), Philippine Currency, which themaximum credit line payable within a x x x day term and to secure thepayment of the same plus interest of twelve percent (12%) per annum.

Spouses Ramos eventually were unable to settle their account with GMC.

They alleged that they suffered business losses because of the negligence of GMCand its violation of the Growers Contract .[3]

On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMCwould institute foreclosure proceedings on their mortgaged property .[4]
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On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure ofMortgage. On June 10, 1997, the property subject of the foreclosure wassubsequently sold by public auction to GMC after the required posting andpublication .[5] It was foreclosed for PhP 935,882,075, an amount representing thelosses on chicks and feeds exclusive of interest at 12% per annum and attorneysfees .[6] To complicate matters, on October 27, 1997, GMC informed the spousesthat its Agribusiness Division had closed its business and poultry operations .[7]

On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/orDeclaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. Theycontended that the extrajudicial foreclosure sale on June 10, 1997 was null andvoid, since there was no compliance with the requirements of posting andpublication of notices under Act No. 3135, as amended, or An Act to Regulate the

Sale of Property under Special Powers Inserted in or Annexed to Real EstateMortgages . They likewise claimed that there was no sheriffs affidavit to provecompliance with the requirements on posting and publication of notices. It wasfurther alleged that the Deed of Real Estate Mortgage had no fixed term. A prayerfor moral and exemplary damages and attorneys fees was also included in thecomplaint .[8] Librado Ramos alleged that, when the property was foreclosed, GMCdid not notify him at all of the foreclosure .[9]

During the trial, the parties agreed to limit the issues to the following: (1) thevalidity of the Deed of Real Estate Mortgage; (2) the validity of the extrajudicialforeclosure; and (3) the party liable for damages .[10]

In its Answer, GMC argued that it repeatedly reminded Spouses Ramos oftheir liabilities under the Growers Contract. It argued that it was compelled toforeclose the mortgage because of Spouses Ramos failure to pay their obligation.GMC insisted that it had observed all the requirements of posting and publication

of notices under Act No. 3135 .[11]

The Ruling of the Trial Court
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Holding in favor of Spouses Ramos, the trial court ruled that the Deed of RealEstate Mortgage was valid even if its term was not fixed. Since the duration of theterm was made to depend exclusively upon the will of the debtors-spouses, thetrial cour t cited jurisprudence and said that the obligation is not due and payableuntil an action is commenced by the mortgagee against the mortgagor for thepurpose of having the court fix the date on and after which the instrument ispayable and the date of mat urity is fixed in pursuance thereto. [12]

The trial court held that the action of GMC in moving for the foreclosure ofthe spouses properties was premature, because the latters obligation under theircontract was not yet due.

The trial court awarded attorneys fees because of the premature action

taken by GMC in filing extrajudicial foreclosure proceedings before the obligationof the spouses became due.

The RTC ruled, thus:

WHEREFORE, premises considered, judgment is rendered asfollows:

1. The Extra-Judicial Foreclosure Proceedings under docketno. 0107-97 is hereby declared null and void;

2. The Deed of Real Estate Mortgage is hereby declared validand legal for all intents and puposes;

3. Defendant-corporation General Milling Corporation isordered to pay Spouses Librado and Remedios Ramos attorney s fees inthe total amount of P 57,000.00 representing acceptance fee ofP30,000.00 and P3,000.00 appearance fee for nine (9) trial dates or atotal appearance fee of P 27,000.00;
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4. The claims for moral and exemplary damages are denied forlack of merit.

IT IS SO ORDERED.[13]

The Ruling of the Appellate Court

On appeal, GMC argued that the trial court erred in: (1) declaring theextrajudicial foreclosure proceedings null and void; (2) ordering GMC to paySpouses Ramos attorneys fees; and (3) not awarding damages in favor of GMC.

The CA sustained the decision of the trial court but anchored its ruling on a

different ground. Contrary to the findings of the trial court, the CA ruled that therequirements of posting and publication of notices under Act No. 3135 werecomplied with. The CA, howe ver, still found that GMCs action against SpousesRamos was premature, as they were not in default when the action was filed onMay 7, 1997 .[14]

The CA ruled:

In this case, a careful scrutiny of the evidence on record showsthat defendant-appellant GMC made no demand to spouses Ramos forthe full payment of their obligation. While it was alleged in the Answeras well as in the Affidavit constituting the direct testimony of JosephDominise, the principal witness of defendant-appellant GMC, thatdemands were sent to spouses Ramos, the documentary evidence

proves otherwise. A perusal of the letters presented and offered asevidence by defendant-appellant GMC did not demand but onlyrequest spouses Ramos to go to the office of GMC to discuss thesettlement of their account .[15]
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According to the CA, however, the RTC erroneously awarded attorneys feesto Spouses Ramos, since the presumption of good faith on the part of GMC wasnot overturned.

The CA disposed of the case as follows:

WHEREFORE, and in view of the foregoing considerations, theDecision of the Regional Trial Court of Lipa City, Branch 12, dated May21, 2005 is hereby AFFIRMED with MODIFICATION by deleting theaward of attorneys fees to plaintiffs -appellees spouses Librado Ramosand Remedios Ramos .[16]

Hence, We have this appeal.

The Issues

A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED ANDDISCUSSED IN THE LOWER COURT AND LIKEWISE NOT RAISED BY THPARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT INACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREM

COURT.

