oblicon 2 cases

1 | P a g e D I A N N E R O S A L E S M A N R I Q U E O B L I C O N C A S E S 2

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 129644 March 7, 2000

CHINA BANKING CORPORATION, petitioner, vs.HON. COURT OF APPEALS, PAULINO ROXAS CHUA and KIANG MING CHU CHUA, respondents.

YNARES-SANTIAGO, J.:

Before us is a petition for review on certiorari assailing the decision rendered by the Court of Appeals on June 26, 1997 which affirmed the decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 63199 entitled "Paulino Roxas Chua and Kiang Ming Chu Chua, Plaintiffs versus China Banking Corporation, the Sheriff of Manila and the Register of Deeds of Pasig, Defendants."

The facts of the case are not in dispute:

Alfonso Roxas Chua and his wife Kiang Ming Chu Chua were the owners of a residential land in San Juan, Metro Manila, covered by Transfer Certificate of Title No. 410603. On February 2, 1984, a notice of levy affecting the property was issued in connection with Civil Case No. 82-14134 entitled, "Metropolitan Bank and Trust Company, Plaintiff versus Pacific Multi Commercial Corporation and Alfonso Roxas Chua, Defendants," before the Regional Trial Court, Branch XLVI of Manila. The notice of levy was inscribed and annotated at the back of TCT 410603. Subsequently, Kiang Ming Chu Chua filed a complaint against the City Sheriff of Manila and Metropolitan Bank and Trust Company, questioning the levy of the abovementioned property. She alleged that the judgment of the court in Civil Case No. 82-14134 against Alfonso Roxas Chua could not be enforced against TCT 410603 inasmuch as the land subject thereof was the conjugal property of the spouses.

The parties thereafter entered into a compromise agreement to the effect that the levy on TCT 410603 was valid and enforceable only to the extent of the 1/2 undivided portion of the property pertaining to the conjugal share of Alfonso Roxas Chua.

Meanwhile, on June 19, 1985, petitioner China Bank filed with the Regional Trial Court of Manila, Branch 29, an action for collection of sum of money against Pacific Multi Agro-Industrial Corporation and Alfonso Roxas Chua which was docketed as Civil Case No. 85-31257. The complaint was anchored on three (3) promissory notes with an aggregate amount of P2,500,000.00 plus stipulated interest.

On November 7, 1985, the trial court promulgated its decision in Civil Case No. 85-31257 in favor of China Banking Corporation, the dispositive portion of which reads as follows:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiff and against the defendants; ordering the latter to pay, jointly and severally, the former, under the first cause of action, the sum of P1,800,000.00, representing the unpaid of the promissory note, plus 21% interest per annum and an additional amount equivalent to 1/10 of 1% per day of the total amount due, as penalty both from and after October 4, 1983, until fully paid; under the second cause of action, to pay the plaintiff the amount of P350,000.00 representing the unpaid principal of the promissory note, plus 12% interest per annum and additional amount equivalent to 1/10 of 1% per day of the total amount due, as penalty both from and after September 14, 1983, until fully paid; under the third cause of action, to pay the plaintiff the further sum of P350,000.00, representing the unpaid principal of the promissory note, plus 12% interest per annum and an additional amount equivalent to 1/10% of 1% per day of the total amount due as penalty both from and after September 14, 1983, until fully paid; and to pay the same plaintiff the amount equivalent to 10% of the foregoing sums, as and for attorney's fees, such amount to bear the same rate of interest as the principal obligation under each promissory note, compounded monthly, until fully paid; and to pay the costs of suit.

SO ORDERED. 1

On September 8, 1986, an alias notice of levy on execution on the one-half (1/2) undivided portion of TCT 410603 belonging to Alfonso Chua was issued in connection with Civil Case 82-14134. The notice was inscribed and annotated at the back of TCT 410603 on September 15, 1986 and a certificate of sale covering the one-half undivided portion of the property was executed in favor of Metropolitan Bank and Trust Company. The certificate of sale was inscribed at the back of said TCT on December 22, 1987.

Meanwhile, Pacific Multi Agro-Industrial Corporation and Alfonso Roxas Chua's appeal was dismissed by the Court of Appeals on September 29, 1988 for failure to file brief. 2

On November 21, 1988, Alfonso Roxas Chua executed a public instrument denominated as "Assignment of Rights to Redeem," whereby he assigned his rights to redeem the one-half undivided portion of the property to his son, private respondent Paulino Roxas Chua. 3 Paulino redeemed said one-half share on the very same day. The instrument was inscribed at the back of TCT 410603 as Entry No. 7629, and the redemption of the property by Paulino was inscribed as Entry No. 7630, both dated March 14, 1989. 4

On the other hand, in connection with Civil Case No. 85-31257, another notice of levy on execution was issued on February 4, 1991 by the Deputy Sheriff of Manila against the right and interest of Alfonso Roxas Chua in TCT 410603. Thereafter, a certificate of sale on execution dated April 13, 1992 was issued by the Sheriff of Branch 39, RTC Manila in Civil Case No. 85-31257, in favor of China Bank and inscribed at the back of TCT 410603 as Entry No. 01896 on May 4, 1992. 5

On May 20, 1993, Paulino Roxas Chua and Kiang Ming Chu Chua instituted Civil Case No. 63199 before the RTC of Pasig, Metro Manila against China Bank, averring that Paulino has a prior and better right over the rights, title, interest and participation of China Banking Corporation in TCT 410603; that Alfonso Roxas Chua sold his right to redeem one-half (1/2) of the aforesaid conjugal property in his favor on November 21, 1988 while China Banking Corporation acquired its right from the notice of levy of execution dated January 30, 1991; that the assignment of rights in his favor was annotated at the back of TCT 410603 on March 14, 1989 and inscribed as Entry No. 7629, and his redemption of the property was effected in an instrument dated January 11, 1989 and inscribed and annotated at the back of TCT 410603 on March 14, 1989, two years before the annotation of the rights of China Banking Corporation on TCT 410603 on February 4, 1991.


The trial court rendered a decision on July 15, 1994 in favor of private respondent Paulino Roxas Chua and against China Banking Corporation, the decretal portion of which reads:

WHEREFORE, foregoing premises considered, this Court finds sufficient preponderance of evidence against defendants in favor of plaintiffs and therefore render (sic) judgment ordering defendant to pay plaintiffs:

a) P100,000.00 as moral damages and P50,000.00 as exemplary damages plus 12% interest per annum to start from the date of this decision until fully paid;

b) P100,000.00 attorney's fee; and

c) the cost of the suit.

The writ of preliminary injunction issued by this Court on 30 June 1993 enjoining China Banking Corporation, the Sheriff of Manila and the Register of Deeds of San Juan, their officers, representatives, agents or persons acting on their behalf from causing the transfer of possession, ownership and certificate of title or otherwise disposing of the property covered by TCT No. 410603 in favor of defendant bank or to any other person is hereby made permanent. The Register of Deeds of San Juan, Metro Manila is also hereby ordered to cancel all annotations in TCT No. 410603 in favor of defendant China Banking Corporation adverse to the rights and interest of plaintiffs.