B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMCMADE NO DEMAND TO RESPONDENT SPOUSES FOR THE FULLPAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE LETTERDATED MARCH 31, 1997 OF PETITIONER GMC TO RESPONDENTSPOUSES IS TANTAMOUNT TO A FINAL DEMAND TO PAY,THEREFORE IT DEPARTED FROM THE ACCEPTED AND USUAL COURS

OF JUDICIAL PROCEEDINGS.[17]

The Ruling of this Court

Can the CA consider matters not alleged?

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GMC asserts that since the issue on the existence of the demand letter wasnot raised in the trial court, the CA, by considering such issue, violated the basicrequirements of fair play, justice, and due process .[18]

In their Comment ,[19] respondents-spouses aver that the CA has ampleauthority to rule on matters not assigned as errors on appeal if these areindispensable or necessary to the just resolution of the pleaded issues.

In Diamonon v. Department of Labor and Employment ,[20] We explained thatan appellate court has a broad discretionary power in waiving the lack ofassignment of errors in the following instances:

(a) Grounds not assigned as errors but affecting the jurisdiction of

the court over the subject matter;

(b) Matters not assigned as errors on appeal but are evidentlyplain or clerical errors within contemplation of law;

(c) Matters not assigned as errors on appeal but consideration ofwhich is necessary in arriving at a just decision and complete resolutionof the case or to serve the interests of a justice or to avoid dispensing

piecemeal justice;

(d) Matters not specifically assigned as errors on appeal but raisedin the trial court and are matters of record having some bearing on theissue submitted which the parties failed to raise or which the lowercourt ignored;

(e) Matters not assigned as errors on appeal but closely related to

an error assigned;

(f) Matters not assigned as errors on appeal but upon which thedetermination of a question properly assigned, is dependent.
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Paragraph (c) above applies to the instant case, for there would be a just andcomplete resolution of the appeal if there is a ruling on whether the SpousesRamos were actually in default of their obligation to GMC.

Was there sufficient demand?

We now go to the second issue raised by GMC. GMC asserts error on thepart of the CA in finding that no demand was made on Spouses Ramos to pay theirobligation. On the contrary, it claims that its March 31, 1997 letter is akin to ademand.

We disagree.

There are three requisites necessary for a finding of default. First , theobligation is demandable and liquidated; second , the debtor delays performance;and third , the creditor judicially or extrajudicially requires the debtorsperformance .[21]

According to the CA, GMC did not make a demand on Spouses Ramos butmerely requested them to go to GMCs office to discuss the settlement of theiraccount. In spite of the lack of demand made on the spouses, however, GMC

proceeded with the foreclosure proceedings. Neither was there any provision inthe Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose themortgage without need of demand.

Indeed, Article 1169 of the Civil Code on delay requires the following:

Those obliged to deliver or to do something incur in delay fromthe time the obligee judicially or extrajudicially demands from them thefulfilment of their obligation.

However, the demand by the creditor shall not be necessary inorder that delay may exist:

(1) When the obligation or the law expressly so declares; x x x
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As the contract in the instant case carries no such provision on demand notbeing necessary for delay to exist, We agree with the appellate court that GMCshould have first made a demand on the spouses before proceeding to foreclosethe real estate mortgage.

Development Bank of the Philippines v. Licuanan finds application to theinstant case:

The issue of whether demand was made before the foreclosurewas effected is essential. If demand was made and duly received by therespondents and the latter still did not pay, then they were already in

default and foreclosure was proper. However, if demand was notmade, then the loans had not yet become due and demandable. Thismeant that respondents had not defaulted in their payments and theforeclosure by petitioner was premature. Foreclosure is valid onlywhen the debtor is in default in the payment of his obligation .[22]

In turn, whether or not demand was made is a question of fact .[23] Thispetition filed under Rule 45 of the Rules of Court shall raise only questions of law.

For a question to be one of law, it must not involve an examination of theprobative value of the evidence presented by the litigants or any of them. Theresolution of the issue must rest solely on what the law provides on the given setof circumstances. Once it is clear that the issue invites a review of the evidencepresented, the question posed is one of fact .[24] It need not be reiterated that thisCourt is not a trier of facts .[25] We will defer to the factual findings of the trialcourt, because petitioner GMC has not shown any circumstances making this casean exception to the rule.

WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No85400 is AFFIRMED.

SO ORDERED.

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PRESBITERO J. VELASCO, JR.

Associate Justice

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C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the DivisionChairpersons Attestation, I certify that the conclusions in the above Decision hadbeen reached in consultation before the case was assigned to the writer of theopinion of the Courts Di vision.

RENATO C. CORONA

Chief Justice

* Additional member per Special Order No. 1042 dated July 6, 2011.** Additional member per raffle dated July 13, 2011.[1] Rollo , p. 37.

[2] Id. at 13.[3]

Id. at 113.[4] Id. at 37.[5] Id.

[6] Id. at 117.[7] Id. at 114.[8] Id. at 37-38.[9] Id. at 117.[10] Id. at 115.[11] Id. at 38.[12] Id. at 123. (Citation omitted.)[13] Id. at 127. Penned by Judge Vicente F. Landicho.[14] Id. at 40-41.[15] Id. at 41.[16] Id. at 36-44. Penned by Associate Justice Priscilla J. Baltazar-Padilla and

concurred in by Associate Justices Fernanda Lampas Peralta and Manuel B. Barrios.
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[17] Id. at 18.[18] Id. at 19.[19] Id. at 194-199.[20] G.R. No. 108951, March 7, 2000, 327 SCRA 283, 288-289. See

also Kulas Ideas & Creations v. Alcoseba , G.R. No. 180123, February 18, 2010, 613SCRA 217, 231.