SO ORDERED. 6

The trial court ruled that the assignment was made for a valuable consideration and was executed two years before petitioner China Bank levied the conjugal share of Alfonso Roxas Chua on TCT 410603. The trial court found that Paulino redeemed the one-half portion of the property, using therefor the amount of P100,000.00 which he withdrew from his savings account as evidenced by his bankbook and the receipts of Metrobank for his payment of the redemption price. The court noted that Paulino at that time was already of age and had his own source of income.

On appeal, the Court of Appeals affirmed the ruling of the trial court. It held that petitioner China Bank had been remiss in the exercise of its rights as creditor; and that it should have exercised its right of redemption under Sections 29 and 30, Rule 39 of the Rules of Court.

The issues raised by petitioner before us essentially boil down to whether or not the assignment of the right of redemption made by Alfonso Roxas Chua in favor of private respondent Paulino was done to defraud his creditors and may be rescinded under Article 1387 of the Civil Code.

Under Article 1381(3) of the Civil Code, contracts which are undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them, are rescissible.

The existence of fraud or intent to defraud creditors may either be presumed in accordance with Article 1387 of the Civil Code or duly proved in accordance with the ordinary rules of evidence. Article 1387 reads:

Art. 1387. 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.

Alienation by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence.

Hence, the law presumes that there is fraud of creditors when:

a) There is alienation of property by gratuitous title by the debtor who has not reserved sufficient property to pay his debts contracted before such alienation; or

b) There is alienation of property by onerous title made by a debtor against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated and need not have been obtained by the party seeking rescission.

After his conjugal share in TCT 410603 was foreclosed by Metrobank, the only property that Alfonso Roxas Chua had was his right to redeem the same, it forming part of his patrimony. "Property" under civil law comprehends every species of title, inchoate or complete, legal or equitable.

Alfonso Roxas Chua sold his right of redemption to his son, Paulino Roxas Chua, in 1988. Thereafter, Paulino redeemed the property and caused the annotation thereof at the back of TCT 410603. This preceded the annotation of the levy of execution in favor of China Bank by two (2) years and the certificate of sale in favor of China Bank by more than three (3) years. On this basis, the Court of Appeals concluded that the allegation of fraud made by petitioner China Bank is vague and unsubstantiated.

Such conclusion, however, runs counter to the law applicable in the case at bar. Inasmuch as the judgment of the trial court in favor of China Bank against Alfonso Roxas Chua was rendered as early as 1985, there is a presumption that the 1988 sale of his property, in this case the right of redemption, is fraudulent under Article 1387 of the Civil Code. The fact that private respondent Paulino Roxas Chua redeemed the property and caused its annotation on the TCT more than two years ahead of petitioner China Bank is of no moment. As stated in the case of Cabaliw vs. Sadorra, 7 "the parties here do not stand in equipoise, for the petitioners have in their favor, by a specific provision of law, the presumption of fraudulent transaction which is not overcome by the mere fact that the deeds of sale were in the nature of public instruments."

This presumption is strengthened by the fact that the conveyance has virtually left Alfonso's other creditors with no other property to attach. It should be noted that the presumption of fraud or intention to defraud creditors is not just limited to the two instances set forth in the first and second paragraphs of Article 1387 of the Civil Code. Under the third paragraph of the same article, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. In the early case of Oria vs. Mcmicking, 8 the Supreme Court considered the following instances 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 circumstances7. The failure of the vendee to take exclusive possession of all the property. (Emphasis provided)

Before China Bank obtained judgment against Pacific Multi Agro-Industrial Corporation and Alfonso Roxas Chua on November 7, 1985, Alfonso Roxas Chua had only his one-half share of the conjugal property in question to pay his previous creditor, Metrobank. Even his son, private respondent Paulino Roxas Chua himself, knew this as shown by the following excerpts of his testimony during the trial:

Q: You said that month before or October 1988 your father approached you regarding his problem with respect to his property, subject of this case, can you tell us what in particular did he tell you about Metrobank?A: He told me about his problem with Metrobank, about the loan with Metrobank and Metrobank gonna foreclose his property.

xxx xxx xxxQ: What did your father tell you regarding his problem?A: He told me about Metrobank, our house will gonna foreclosure (sic). He cannot pay Metrobank anymore. His business is down. 9

Despite Alfonso Roxas Chua's knowledge that it is the only property he had which his other creditors could levy, he still assigned his right to redeem his one-half share of the conjugal property in question from Metrobank in favor of his son, Paulino. Alfonso's intent to defraud his other creditors, specifically, China Bank, becomes even more apparent when we take into consideration the fact that immediately after the Court of Appeals rendered its Resolution dated September 29, 1988, dismissing the appeal of Pacific Multi-Agro and Alfonso Roxas Chua in CA-G.R. No. CV-14681 entitled, "China Banking Corporation, Plaintiff-Appellee versus Pacific Multi Agro-Industrial Corporation, et al., Defendants-Appellants, 10 "he assigned his right to redeem one-half of the conjugal property to his son on November 21, 1988.

The Court of Appeals, however, maintained that although the transfer was made between father and son, the conveyance was not fraudulent since Paulino had indeed paid the redemption price of P1,463,375.39 to Metrobank and the sum of P100,000.00 to his father. The Court of Appeals reiterated the findings of the trial court that Paulino at that time had his own source of income, having been given HK$1Million by his maternal grandmother which he used to invest in a buy-and-sell business of stuffed toys.

It bears emphasis that it is not sufficient that the conveyance is founded on a valuable consideration. In the case of Oria vs. Mcmicking, 11 we had occasion to state that "In determining whether or not a certain conveyance is fraudulent the question in every case is whether the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors, or whether it conserves to the debtor a special right. It is not sufficient that it is founded on good considerations or is made with bona fide intent: it must have both elements. If defective; in either of these, although good between the parties, it is voidable as to creditors. . . . The test as to whether or not a conveyance is fraudulent is, does it prejudice the rights of creditors?"

The mere fact that the conveyance was founded on valuable consideration does not necessarily negate the presumption of fraud under Article 1387 of the Civil Code. There has to be a valuable consideration and the transaction must have been made bona fide.

In the case at bar, the presumption that the conveyance is fraudulent has not been overcome. At the time a judgment was rendered in favor of China Bank against Alfonso and the corporation, Paulino was still living with his parents in the subject property. Paulino himself admitted that he knew his father was heavily indebted and could not afford to pay his debts. The transfer was undoubtedly made between father and son at a time when the father was insolvent and had no other property to pay off his creditors. Hence, it is of no consequence whether or not Paulino had given valuable consideration for the conveyance.