[21] Selegna Management and Development Corporation v. UnitedCoconut Planters Bank , G.R. No. 165662, May 3, 2006, 489 SCRA 125, 138.

[22] G.R. No. 150097, February 26, 2007, 516 SCRA 644, 650. (Emphasissupplied.)

[23] Id.[24] Tirazona v. Court of Appeals, G.R. No. 169712, March 14, 2008, 548

SCRA 560, 581.[25]

Heirs of Completo & Abiad v. Sgt. Albayda , G.R. No. 172200, July 6,2010, 624 SCRA 97, 110.
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FIRST DIVISION

[G.R. No. 153004. November 5, 2004]

SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner, vs . ERNESTO VSANTOS and RIVERLAND, INC.,respondents

D E C I S I O N

QUISUMBING, J .:

Subject of the present petition for review on certiorari isthe Decision ,[1] dated January 30, 2002, as well as the April 12,2002, Resolution [2] of the Court of Appeals in CA-G.R. CV No. 55122. The appellatecourt reversed the Decision ,[3] dated October 4, 1996, ofthe Regional Trial Court of Makati City, Branch 148, in Civil Case No. 95-811, andlikewise denied petitioners Motion for Reconsideration.

The facts of this case are undisputed.

Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) werethe plaintiff and defendant, respectively, in several civil cases filed in differentcourts in the Philippines. OnOctober 26, 1990, the parties executed a CompromiseAgreement [4] which amicably ended all their pending litigations. The pertinentportions of the Agreement read as follows:

1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in thefollowing manner:

a. P1.5 Million immediately upon the execution of this agreement;

b. The balance of P13 Million shall be paid, whether in one lumpsum or in installments, at the discretion of the Foundation, withina period of not more than two (2) years from the execution of thisagreement; provided, however, that in the event that theFoundation does not pay the whole or any part of such balance, thesame shall be paid with the corresponding portion of the land orreal properties subject of the aforesaid cases and previously
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covered by the notices of lis pendens , under such terms andconditions as to area, valuation, and location mutually acceptableto both parties; but in no case shall the payment of such balancebe later than two (2) years from the date of this agreement ;otherwise, payment of any unpaid portion shall only be in the formof land aforesaid;

2. Immediately upon the execution of this agreement (and [the] receipt ofthe P1.5 Million), plaintiff Santos shall cause the dismissal withprejudice of Civil Cases Nos. 88-743, 1413OR, TC-1024, 45366 and 18166and voluntarily withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R.No. 26598) and 88-45366 (C.A.-G.R. No. 24304) respectively and for theimmediate lifting of the aforesaid various notices of lis pendens on thereal properties aforementioned (by signing herein attachedcorresponding documents, for such lifting) ; provided, however, that inthe event that defendant Foundation shall sell or dispose of any of thelands previously subject of lis pendens , the proceeds of any such sale, orany part thereof as may be required, shall be partially devoted to thepayment of the Foundations obligations under this agreement as maystill be subsisting and payable at the time of any such sale or sales;

. . .

5. Failure of compliance of any of the foregoing terms and conditions byeither or both parties to this agreement shall ipso facto and ipso

jure automatically entitle the aggrieved party to a writ of execution forthe enforcement of this agreement. [Emphasis supplied ][5]

In compliance with the Compromise Agreement, respondent Santos moved forthe dismissal of the aforesaid civil cases. He also caused the lifting of the noticesof lis pendens on the real properties involved. For its part, petitioner SVHFI,paid P1.5 million to respondent Santos, leaving a balance of P13 million.

Subsequently, petitioner SVHFI sold to Development Exchange LivelihoodCorporation two real properties, which were previously subjects of lis

pendens . Discovering the disposition made by the petitioner,respondent Santos sent a letter to the petitioner demanding the payment of theremaining P13 million, which was ignored by the latter. Meanwhile, on September
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30, 1991, theRegional Trial Court of Makati City, Branch 62, issueda Decision [6] approving the compromise agreement.

On October 28, 1992, respondent Santos sent another letter to petitionerinquiring when it would pay the balance of P13 million. There was no responsefrom petitioner. Consequently, respondent Santos applied with

the Regional Trial Court of Makati City, Branch 62, for the issuance of a writ ofexecution of its compromise judgment dated September 30, 1991. The RTCgranted the writ. Thus, on March 10, 1993, the Sheriff levied on the realproperties of petitioner, which were formerly subjects of the lis

pendens. Petitioner, however, filed numerous motions to block the enforcementof the said writ. The challenge of the execution of the aforesaid compromise judgment even reached the Supreme Court. All these efforts, however, werefutile.

On November 22, 1994, petitioners real properties located in Mabalacat,Pampanga were auctioned. In the said auction, Riverland, Inc. was the highestbidder for P12 million and it was issued a Certificate of Sale covering the realproperties subject of the auction sale. Subsequently, another auction sale washeld on February 8, 1995, for the sale of real properties of petitionerinBacolod City. Again, Riverland, Inc. was the highest bidder. The Certificates ofSale issued for both properties provided for the right of redemption within one

year from the date of registration of the said properties.On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory

Relief and Damages [7] alleging that there was delay on the part of petitioner inpaying the balance of P13 million. They further alleged that under theCompromise Agreement, the obligation became due on October 26, 1992, butpayment of the remaining P12 million was effected only on November 22,1994. Thus, respondents prayed that petitioner be ordered to pay legal intereston the obligation, penalty, attorneys fees and costs of litigation. Furthermore,they prayed that the aforesaid sales be declared final and not subject to legalredemption.

In its Answer ,[8] petitioner countered that respondents have no cause of actionagainst it since it had fully paid its obligation to the latter. It further claimed thatthe alleged delay in the payment of the balance was due to its valid exercise of itsrights to protect its interests as provided under the Rules. Petitionercounterclaimed for attorneys fees and exemplary damages.
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On October 4, 1996, the trial court rendered a Decision [9] dismissing hereinrespondents complaint and ordering them to pay attorneys fe es and exemplarydamages to petitioner. Respondents then appealed to the Court of Appeals. Theappellate court reversed the ruling of the trial court:

WHEREFORE, finding merit in the appeal, the appealed Decision ishereby REVERSEDand judgment is hereby rendered ordering appellee SVHFI topay appellants Santos and Riverland, Inc.: (1) legal interest on the principalamount of P13 million at the rate of 12% per annum from the date of demand onOctober 28, 1992 up to the date of actual payment of the whole obligation; and(2) P20,000 as attorneys fees and costs of suit.

SO ORDERED.

Hence this petition for review on certiorari where petitioner assigns thefollowing issues:

I

WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLEERROR WHEN IT AWARDED LEGAL INTEREST IN FAVOR OF THERESPONDENTS, MR. SANTOS AND RIVERLAND, INC., NOTWITHSTANDINTHE FACT THAT NEITHER IN THE COMPROMISE AGREEMENT NOR IN T

COMPROMISE JUDGEMENT OF HON. JUDGE DIOKNO PROVIDES FORPAYMENT OF INTEREST TO THE RESPONDENT

II

WHETHER OF NOT THE COURT OF APPEALS ERRED IN AWARDING LEGAIN[T]EREST IN FAVOR OF THE RESPONDENTS, MR. SANTOS AND RIVERINC., NOTWITHSTANDING THE FACT THAT THE OBLIGATION OF THE

PETITIONER TO RESPONDENT SANTOS TO PAY A SUM OF MONEY HAD CONVERTED TO AN OBLIGATION TO PAY IN KIND DELIVERY OF REALPROPERTIES OWNED BY THE PETITIONER WHICH HAD BEEN FULLYPERFORMED

III
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WHETHER OR NOT RESPONDENTS ARE BARRED FROM DEMANDINGPAYMENT OF INTEREST BY REASON OF THE WAIVER PROVISION IN THCOMPROMISE AGREEMENT, WHICH BECAME THE LAW AMONG THEPARTIES[10]

The only issue to be resolved is whether the respondents are entitled to legalinterest.

Petitioner SVHFI alleges that where a compromise agreement or compromise judgment does not provide for the payment of interest, the legal interest by wayof penalty on account of fault or delay shall not be due and payable, consideringthat the obligation or loan, on which the payment of legal interest could be based,has been superseded by the compromise agreement .[11]Furthermore, thepetitioner argues that the respondents are barred by res judicata from seeking

legal interest on account of the waiver clause in the duly approved compromiseagreement .[12]Article 4 of the compromise agreement provides:

Plaintiff Santos waives and renounces any and all other claims that he and hisfamily may have on the defendant Foundation arising from and in connectionwith the aforesaid civil cases , and defendant Foundation, on the other hand, alsowaives and renounces any and all claims that it may have against plaintiff Santos inconnection with such cases .[13] [Emphasis supplied.]

Lastly, petitioner alleges that since the compromise agreement did not providefor a period within which the obligation will become due and demandable, it isincumbent upon respondentSantos to ask for judicial intervention for purposes offixing the period. It is only when a fixed period exists that the legal interests canbe computed.

Respondents profer that their right to damages is based on delay in thepayment of the obligation provided in the Compromise Agreement. The

Compromise Agreement provides that payment must be made within the two-yearperiod from its execution. This was approved by the trial court and became thelaw governing their contract. Respondents posit that petitioners failure to complyentitles them to damages, by way of interest .[14]

The petition lacks merit.

A compromise is a contract whereby the parties, by making reciprocalconcessions, avoid a litigation or put an end to one already commenced .[15] It is an
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agreement between two or more persons, who, for preventing or putting an endto a lawsuit, adjust their difficulties by mutual consent in the manner which theyagree on, and which everyone of them prefers in the hope of gaining, balanced bythe danger of losing .[16]

The general rule is that a compromise has upon the parties the effect and

authority of res judicata, with respect to the matter definitely stated therein, orwhich by implication from its terms should be deemed to have been includedtherein .[17] This holds true even if the agreement has not been judiciallyapproved .[18]

In the case at bar, the Compromise Agreement was entered into by the partieson October 26, 1990 .[19] It was judicially approved on September 30,1991 .[20] Applying existing jurisprudence, the compromise agreement as aconsensual contract became binding between the parties upon its execution andnot upon its court approval. From the time a compromise is validly entered into, itbecomes the source of the rights and obligations of the parties thereto. Thepurpose of the compromise is precisely to replace and terminate controvertedclaims .[21]

In accordance with the compromise agreement, the respondents asked for thedismissal of the pending civil cases. The petitioner, on the other hand, paid theinitial P1.5 million upon the execution of the agreement. This act of the petitioner

showed that it acknowledges that the agreement was immediately executory andenforceable upon its execution.