With regard to the finding of the Court of Appeals that petitioner was remiss in its duties for not having availed of redemption under Rule 39 of the Rules of Court, it should be borne in mind that petitioner is not limited to the procedure outlined in Rule 39 of the Rules of Court to enforce its claim against its debtor Alfonso Roxas Chua. Verily, Article 1387 of the Civil Code clearly states that conveyances made by the debtor to defraud his creditor may be rescinded.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 46735 is REVERSED and SET ASIDE. The permanent injunction enjoining petitioner, the Sheriff of Manila, the Register of Deeds of San Juan, their officers, representatives, agents and persons acting on their behalf from causing the transfer of possession, ownership and title of the property covered by TCT No. 410603 in favor of petitioner is LIFTED. The Assignment of Rights to Redeem dated November 21, 1988 executed by Alfonso Roxas Chua in favor of Paulino Roxas Chua is ordered RESCINDED. The levy on execution dated February 4, 1991 and the Certificate of Sale dated April 30, 1992 in favor of petitioner are DECLARED VALID against the one-half portion of the subject property.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Puno and Kapunan, JJ., concur.

Pardo, J., on official business abroad.


Manila

THIRD DIVISION


G.R. No. 134986 March 17, 2000

CAMPO ASSETS CORPORATION, petitioner, vs.CLUB X. O. COMPANY, represented by CHAN YORK GUI (ALLAN), respondent.

GONZAGA-REYES, J.:

Challenged in this petition for review on certiorari is the decision of the Court of Appeals in CA-G.R. SP No. 45128 1 which reversed and set aside the decision of the Regional Trial Court, Pasay City, Branch 111 in Civil Case No. 97-0199 2, affirming the decision of the Metropolitan Trial Court of Pasay City which dismissed the action of Forcible Entry filed by private respondent Club X. O. Company (Club X. O.) against Campo Assets Corporation (Campo Assets).

The antecedents are as follows:

Alma Arambulo (Arambulo) used to operate a food and entertainment business establishment situated at the corner of Roxas Boulevard and San Luis Street, Pasay City pursuant to a Memorandum of Agreement executed on January 5, 1991 between her husband and Campo Assets which had a contract of lease with the owner of the subject premises. Sometime on August 3, 1993, Arambulo renewed the Memorandum of Agreement with Campo Assets to continue operating the business, then known under the name "Hand-in-Hand Disco"; under the renewed Memorandum of Agreement Arambulo agreed to pay a guaranteed monthly income of P88,000 to Campo Assets on or before the 15th day of the month starting June, 1993 and the agreement was co-terminus with the contract of lease between Campo Assets and the owner of the premises. 3 It appears that sometime in June, 1994, Arambulo and Chan York Gui (Allan) entered into a partnership agreement for the operation of the business, which was renamed Club X. O. Disco Theater. The partnership was registered as Club X. O. Company with the Securities and Exchange Commission. Club X. O. operated the business and introduced improvements thereon. On January 13, 1996 or thereabout, Campo Assets took possession of the club's premises, claiming that Arambulo had abandoned the premises and that the re-taking was pursuant to Paragraph VI of the Memorandum of Agreement between Arambulo and Campo Assets, which reads:

VI. In case the premises shall be deserted or vacated before the expiration of this Agreement, the FIRST PARTY shall have the right to enter the same as the agent of the SECOND PARTY either by force or otherwise, without being liable to any prosecution thereof, and the FIRST PARTY shall furthermore have the option to retake and operate the business itself or relet the same as agent of the SECOND PARTY to receive guaranteed P88,000.00 monthly income therefrom, and to apply the same to the payment of the guaranteed income due hereunder holding the SECOND PARTY liable for any deficiency, without prejudice to any right of action against the SECOND PARTY.

On April 1, 1996, Club X. O. Company represented by Allan filed a complaint for forcible entry in the Metropolitan Trial Court, Pasay City docketed as Civil Case No. 256-96 to recover possession of the premises and damages.

The case was dismissed for lack of merit. The trial court ruled that there is no privity of contract between plaintiff Club X. O. and defendant Campo Assets insofar as the Memorandum of Agreement between Arambulo and Campo Assets is concerned. It also ruled that Arambulo failed to pay the guaranteed income and thus violated the agreement, and worse, abandoned the premises. The court held that the act of Campo Assets in taking possession is pursuant to Paragraph VI, above quoted, of the Memorandum of Agreement between Campo Assets and Arambulo, which stipulation is valid, being in the nature of a resolutory condition which is not proscribed by law.

The above decision was affirmed in toto by the Regional Trial Court.

On petition for review filed with the Court of Appeals, the appellate court reversed the decision of the lower courts. The Court of Appeals held that the Metropolitan Trial Court found that Club X. O. was in prior possession of the property at the time it was taken over by Campo Assets, and this fact alone gives Club X. O. a cause of action for forcible entry. If prior possession is lost through force, stealth, or violence, possession should be restored regardless of its title or ownership. The Court of Appeals declared that subject Paragraph VI of the Memorandum of Agreement is void for being against public order and ordered the return of the possession of the subject premises to Club X. O.

Campo Assets has come to this Court by petition for review on certiorari posing only one legal issue, whether Paragraph VI of the Memorandum of Agreement is "void for being against public order". Petitioner contends that the Court of Appeals overlooked the fact that the trial court made a factual finding that the premises had been actually abandoned by Arambulo. Campo Assets then argues that since the leased property was already abandoned, no force was necessary and none was employed in taking over said premises.

In its comment, Club X. O. insists that it was in complete possession of the leased premises when the questioned take over took place. Club X. O. entered the premises when the active management of the business was turned over by Arambulo pursuant to their partnership agreement. Accordingly, it had the right to seek redress through the court. Club X. O. claims that by its own conduct Campo Assets had consented to the take-over of the operation of the business by the Club X. O. partnership.

Petitioner would confine the core issue as being limited to the validity of the above-quoted stipulation in the Revised Memorandum of Agreement. The bare proposition does not permit an unqualified answer.

It is a fundamental principle that parties to a lease contract are not prohibited from agreeing on certain mandatory provisions delineating their respective rights and obligations considering the legal precept that contracts are respected as the law between the contracting parties. The only requirement is that these contractual stipulations, clauses, terms and conditions must not be contrary to law, morals, good customs, public policy or public order. 4

In Viray vs. Intermediate Appellate Courts (IAC) 5, this Court upheld the validity of a stipulation that allowed the lessor to enter and take possession of the leased premises without need of judicial action upon a breach of the lease contract by the lessee. The stipulation subject of the case reads in full as follows:

Upon the failure of the Lessee to comply with any of the terms and conditions which may be imposed by the Lessor prior to and/or upon renewal of this lease agreement as provided in par. 2 above, then the Lessor shall have the right, upon written notice posted at the entrance of the premises leased, to enter and take possession of the said premises holding in his trust and custody and such possessions and belongings of the Lessee found therein after an inventory of the same in the presence of a witness, all these acts being hereby agreed to by the Lessee as tantamount to his voluntary vacation of the leased premises without the necessity of suit in court. 6

In upholding the validity of the quoted provision, the Court declared that the stipulation is in the nature of a resolutory condition and that such a contractual provision is "not illegal, there being nothing in the law proscribing such an agreement". 7 The validity of a substantially identical condition in a written lease agreement was earlier sustained in Consing vs. Jamandre. 8

Notably, the stipulation in question in the case of Viray vs. IAC does not give authority to the lessor to use force in retaking possession of the leased premises. However, in the same case of Viray vs. IAC the Court pointed out that there is considerable authority in American law upholding the validity of stipulations authorizing the use of "all necessary force" or "reasonable force" in making re-entry upon the expiration/termination of the lease, viz:


Although the authorities are not in entire accord, the better view seems to be, even in jurisdictions adopting the view that the landlord cannot forcibly eject a tenant who wrongfully holds without incurring civil liability, that nevertheless, where a lease provides that if the tenants holds over after the expiration of his term, the landlord may enter and take possession of the premises, using all necessary force to obtain the actual possession thereof, and that such entry should not be regarded as a trespass, be sued for as such, or in any wise be considered unlawful, the landlord may forcibly expel the tenant upon the termination of the tenancy, using no more force than is necessary, and will not be liable to the tenant therefor, such a condition in a lease being valid.

. . . although there is contrary authority, the rule supported by a substantial number of cases is that despite the effect of forcible entry and detainer statutes, where a lease expressly gives a landlord a right to use such reasonable force as is necessary in making re-entry and dispossessing a tenant, when the landlord becomes entitled to possession because of the termination of the term, the landlord can use force in making re-entry and dispossessing the tenant. 9

Again, it must be noted that the application of the provision is limited to situations where the term of the lease has expired and the logic in allowing the lessor to dispossess the tenant who has padlocked the premises to prevent re-entry by the owner despite the expiration of the term of the lease cannot be assailed.

In the case at bar, we find that although Paragraph VI of the Memorandum of Agreement employs the prefatory words "in case the premises shall be deserted or vacated before the expiration of the Agreement", which would restrict the operation of the clause to situations wherein the premises are in fact vacated already, and would therefore imply that the re-entry with the use of force if at all, is against property only, the stipulation would not proscribe re-taking by use of force against persons despite the fact that the premises are still in the actual possession of another, albeit under a questioned right. Moreover, there is no requirement of notice before re-entry. Jurisprudence supports the view that when parties to a contract expressly reserve an option to terminate or rescind a contract upon the violation of a resolutory condition, notice of resolution must be given to the other party when such right is exercised. 10 In Zulueta vs. Mariano 11 we ruled that resort to courts may be necessary when the right involves the retaking of property which is not voluntarily surrendered by the other party. The rationale for the ruling in Zulueta vs. Mariano is based on the thesis that no one should take the law into his own hands. 12 In this sense, the stipulation is legally vulnerable. Permitting the use of unqualified force to repossess the property and without condition of notice upon the lessee is fraught with dangerous possibilities. We are inclined to agree with the Court of Appeals that such a broad stipulation cannot be sanctioned for the reason that it would allow the lessor/owner to take the law into his own hands, and undermine the philosophy behind the remedy of forcible entry which is to prevent breach of the peace and criminal disorder 13 and to compel the party out of possession to respect and resort to the law alone to obtain what he claims to behis. 14

At any rate, we do not find it necessary to make a definitive pronouncement on this point because recourse to Paragraph VI was not necessary in this case. The finding of the trial court, which was affirmed by the regional trial court is that Arambulo, the lessee, had deserted and abandoned the leased premises, Campo Assets as lessor had therefore acquired a right of action to judicially eject the lessee. It has been ruled in several cases 15 that when the lessor has licitly terminated the lease and had therefore acquired an affirmative right of action to oust the tenant, such an affirmative right of action constitutes a valid defense against, and is fatal to any action by the lessee against the lessor to regain possession. 16 In the case at bench, it is with more reason that the case of forcible entry against Campo Assets must fail because respondent Club X. O. is not even privy to the contract of lease between Arambulo and Campo Assets. Certainly, in filing the case of forcible entry against Campo Assets, Club X. O. cannot claim a better right than that of the lessee, Arambulo, who had already lost her right to retake possession when she abandoned the leased property.

Club X. O. insists that it had not abandoned the premises when Campo Assets took over possession thereof. The records show that Club X. O. alleged in its complaint for forcible entry below that Campo Assets sent several security guards who took possession of the premises by means of force and intimidation, padlocked the club's entrance and in the process even detained some employees of the club for about a day. 17 This allegation was "absolutely denied" in the Answer 18 wherein it was also alleged that the lessee Arambulo and Allan had been clandestinely operating the business without involving Campo Assets, and when the latter discovered the fraud, Arambulo and Allan abandoned the business and in the process left their personnel on the abandoned premises, which explains why there were still some employees in the abandoned premises on January 13, 1996 when Campo Assets took over possession. 19 The municipal trial court held that Arambulo had abandoned the place. This was affirmed by the regional trial court:

When Alma Arambulo failed to pay the guaranteed income to appellee, she did violate the agreement and worse, she deserted the premises as in fact she abandoned it.

This factual finding is binding upon the appellate court, and we find no basis for the statement of the Court of Appeals that "Campo Assets Corporation cannot just barge into the questioned premises and forcibly retake possession of the questioned premises without resorting to the proper judicial processes." 20

WHEREFORE, this instant petition is granted. The Decision of the Court of Appeals dated August 12, 1998 is hereby SET ASIDE and REVERSED and the Decision of the Regional Trial Court, Branch 111, Pasay City dated June 10, 1997 affirming in toto the Decision of the Metropolitan Trial Court, Branch 46, Pasay City dated January 10, 1997 is hereby REINSTATED.1âwphi1.nêt

SO ORDERED.

Melo, Vitug, Panganiban and Purisima, JJ., concur.


Manila

SECOND DIVISION

G.R. No. 127246 April 21, 1999

SPOUSES LUIS M. ERMITAÑO and MANUELITA C. ERMITAÑO, petitioners, vs.THE COURT OF APPEALS AND BPI EXPRESS CARD CORP., respondents.


QUISUMBING, J

This petition for review under Rule 45, of the Rules of Court, seeks to set aside the decision of the Court of Appeals in C.A.-G.R. CV No. 47888 reversing the trial court's 1 judgment in Civil Case No. 61357, as well as the resolution of the Court of Appeals denying petitioners' motion for reconsideration.

In dispute is the validity of the stipulation embodied in the standard application form for credit cards furnished by private respondent. The stipulation makes the cardholder liable for purchases made through his lost or stolen credit card until (a) notice of such loss or theft has been given to private respondent and (b) the latter has communicated such loss or theft to its member-establishments.

The facts, as found by the trial court, are not disputed.

Petitioner Luis Ermitaño applied for a credit card from private respondent BPI Express Card Corp. (BECC) on October 8, 1986 with his wife, Manuelita, as extension cardholder. The spouses were given credit cards with a credit limit of P10,000.00. They often exceeded this credit limit without protest from BECC.

On August 29, 1989, Manuelita's bag was snatched from her as she was shopping at the Greenbelt Mall in Makati, Metro Manila. Among the items inside the bag was her BECC credit card. That same night she informed, by telephone, BECC of the loss. The call was received by BECC offices through a certain Gina Banzon. This was followed by a letter dated August 30, 1989. She also surrendered Luis' credit card and requested for replacement cards. In her letter, Manuelita stated that she "shall not be responsible for any and all charges incurred [through the use of the lost card] after August 29, 1989. 2

However, when Luis received his monthly billing statement from BECC dated September 20, 1989, the charges included amounts for purchases made on August 30, 1989 through Manuelita's lost card. Two purchases were made, one amounting to P2,350.05 and the other, P607.50. Manuelita received a billing statement dated October 20, 1989 which required her to immediately pay the total amount of P3,197.70 covering the same (unauthorized) purchases. Manuelita again wrote BECC disclaiming responsibility for those charges, which were made after she had served BECC with notice of the loss of her card.