As to the remaining P13 million, the terms and conditions of the compromiseagreement are clear and unambiguous. It provides:

. . .

b. The balance of P13 Million shall be paid, whether in one lump sum or in

installments, at the discretion of the Foundation, within a period of not more thantwo (2) years from the execution of this agreement [22][Emphasis supplied.]

. . .

The two-year period must be counted from October 26, 1990, the date ofexecution of the compromise agreement, and not on the judicial approval of thecompromise agreement onSeptember 30, 1991. When respondents wrote a
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demand letter to petitioner on October 28, 1992, the obligation was already dueand demandable. When the petitioner failed to pay its due obligation after thedemand was made, it incurred delay.

Article 1169 of the New Civil Code provides:

Those obliged to deliver or to do something incur in delay from the time theobligee judicially or extrajudicially demands from them the fulfillment of theirobligation . [Emphasis supplied]

Delay as used in this article is synonymous to default or mora which meansdelay in the fulfillment of obligations. It is the non-fulfillment of the obligationwith respect to time .[23]

In order for the debtor to be in default, it is necessary that the following

requisites be present: (1) that the obligation be demandable and alreadyliquidated; (2) that the debtor delays performance; and (3) that the creditorrequires the performance judicially or extrajudicially .[24]

In the case at bar, the obligation was already due and demandable after thelapse of the two-year period from the execution of the contract. The two-yearperiod ended on October 26, 1992. When the respondents gave a demand letteron October 28, 1992, to the petitioner, the obligation was already due anddemandable. Furthermore, the obligation is liquidated because the debtor knowsprecisely how much he is to pay and when he is to pay it.

The second requisite is also present. Petitioner delayed in the performance. Itwas able to fully settle its outstanding balance only on February 8, 1995, which ismore than two years after the extra-judicial demand. Moreover, it filed severalmotions and elevated adverse resolutions to the appellate court to hinder theexecution of a final and executory judgment, and further delay the fulfillment of itsobligation.

Third, the demand letter sent to the petitioner on October 28, 1992, was inaccordance with an extra-judicial demand contemplated by law.

Verily, the petitioner is liable for damages for the delay in the performance ofits obligation. This is provided for in Article 1170 [25] of the New Civil Code.

When the debtor knows the amount and period when he is to pay, interest asdamages is generally allowed as a matter of right .[26] The complaining party has
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been deprived of funds to which he is entitled by virtue of their compromiseagreement. The goal of compensation requires that the complainant becompensated for the loss of use of those funds. This compensation is in the formof interest .[27] In the absence of agreement, the legal rate of interest shallprevail .[28] The legal interest for loan as forbearance of money is 12% perannum [29] to be computed from default, i.e ., from judicial or extrajudicial demandunder and subject to the provisions of Article 1169 of the Civil Code .[30]

WHEREFORE,the petition is DENIED for lack of merit. The Decisiondated January 30, 2002 of the Court of Appeals and its April 12, 2002 Resolution inCA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr. C.J. (Chairman), Ynares-Santiago and Carpio, JJ., concur .

Azcuna, J., on leave .

[1] Rollo, pp. 39-45. Penned by Associate Justice Hilarion L. Aquino, with AssociateJustices Edgardo P. Cruz, and Amelita G. Tolentino concurring.

[2] Id . at 46.

[3] Id. at 77-82.[4] Records, pp. 118-123.[5] Id. at 38-40.[6] Id . at 36-40.[7] Id. at 1-11.[8] Id. at 23-35.[9] Id . at 151-156.[10] Rollo, p. 218.[11] Id. at 219-220.[12] Id . at 221.[13] Records, pp. 39-40.
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[14] Rollo, p. 149.[15] New Civil Code, Art. 2028.[16] Cebu International Finance Corp. v. Court of Appeals, G.R. No. 123031, 12

October 1999, 316 SCRA 488, 498-499 citing David v. Court of Appeals, G.R.No. 97240, 16 October 1992, 214 SCRA 644, 650.

[17] Del Rosario v. Madayag, G.R. No. 118531, 28 August 1995, 247 SCRA 767, 771.[18] Mayuga v. Court of Appeals, No. L-46953, 28 September 1987, 154 SCRA 309,

320.[19] Records, pp. 118-123.[20] Id. at 36-40.[21] Landoil Resources Corporation v. Tensuan, No. L-77733, 20 December 1988,

168 SCRA 569, 578.[22] Records, pp. 38-39.[23] IV Arturo M. Tolentino, CIVIL CODE OF THE PHILIPPINES, 101 (1987 ed.).[24] Id. at 102.[25] Art. 1170. Those who in the performance of their obligations are guilty of

fraud, negligence, or delay and those who in any manner contravene the

tenor thereof, are liable for damages.[26] II J. Cesar S. Sangco, PHILIPPINE LAW ON TORTS AND DAMAGES 1085 (19

ed.).[27] Ibid .[28] Quiros v. Tan-Guinlay, No. 1904, 3 March 1906, 5 Phil 675, 680.[29] Central Bank Circular No. 416, July 29, 1974.[30]

Eastern Assurance and Surety Corporation v. Court of Appeals, G.R. No. 127135,18 January 2000, 322 SCRA 73, 78.
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Republic of the PhilippinesSupreme Court

Manila

SECOND DIVISION

SOLAR HARVEST, INC., Petitioner,

- versus -

DAVAO CORRUGATED CARTON

CORPORATION, Respondent.