Despite the spouses' refusal to pay and the fact that they repeatedly exceeded their monthly credit limit, BECC sent them a notice dated December 29, 1989 stating that their cards had been renewed until March 1991. Notwithstanding this, however, BECC continued to include in the spouses' billing statements those purchases made through Manuelita's lost card. Luis protested this billing in his letter dated June 20, 1990.

However, BECC, in a letter dated July 13, 1990, pointed out to Luis the following stipulation in their contract:

In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in writing to BECC . . . purchases made/incurred arising from the use of the lost/stolen card shall be for the exclusive account of the cardholder and the cardholder continues to be liable for the purchases made through the use of the lost/stolen BPI Express Card until after such notice has been given to BECC and the latter has communicated such loss/theft to its member establishments. 3

Pursuant to this stipulation, BECC held Luis liable for the amount of P3,197.70 incurred through the use of his wife's lost card, exclusive of interest and penalty charges.

In his reply dated July 18, 1990, Luis stressed that the contract BECC was referring to was a contract of adhesion and warned that if BECC insisted on charging him and his wife for the unauthorized purchases, they will sue BECC for damages. This warning notwithstanding, BECC continued to bill the spouses for said purchases. 4

On April 10, 1991, Luis used his credit card to purchase gasoline at a Caltex station. The latter, however, dishonored his card. In reply to Luis' demand for an explanation, BECC wrote that it transferred the balance of his old credit card to his new one, including the unauthorized charges. Consequently, his outstanding balance exceeded his credit limit of P10,00000. He was informed that his credit card had not been cancelled but, since he exceeded his credit limit, he could not avail of his credit privileges.

Once more, Luis pointed out that notice of the lost card was given to BECC before the purchases were made.

Subsequently, BECC cancelled the spouses' credit cards and advised them to settle the account immediately or risk being sued for collection of said account.

Constrained, petitioners sued BECC for damages. The trial court ruled in their favor, stating that there was a waiver on the part of BECC in enforcing the spouses' liability, as indicated by the following circumstances:

(1) Its failure to inform the spouses that the unauthorized charges on the lost card would be carried over to their replacement cards; and

(2) Its act of unqualifiedly replacing the lost card and Luis' card which were both surrendered by the spouses, even after the spouses unequivocally denied liability for the unauthorized purchases.

The trial court further noted that the suspension of the spouses' credit cards was based upon the "lame excuse" that the credit limit had been exceeded, despite the fact that BECC allowed the spouses previously to exceed their credit limit, even for almost two years after the loss of Manuelita's card. Moreover, the credit limit was exceeded only after BECC added the unauthorized purchases to the liability of the spouses. BECC continued to send the spouses separate billing statements that included the unauthorized purchases, with interest and penalty charges.

The trial court opined that the only purpose for the suspension of the spouses' credit privileges was to compel them to pay for the unauthorized purchases. The trial court ruled that the latter portion of the condition in the parties' contract, which states that liability for purchases made after a card is lost or stolen shall be for the account of the cardholder until after notice of the loss or theft has been given to BECC and after the latter has informed its member establishments, is void for being contrary to public policy and for being dependent upon the sole will of the debtor. 5

Moreover, the trial court observed that the contract between BECC and the Ermitaños was a contract of adhesion, whose terms must be construed strictly against BECC, the party that prepared it.

The dispositive portion of the trial court's decision reads:

WHEREFORE, and IN VIEW OF THE ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered in favor of the plaintiffs, Spouses Luis M. Ermitaño and Manuelita C. Ermitaño and against defendant BPI Express Card Corporation:


1. Ordering the said defendant to pay the plaintiffs the sum of P100,000.00 as moral damages.

2. Ordering said defendant to pay the plaintiffs the sum of P50,000.00 as exemplary damages.

3. Ordering said defencant to pay the plaintiffs the sum equivalent to twenty per cent (20%) of the amounts abovementioned as and for attorney's fees and expenses of litigation, and

4. Ordering the said defendant to pay the costs of suit.

SO ORDERED

But, on appeal this decision was reversed. The Court of Appeals stated that the spouses should be bound by the contract, even though it was one of adhesion. It also said that Luis, being a lawyer, had "all the tools to drive a hard bargain had he wanted to. 6 It cited the case of Serra v. Court of Appeals 7 wherein this Court ruled that contracts of adhesion are as binding as ordinary contracts. The petitioner in Serra was a CPA-lawyer, "a highly educated man. . . who should have been more cautious in (his) transactions. . . 8 The Court of Appeals therefore disposed of the appeal as follows:

THE FOREGOING CONSIDERED, the contested decision is REVERSED. Plaintiffs/appellees are hereby directed to pay the defendant/appellant the amount of P3,197.70 with 3% interest per month and an additional 3% penalty equivalent to the amount due every month until full payment. Without cost.

SO ORDERED. 9

Hence, this recourse by petitioners, in which they claim that the Court of Appeals gravely erred in:

(i) Ruling that petitioners should be bound by the stipulations contained in the credit card application — a document wholly prepared by private respondent itself — taking into consideration the professional credentials of petitioner Luis M. Ermitaño;

(ii) Relying on the case of Serra v. Court of Appeals, 229 SCRA 60, because unlike that case, petitioners have no chance at all to contest the stipulations appearing in the credit card application that was drafted entirely by private respondent, thus, a clear contract of adhesion;

(iii) Ruling that private respondent is not estopped by its subsequent acts after having been notified of the loss/theft of the credit card issued to petitioners, and

(iv) Holding that the onerous and unconscionable condition in the credit card application — that the cardholder continues to be liable for purchases made on lost or stolen credit cards not only after such notice has been given to appellant but also after the latter has communicated such loss/theft to its member establishments without any specific time or period — is valid. 10

At the outset, we note that the contract between the parties in this case is indeed a contract of adhesion, so-called because its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto. 11 Such contracts are not void in themselves. 12 They are as binding as ordinary contracts. Parties who enter into such contracts are free to reject the stipulations entirely. This Court, however, will not hesitate to rule out blind adherence to such contracts if they prove to be too one-sided under the attendant facts and circumstances. 13

The resolution of this petition, in our view, hinges on the validity and fairness of the stipulation on notice required by private respondent in case of loss or theft of a BECC-issued credit card. Because of the peculiar nature of contracts of adhesion, the validity thereof must be determined in light of the circumstances under which the stipulation is intended to apply. 14

The stipulation in question reads:

In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in citing to BECC . . . purchases made/incurred arising from the use of the lost/stolen card shall be for the exclusive account of the cardholder and the cardholder continues to be liable for the purchases made through the use of the lost/stolen BPI Express Card until after such notice has been given to BECC and the latter has communicated such loss/theft to its member establishments.

For the cardholder to be absolved from liability for unauthorized purchases made through his lost or stolen card, two steps must be followed: (1) the cardholder must give written notice to BECC, and (2) BECC must notify its member establishments of such loss or theft, which, naturally, it may only do upon receipt of a notice from the cardholder. Both the cardholder and BECC, then, have a responsibility to perform, in order to free the cardholder from any liability arising from the use of a lost or stolen card.

In this case, the cardholder, Manuelita, has complied with what was required of her under the contract with BECC. She immediately notified BECC of the loss of her card on the same day it was lost and, the following day, she sent a written notice of the loss to BECC. That she gave such notices to BECC is admitted by BECC in the letter sent to Luis by Roberto L. Maniquiz, head of BECC's Collection Department. 15

Having thus performed her part of the notification procedure, it was reasonable for Manuelita — and Luis, for that matter — to expect that BECC would perform its part of the procedure, which is to forthwith notify its member-establishments. It is not unreasonable to assume that BECC would do this immediately, precisely to avoid any unauthorized charges.

Clearly, what happened in this case was that BECC failed to notify promptly the establishment in which the unauthorized purchases were made with the use of Manuelita's lost card. Thus, Manuelita was being liable for those purchases, even if there is no showing that Manuelita herself had signed for said purchases, and after notice by her concerning her card's loss was already given to BECC.

BECC asserts that the period that elapsed from the time of the loss of the card to the time of its unauthorized use was too short such that "it would be next to impossible for respondent to notify all its member-establishments regarding the fact of the loss. 16 Nothing, however, prevents said member-establishments from observing verification procedures including ascertaining the genuine signature and proper identification of the purported purchaser using the credit card.

BECC states that, "between two persons who are negligent, the one who made the wrong possible should bear the loss." We take this to be an admission that negligence had occurred. In effect, BECC is saying that the company, and the member-establishments or the petitioners could be negligent. However, according to BECC, petitioners should be the ones to bear the loss since it was they who made possible the commission of a wrong. This conclusion, however, is self-serving and obviously untenable.


From one perspective, it was not petitioners who made possible the commission of the wrong. It could be BECC for its failure to immediately notify its members-establishments, who appear lacking in care or instruction by BECC in proper procedures, regarding signatures and the identification of card users at the point of actual purchase of goods or services. For how else could an unauthorized person succeed to use Manuelita's lost card?

The cardholder was no longer in control of the procedure after it has notified BECC of the card's loss or theft. It was already BECC's responsibility to inform its member-establishments of the loss or theft of the card at the soonest possible time. We note that BECC is not a neophyte financial institution, unaware of the intricacies and risks of providing credit privileges to a large number of people. It should have anticipated an occurrence such as the one in this case and devised effective ways and means to prevent it, or otherwise insure itself against such risk.

Prompt notice by the cardholder to the credit card company of the loss or theft of his card should be enough to relieve the former of any liability occasioned by the unauthorized use of his lost or stolen card. The questioned stipulation in this case, which still requires the cardholder to wait until the credit card company has notified all its member-establishments, puts the cardholder at the mercy of the credit card company which may delay indefinitely the notification of its members to minimize if not to eliminate the possibility of incurring any loss from unauthorized purchases. Or, as in this case, the credit card company may for some reason fail to promptly notify its members through absolutely no fault of the cardholder. To require the cardholder to still pay for unauthorized purchases after he has given prompt notice of the loss or theft of his card to the credit card company would simply be unfair and unjust. The Court cannot give its assent to such a stipulation which could clearly run against public policy. 17

On the matter of the damages petitioners are seeking, we must delete the award of exemplary damages, absent any clear showing that BECC acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, as required by Article 2232 of the Civil Code. We likewise reduce the amount of moral damages to P50,000.00, considering the circumstances of the parties to the case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 47888 is hereby REVERSED and the decision of the Regional Trial Court, Branch 157, Pasig City in Civil Case No. 61375 is REINSTATED, with the MODIFICATION that the award of exemplary damages in the amount of P50,000.00 is hereby deleted; and the amount of moral damages is reduced to P50,000.00; but private respondent is further ordered to pay P25,000 as attorney's fees and litigation expenses.

Costs against private respondents.1âwphi1.nêt

SO ORDERED.

Bellosillo, Puno, Mendoza and Buena, JJ., concur.


Manila

FIRST DIVISION

G.R. No. 160488 September 3, 2004

FELOMINA1 ABELLANA, petitioner, vs.SPOUSES ROMEO PONCE and LUCILA PONCE and the REGISTER OF DEEDS of BUTUAN CITY, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari assailing the June 16, 2003 decision2 of the Court of Appeals in CA-G.R. CV No. 69213, which reversed and set aside the August 28, 2000 decision3 of the Regional Trial Court of Butuan City, Branch 2, in Civil Case No. 4270.

The facts as testified to by petitioner Felomina Abellana are as follows:

On July 15, 1981, Felomina, a spinster, pharmacist and aunt of private respondent Lucila Ponce, purchased from the late Estela Caldoza-Pacres a 44,2974 square meter agricultural lot5 with the intention of giving said lot to her niece, Lucila. Thus, in the deed of sale,6 the latter was designated as the buyer of Lot 3, Pcs-10-000198, covered by Original Certificate of Title No. P-27, Homestead Patent No. V-1551 and located at Los Angeles, Butuan City.7 The total consideration of the sale was P16,500.00, but only P4,500.00 was stated in the deed upon the request of the seller.8


Subsequently, Felomina applied for the issuance of title in the name of her niece. On April 28, 1992, Transfer Certificate of Title (TCT) No. 28749 over the subject lot was issued in the name of Lucila.10 Said title, however, remained in the possession of Felomina who developed the lot through Juanario Torreon11 and paid real property taxes thereon.12

The relationship between Felomina and respondent spouses Romeo and Lucila Ponce, however, turned sour. The latter allegedly became disrespectful and ungrateful to the point of hurling her insults and even attempting to hurt her physically. Hence, Felomina filed the instant case for revocation of implied trust to recover legal title over the property.13

Private respondent spouses Lucila, also a pharmacist, and Romeo, a marine engineer, on the other hand, claimed that the purchase price of the lot was only P4,500.00 and that it was them who paid the same. The payment and signing of the deed of sale allegedly took place in the office of Atty. Teodoro Emboy in the presence of the seller and her siblings namely, Aquilino Caldoza and the late Lilia Caldoza.14

A year later, Juanario approached Lucila and volunteered to till the lot, to which she agreed.15 In 1987, the spouses consented to Felomina’s proposal to develop and lease the lot. They, however, shouldered the real property taxes on the lot, which was paid through Felomina. In 1990, the spouses demanded rental from Felomina but she refused to pay because her agricultural endeavor was allegedly not profitable.16

When Lucila learned that a certificate of title in her name had already been issued, she confronted Felomina who claimed that she already gave her the title. Thinking that she might have misplaced the title, Lucila executed an affidavit of loss which led to the issuance of another certificate of title in her name.17