G.R. No. 176868

Present:

CARPIO, J., Chairperson, NACHURA,PERALTA,ABAD, andMENDOZA, JJ.

Promulgated:

July 26, 2010

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J .:

Petitioner seeks a review of the Court of Appeals (CA) Decision [1] datedSeptember 21, 2006 and Resolution [2] dated February 23, 2007, which deniedpetitioners motion for reconsideration. The assailed Decision denied petitioners
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claim for reimbursement for the amount it paid to respondent for themanufacture of corrugated carton boxes.

The case arose from the following antecedents:

In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into anagreement with respondent, Davao Corrugated Carton Corporation, for thepurchase of corrugated carton boxes, specifically designed for pe titionersbusiness of exporting fresh bananas, at US$1.10 each. The agreement was notreduced into writing. To get the production underway, petitioner deposited, onMarch 31, 1998, US$40,150.00 in respondents US Dollar Savings Account withWestmont Bank, as full payment for the ordered boxes.

Despite such payment, petitioner did not receive any boxes fromrespondent. On January 3, 2001, petitioner wrote a demand letter forreimbursement of the amount paid .[3]On February 19, 2001, respondent repliedthat the boxes had been completed as early as April 3, 1998 and that petitionerfailed to pick them up from the formers warehouse 30 days from completion, asagreed upon. Respondent mentioned that petitioner even placed an additionalorder of 24,000 boxes, out of which, 14,000 had been manufactured without any

advanced payment from petitioner. Respondent then demanded petitioner toremove the boxes from the factory and to pay the balance of US$15,400.00 for theadditional boxes and P132,000.00 as storage fee.

On August 17, 2001, petitioner filed a Complaint for sum of money anddamages against respondent. The Complaint averred that the parties agreed thatthe boxes will be delivered within 30 days from payment but respondent failed tomanufacture and deliver the boxes within such time. It further alleged

6. That repeated follow-up was made by the plaintiff for theimmediate production of the ordered boxes, but every time, defendant[would] only show samples of boxes and ma[k]e repeated promises todeliver the said ordered boxes.
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7. That because of the failure of the defendant to deliver theordered boxes, plaintiff ha[d] to cancel the same and demand paymentand/or refund from the defendant but the latter refused to pay and/orrefund the US$40,150.00 payment made by the former for the orderedboxes .[4]

In its Answer with Counterclaim ,[5] respondent insisted that, as early as April3, 1998, it had already completed production of the 36,500 boxes, contrary topetitioners allegation. According to respondent, petitioner, in fact, made anadditional order of 24,000 boxes, out of which, 14,000 had been completedwithout wait ing for petitioners payment. Respondent stated that petitioner wasto pick up the boxes at the factory as agreed upon, but petitioner failed to do so.Respondent averred that, on October 8, 1998, petitioners representative, Bobby

Que (Que), went to the factory and saw that the boxes were ready for pick up. OnFebruary 20, 1999, Que visited the factory again and supposedly advisedrespondent to sell the boxes as rejects to recoup the cost of the unpaid 14,000boxes, because petitioners transaction to ship bananas to China did notmaterialize. Respondent claimed that the boxes were occupying warehouse spaceand that petitioner should be made to pay storage fee at P60.00 per square meterfor every month from April 1998. As counterclaim, respondent prayed that judgment be rendered ordering petitioner to pay $15,400.00, plus interest, moral

and exemplary damages, attorneys fees, and costs of the suit.

In reply, petitioner denied that it made a second order of 24,000 boxes andthat respondent already completed the initial order of 36,500boxes and 14,000 boxes out of the second order. It maintained that

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respondent only manufactured a sample of the ordered boxes and thatrespondent could not have produced 14,000 boxes without the required pre-payments .[6]

During trial, petitioner presented Que as its sole witness. Que testified thathe ordered the boxes f rom respondent and deposited the money in respondentsaccount .[7] He specifically stated that, when he visited respondents factory, he sawthat the boxes had no print of petitioners logo .[8] A few months later, he followed-up the order and was told that the company had full production, and thus, waspromised that production of the order would be rushed. He told respondent that itshould indeed rush production because the need for the boxes was urgent.Thereafter, he asked his partner, Alfred Ong, to cancel the order because it wasalready late for them to meet their commitment to ship the bananas

to China .[9]

On cross-examination, Que further testified that China Zero Food, theChinese company that ordered the bananas, was sending a ship to Davao to getthe bananas, but since there were no cartons, the ship could not proceed. He saidthat, at that time, bananas from Tagum Agricultural Development Corporation(TADECO) were already there. He denied that petitioner made an additional orderof 24,000 boxes. He explained that it took three years to refer the matter tocounsel because respondent promised to pay .[10]

For respondent, Bienvenido Estanislao (Estanislao) testified that he met Quein Davao in October 1998 to inspect the boxes and that the latter got samples ofthem. In February 2000, they inspected the boxes again and Que got moresamples. Estanislao said that petitioner did not pick up the boxes because the shipdid not arrive .[11] Jaime Tan (Tan), president of respondent, also testified that hiscompany finished production of the 36,500 boxes on April 3, 1998 and thatpetitioner made a second order of 24,000 boxes. He said that the agreement wasfor respondent to produce the boxes and for petitioner to pick them up from the

warehouse .[12] He also said that the reason why petitioner did not pick up theboxes was that the ship that was to carry the bananas did not arrive. [13] Accordingto him, during the last visit of Que and Estanislao, he asked them to withdraw theboxes immediately because they were occupying a big space in his plant, but they,instead, told him to sell the cartons as rejects. He was able to sell 5,000 boxesat P20.00 each for a total of P100,000.00. They then told him to apply the saidamount to the unpaid balance.
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We find no reversible error in the assailed Decision that would justify thegrant of this petition.