On August 28, 2000, the trial court rendered a decision holding that an implied trust existed between Felomina and Lucila, such that the latter is merely holding the lot for the benefit of the former. It thus ordered the conveyance of the subject lot in favor of Felomina. The dispositive portion thereof, reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered declaring, directing and ordering that:

a) An implied trust was created with plaintiff as trustor and private defendant Lucila A. Ponce married to private defendant Engr. Romeo D. Ponce as trustee pursuant to Article 1448 of the New Civil Code;

b) The implied trust, having been created without the consent of the trustee and without any condition, is revoked;

c) The private defendants, who are spouses, execute the necessary deed of conveyance in favor of the plaintiff of the land, covered by and embraced in TCT NO. T-2874, in controversy and in the event private defendants refuse to execute the deed of conveyance, the public defendant City Register of Deeds of Butuan to cancel TCT No. T-2874 and issue a new one in lieu thereof in the name of the plaintiff;

d) The private defendants spouses to pay jointly and severally plaintiff the sum of PhP25,000.00 as attorney’s fees and PhP4,000.00 as expenses of litigation;

e) The dismissal of the counterclaim of private defendants spouses[;] and

f) The private defendants to pay the costs.

SO ORDERED.18

Private respondent spouses appealed to the Court of Appeals which set aside the decision of the trial court ruling that Felomina failed to prove the existence of an implied trust and upheld respondent spouses’ ownership over the litigated lot. The appellate court further held that even assuming that Felomina paid the purchase price of the lot, the situation falls within the exception stated in Article 1448 of the Civil Code which raises a disputable presumption that the property was purchased by Felomina as a gift to Lucila whom she considered as her own daughter. The decretal portion thereof, states –

WHEREFORE, premises considered, the appealed decision of the Regional Trial Court, Branch 2, Butuan City, in Civil Case No. 4270, is hereby REVERSED AND SET ASIDE. A new one is heretofore rendered dismissing the complaint below of plaintiff-appellee, F[e]lomina Abellana.

SO ORDERED.19

Felomina filed a motion for reconsideration but the same was denied.20 Hence, the instant petition.

The issue before us is: Who, as between Felomina and respondent spouses, is the lawful owner of the controverted lot? To resolve this issue, it is necessary to determine who paid the purchase price of the lot.

After a thorough examination of the records and transcript of stenographic notes, we find that it was Felomina and not Lucila who truly purchased the questioned lot from Estela. The positive and consistent testimony of Felomina alone, that she was the real vendee of the lot, is credible to debunk the contrary claim of respondent spouses. Indeed, the lone testimony of a witness, if credible, is sufficient as in the present case.21 Moreover, Aquilino Caldoza, brother of the vendor and one of the witnesses22 to the deed of sale, categorically declared that Felomina was the buyer and the one who paid the purchase price to her sister, Estela.23

Then too, Juanario, who was allegedly hired by Lucila to develop the lot, vehemently denied that he approached and convinced Lucila to let him till the land. According to Juanario, he had never spoken to Lucila about the lot and it was Felomina who recruited him to be the caretaker of the litigated property.24

The fact that it was Felomina who bought the lot was further bolstered by her possession of the following documents from the time of their issuance up to the present, to wit: (1) the transfer certificate of title25 and tax declaration in the name of Lucila;26 (2) the receipts of real property taxes in the name of Felomina Abellana for the years 1982-1984, 1992-1994 and 1995;27 and (3) the survey plan of the lot.28

Having determined that it was Felomina who paid the purchase price of the subject lot, the next question to resolve is the nature of the transaction between her and Lucila.


It appears that Felomina, being of advanced age29 with no family of her own, used to purchase properties and afterwards give them to her nieces. In fact, aside from the lot she bought for Lucila (marked as Exhibit "R-2"), she also purchased 2 lots, one from Aquilino Caldoza (marked as Exhibit "R-1") and the other from Domiciano Caldoza (marked as Exhibit "R-3"), which she gave to Zaida Bascones (sister of Lucila), thus:

Q I am showing to you again Exhibit R, according to you[,] you bought Exhibits R-1, R-2 and R-3, do you remember that?

A Yes sir.

x x x x x x x x x

Q Aquilin[o] Caldoza conveyed this land in Exhibit R-1 to you?

A Yes, sir.

Q Is this now titled in your name?

A No. I was planning to give this land to my nieces. One of which [was] already given to Mrs. [Lucila] Ponce.

Q I am talking only about this lot in Exhibit R-1[.]

A Not in my name.

Q In whose name was this lot in Exhibit R-1 now?

A In the name of Zaida Bascones.

Q Who prepared the deed of sale?

A At the start it was in the name of Rudy [Torreon].30 Because Rudy [Torreon] knew that there is some trouble already about that lot he made a deed of sale to the name of Zaida Bascones, which I planned to give that land to her (sic).

Q As regards Exhibit R-1, you bought it actually?

A Yes, sir.

Q But the … original deed of sale was in the name of Rudolfo [Torreon]?

A Yes, sir.

Q And later on Rudolfo [Torreon] again transferred it to Zaida Bascones?

A Yes, sir.31

Likewise, in the case of Lucila, though it was Felomina who paid for the lot, she had Lucila designated in the deed as the vendee thereof and had the title of the lot issued in Lucila’s name. It is clear therefore that Felomina donated the land to Lucila. This is evident from her declarations, viz:

Witness

A In 1981 there was a riceland offered so I told her that I will buy that land and I will give to her later (sic), because since 1981 up to 1992 Mrs. Lucila Ponce has no job.

Q Where is the land located?

A In Los Angeles, Butuan City.

Q Who was the owner of this land?

A The owner of that land is Mrs. Estela Caldoza-Pacr[e]s.

The husband is Pacr[e]s.

x x x x x x x x x

Q What did you do with this land belonging to Mrs. Estela-Caldoza- Pacr[e]s?


A I paid the lot, then worked the lot, since at the start of my buying the lot until now (sic).

Q You said that you told Lucila Ponce that you would give the land to her later on, what did you do in connection with this intention of yours to give the land to her?

A So I put the name of the title in her name in good faith (sic).

Q You mean to tell the court that when you purchased this land located at Los Angeles, Butuan City, the instrument of sale or the deed of sale was in the name of Lucila Ponce?

A Yes, sir.32

x x x x x x x x x

Q Did you not ask your adviser Rudolfo [Torreon] whether it was wise for you to place the property in the name of Lucila Ponce when you are the one who is the owner?

A Because we have really the intention to give it to her.33

Generally, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. When, however, the law requires that a contract be in some form in order that it may be valid, that requirement is absolute and indispensable. Its non-observance renders the contract void and of no effect.34 Thus, under Article 749 of the Civil Code –

Article 749. In order that the donation of an immovable property may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy.

The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.

In the instant case, what transpired between Felomina and Lucila was a donation of an immovable property which was not embodied in a public instrument as required by the foregoing article. Being an oral donation, the transaction was void.35 Moreover, even if Felomina enjoyed the fruits of the land with the intention of giving effect to the donation after her demise, the conveyance is still a void donation mortis causa, for non-compliance with the formalities of a will.36 No valid title passed regardless of the intention of Felomina to donate the property to Lucila, because the naked intent to convey without the required solemnities does not suffice for gratuitous alienations, even as between the parties inter se.37 At any rate, Felomina now seeks to recover title over the property because of the alleged ingratitude of the respondent spouses.