Petitioners claim for reimbursement is actually one for rescission (orresolution) of contract under Article 1191 of the Civil Code, which reads:

Art. 1191. The power to rescind obligations is implied inreciprocal ones, in case one of the obligors should not comply withwhat is incumbent upon him.

The injured party may choose between the fulfillment and therescission of the obligation, with the payment of damages in eithercase. He may also seek rescission, even after he has chosen fulfillment,

if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of thirdpersons who have acquired the thing, in accordance with Articles 1385and 1388 and the Mortgage Law.

The right to rescind a contract arises once the other party defaults in theperformance of his obligation. In determining when default occurs, Art. 1191should be taken in conjunction with Art. 1169 of the same law, which provides:

Art. 1169. Those obliged to deliver or to do something incur indelay from the time the obligee judicially or extrajudicially demands

from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary inorder that delay may exist:

(1) When the obligation or the law expressly so declares;or

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(2) When from the nature and the circumstances of theobligation it appears that the designation of the time when thething is to be delivered or the service is to be rendered was acontrolling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligorhas rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the otherdoes not comply or is not ready to comply in a proper manner withwhat is incumbent upon him. From the moment one of the partiesfulfills his obligation, delay by the other begins.

In reciprocal obligations, as in a contract of sale, the general rule is that thefulfillment of the parties respective obligations should be simultaneous. Hence,no demand is generally necessary because, once a party fulfills his obligation andthe other party does not fulfill his, the latter automatically incurs in delay. Butwhen different dates for performance of the obligations are fixed, the default foreach obligation must be determined by the rules given in the first paragraph of thepresent article ,[19] that is, the other party would incur in delay only from the

moment the other party demands fulfillment of the formers obligation. Th us,even in reciprocal obligations, if the period for the fulfillment of the obligation isfixed, demand upon the obligee is still necessary before the obligor can beconsidered in default and before a cause of action for rescission will accrue.

Evident from the records and even from the allegations in the complaint wasthe lack of demand by petitioner upon respondent to fulfill its obligation tomanufacture and deliver the boxes. The Complaint only alleged that petitioner

made a follow -up upon respondent, which, however, would not qualify as ademand for the fulfillment of the obligation. Petitioners witness also testified thatthey made a follow-up of the boxes, but not a demand. Note is taken of the factthat, with respect to their claim for reimbursement, the Complaint alleged and thewitness testified that a demand letter was sent to respondent. Without a previousdemand for the fulfillment of the obligation, petitioner would not have a cause of
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action for rescission against respondent as the latter would not yet be consideredin breach of its contractual obligation.

Even assuming that a demand had been previously made before filing thepresent case, petitioners claim for reimbursement would still fail, as thecircumstances would show that respondent was not guilty of breach of contract.

The existence of a breach of contract is a factual matter not usually reviewedin a petition for review under Rule 45 .[20] The Court, in petitions for review, limitsits inquiry only to questions of law. After all, it is not a trier of facts, and findingsof fact made by the trial court, especially when reiterated by the CA, must be givengreat respect if not considered as final .[21] In dealing with this petition, we will notveer away from this doctrine and will thus sustain the factual findings of the CA,

which we find to be adequately supported by the evidence on record.

As correctly observed by the CA, aside from the pictures of the finished boxesand the production report thereof, there is ample showing that the boxes hadalready been manufactured by respondent. There is the testimony of Estanislaowho accompanied Que to the factory, attesting that, during their first visit to thecompany, they saw the pile of petitioners boxes and Que took samplesthereof. Que, petitioners witness, himself confirmed this incident. He testified

that Tan pointed the boxes to him and that he got a sample and saw that it wasblank. Ques absolute assertion that the boxes were not manufactured is,therefore, implausible and suspicious.

In fact, we note that respondents counsel manifested in court, during trial,that his client was willing to shoulder expenses for a representative of the court tovisit the plant and see the boxes .[22] Had it been true that the boxes were not yetcompleted, respondent would not have been so bold as to challenge the court to

conduct an ocular inspection of their warehouse. Even in its Comment to thispetition, respondent prays that petitioner be ordered to remove the boxes from itsfactory site ,[23] which could only mean that the boxes are, up to the present, still inrespondents premises.

We also believe that the agreement between the parties was for petitionerto pick up the boxes from respondents warehouse, contrary to petitioners

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allegation. Thus, it was due to petitioners fault that the boxes were not deliveredto TADECO.

Petitioner had the burden to prove that the agreement was, in fact, forrespondent to deliver the boxes within 30 days from payment, as alleged in theComplaint. Its sole witness, Que, was not even competent to testify on the termsof the agreement and, therefore, we cannot give much credence to histestimony. It appeared from the testimony of Que that he did not personally placethe order with Tan, thus:

Q. No, my question is, you went to Davao City and placed yourorder there?

A. I made a phone call.

Q. You made a phone call to Mr. Tan?A. The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a

contact with Mr. Tan.

Q. So, your first statement that you were the one who placed theorder is not true?

A. Thats true. The Solar Harvest made a contact with Mr. Tan and I

deposited the money in the bank.

Q. You said a while ago [t]hat you were the one who called Mr. Tanand placed t he order for 36,500 boxes, isnt it?

A. First time it was Mr. Alfred Ong.

Q. It was Mr. Ong who placed the order[,] not you?A. Yes, sir.[24]

Q. Is it not a fact that the cartons were ordered through Mr.Bienvenido Estanislao?

A. Yes, sir.[25]

Moreover, assuming that respondent was obliged to deliver the boxes, itcould not have complied with such obligation. Que, insisting that the boxes had

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not been manufactured, admitted that he did not give respondent the authority todeliver the boxes to TADECO:

Q. Did you give authority to Mr. Tan to deliver these boxes toTADECO?

A. No, sir. As I have said, before the delivery, we must have to checkthe carton, the quantity and quality. But I have not seen a singlecarton.

Q. Are you trying to impress upon the [c]ourt that it is only after theboxes are completed, will you give authority to Mr. Tan to deliverthe boxes to TADECO[?]

A. Sir, because when I checked the plant, I have not seen any

carton. I asked Mr. Tan to rush t he carton but not[26]

Q. Did you give any authority for Mr. Tan to deliver these boxes toTADECO?

A. Because I have not seen any of my carton.

Q. You dont have any authority yet given to Mr. Tan? A. None, your Honor .[27]

Surely, without such authority, TADECO would not have allowed respondent todeposit the boxes within its premises.

In sum, the Court finds that petitioner failed to establish a cause of action forrescission, the evidence having shown that respondent did not commit any breachof its contractual obligation. As previously stated, the subject boxes are still withinrespondents premises. To put a rest to this dispute, we therefore relieve

respondent from the burden of having to keep the boxes within its premises and,consequently, give it the right to dispose of them, after petitioner is given a periodof time within which to remove them from the premises.

WHEREFORE,premises considered, the petition is DENIED. The Court ofAppeals Decision dated September 21, 2006 and Resolution dated February 23,
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2007 are AFFIRMED. In addition, petitioner is given a periodof 30 days from notice within which to cause the removal of the 36,500boxes from respondents warehouse. After the lapse of said period and petitionerfails to effect such removal, respondent shall have the right to dispose of theboxes in any manner it may deem fit.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA Associate Justice

WE CONCUR:

ANTONIO T. CARPIO Associate Justice

Chairperson

DIOSDADO M.PERALTAAssociate Justice

ROBERTO A. ABAD Associate Justice

JOSE CATRAL MENDOZA Associate Justice

A T T E S T A T I O N

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I attest that the conclusions in the above Decision were reached inconsultation before the case was assigned to the writer of the opinion of theCourts Division.

ANTONIO T. CARPIO Associate Justice

Chairperson, Second Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the DivisionChairperson's Attestation, I certify that the conclusions in the above Decision hadbeen reached in consultation before the case was assigned to the writer of theopinion of the Courts Division.

RENATO C. CORONA Chief Justice

[1] Penned by Associate Justice Rebecca de Guia-Salvador, with AssociateJustices Magdangal M. de Leon and Ramon R. Garcia, concurring; rollo, pp. 103-114.[2] Id. at 127.[3] Records, p. 96.[4] Rollo, p. 27.[5] Id. at 33-36.[6] Records, 31-32.[7] TSN, July 10, 2003, p. 5.[8] Id. at 7.
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[9] Id. at 9-10.[10] Id. at 18-22.[11] TSN, October 16, 2003, p. 14.[12] TSN, December 4, 2003, p. 13.[13] Id. at 15.[14] Rollo, p. 60.[15] Supra note 1, at 113-114.[16] Id. at 110-112.[17] Rollo, pp. 115-121.[18] Supra note 2.[19] IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the CivilCode of the Philippines (1985 ed.), p. 10, citing 8 Manresa.[20] Omengan v. Philippine National Bank, G.R. No. 161319, January 23, 2007,

512 SCRA 305, 309.[21] Filipinas (Pre-Fab Bldg.) Systems, Inc. v. MRT DevelopmentCorporation, G.R. Nos. 167829-30, November 13, 2007, 537 SCRA 609, 638-639.[22] TSN, December 4, 2003, p. 26.[23] Rollo, p. 137.[24] TSN, July 10, 2003, p. 15.[25] Id. at 21.[26] Id. at 25.[27]

Id. at 27.
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SECOND DIVISION

G.R. No. 73345. April 7, 1993.

SOCIAL SECURITY SYSTEM, petitioner,vs.MOONWALK DEVELOPMENT & HOUSING CORPORATION, ROSITA U. ALBERTOROSITA U. ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ SANTIAGO, in hecapacity as Register of Deeds for the Province of Cavite, ARTURO SOLITO, in hiscapacity as Register of Deeds for Metro Manila District IV, Makati, Metro Manila

and the INTERMEDIATE APPELLATE COURT, respondents.

The Solicitor General for petitioner.K.V. Faylona & Associates for private respondents.

D E C I S I O N

CAMPOS, JR., J p:

Before Us is a petition for review on certiorari of decision 1 of the thenIntermediate Appellate Court affirming in toto the decision of the former Court ofFirst Instance of Rizal, Seventh Judicial District, Branch XXIX, Pasay City.

The facts as found by the Appellate Court are as follows:

"On February 20, 1980, the Social Security System, SSS for brevity, filed acomplaint in the Court of First Instance of Rizal against Moonwalk Development &Housing Corporation, Moonwalk for short, alleging that the former had committedan error in failing to compute the 12% interest due on delayed payments on theloan of Moonwalk resu

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