Unlike ordinary contracts (which are perfected by the concurrence of the requisites of consent, object and cause pursuant to Article 131838 of the Civil Code), solemn contracts like donations are perfected only upon compliance with the legal formalities under Articles 74839 and 749.40 Otherwise stated, absent the solemnity requirements for validity, the mere intention of the parties does not give rise to a contract. The oral donation in the case at bar is therefore legally inexistent and an action for the declaration of the inexistence of a contract does not prescribe.41 Hence, Felomina can still recover title from Lucila.

Article 144842 of the Civil Code on implied trust finds no application in the instant case. The concept of implied trusts is that from the facts and circumstances of a given case, the existence of a trust relationship is inferred in order to effect the presumed intention of the parties.43 Thus, one of the recognized exceptions to the establishment of an implied trust is where a contrary intention is proved,44 as in the present case. From the testimony of Felomina herself, she wanted to give the lot to Lucila as a gift. To her mind, the execution of a deed with Lucila as the buyer and the subsequent issuance of title in the latter’s name were the acts that would effectuate her generosity. In so carrying out what she conceived, Felomina evidently displayed her unequivocal intention to transfer ownership of the lot to Lucila and not merely to constitute her as a trustee thereof. It was only when their relationship soured that she sought to revoke the donation on the theory of implied trust, though as previously discussed, there is nothing to revoke because the donation was never perfected.

In declaring Lucila as the owner of the disputed lot, the Court of Appeals applied, among others, the second sentence of Article 1448 which states –

"x x x However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child."

Said presumption also arises where the property is given to a person to whom the person paying the price stands in loco parentis or as a substitute parent.45

The abovecited provision, however, is also not applicable here because, first, it was not established that Felomina stood as a substitute parent of Lucila; and second, even assuming that she did, the donation is still void because the transfer and acceptance was not embodied in a public instrument. We note that said provision merely raised a presumption that the conveyance was a gift but nothing therein exempts the parties from complying with the formalities of a donation. Dispensation of such solemnities would give rise to anomalous situations where the formalities of a donation and a will in donations inter vivos, and donations mortis causa, respectively, would be done away with when the transfer of the property is made in favor of a child or one to whom the donor stands in loco parentis. Such a scenario is clearly repugnant to the mandatory nature of the law on donation.

While Felomina sought to recover the litigated lot on the ground of implied trust and not on the invalidity of donation, the Court is clothed with ample authority to address the latter issue in order to arrive at a just decision that completely disposes of the controversy.46 Since rules of procedure are mere tools designed to facilitate the attainment of justice, they must be applied in a way that equitably and completely resolve the rights and obligations of the parties.47

As to the trial court’s award of attorney’s fees and litigation expenses, the same should be deleted for lack of basis. Aside from the allegations in the complaint, no evidence was presented in support of said claims. The trial court made these awards in the dispositive portion of its decision without stating any justification therefor in the ratio decidendi. Their deletion is therefore proper.48

Finally, in deciding in favor of Felomina, the trial court ordered respondent spouses to execute a deed of sale over the subject lot in favor of Felomina in order to effect the transfer of title to the latter. The proper remedy, however, is provided under Section 10 (a), Rule 39 of the Revised Rules of Civil Procedure which provides that "x x x [i]f real or personal property is situated within the Philippines, the court in lieu of directing a conveyance thereof may by an order divest the title of any party and vest it in others, which shall have the force and effect of a conveyance executed in due form of law."


WHEREFORE, in view of all the foregoing, the petition is GRANTED and the June 16, 2003 decision of the Court of Appeals in CA-G.R. CV No. 69213 is REVERSED and SET ASIDE. The August 28, 2000 decision of the Regional Trial Court of Butuan City, Branch 2, in Civil Case No. 4270, is REINSTATED with the following MODIFICATIONS:

(1) Declaring petitioner Felomina Abellana as the absolute owner of Lot 3, Pcs-10-000198;

(2) Ordering the Register of Deeds of Butuan City to cancel TCT No. T-2874 in the name of respondent Lucila Ponce and to issue a new one in the name of petitioner Felomina Abellana; and

(3) Deleting the awards of attorney’s fees and litigation expenses for lack of basis.

No pronouncement as to costs.

SO ORDERED.

Davide, Jr., Quisumbing, Carpio, and Azcuna, JJ., concur.

Footnotes

1 Also spelled as "Filomena" in some parts of the records.

2 Penned by Associate Justice Rodrigo V. Cosico and concurred in by Associate Justices Juan Q. Enriquez, Jr. and Hakim S. Abdulwahid (Rollo, p. 28).

3 Penned by Judge Rosarito F. Dabalos (Rollo, p. 59).

4 In the Deed of Sale, the area of the lot is 44,298 (See Exhibit "A", Records, p. 7), while in the Transfer Certificate of Title, the lot area is 44,297 square meters (Records, p. 392).

5 Particularly described as follows:

"A PARCEL OF LAND (Lot 3, Pcs-10-000198, being a portion of Lot 564 and 565, Cad-121, Butuan-Cabadbaran Public Land Subdivision), situated in the Barrio of Los Angeles, Municipality of Cabadbaran, Province of Agusan del Norte, Island of Mindanao. Bounded on the NE., along line 1-2, by Lot 2, of the Consolidation Subdivision plan Pcs-10-000198, on the SE., along line 2-3, by Lot 566, Butuan-Cabadbaran Cad. 121, on the SW., along line 3-4, by Lot 4, of the Consolidation Subdivision plan Pcs-10-000198, on the NW., along line 4-1, by Lot 563, Butuan-Cabadbaran Cad. 121." (Transfer Certificate of Title, Exhibit "B", Rollo, p. 392)

6 Exhibit "A", Records, p. 7.

7 TSN, 7 November 1995, pp. 69-70; 27 November 1995, pp. 188-191.

8 TSN, 28 November 1995, pp. 284-285.

9 Exhibit "B", Rollo, p. 392.

10 TSN, 7 November 1995, pp. 75-76; 28 November 1995, p. 298.

11 TSN, 7 November 1995, pp. 75-79.

12 TSN, 7 November 1995, pp. 85-86.

13 TSN, 27 November 1995, pp. 150-160.

14 TSN, 26 July 1996, p. 503; 4 November 1996, pp. 542-544; 28 November 1996, pp. 589-592.

15 TSN, 26 July 1996, pp. 506-508.

16 TSN, 26 July, 1996, pp. 509-510.

17 TSN, 26 July 1996, pp. 510-512.

18 Rollo, pp. 113-114.

19 Rollo, p. 37.

20 Resolution dated October 2, 2003 (Rollo, p. 51).

21 Nazareno v. Court of Appeals, G.R. No. 138842, 18 October 2000, 343 SCRA 637, 652.


22 The other witness was the late Lilia Caldoza, sister of the seller.

23 TSN, 29 November 1995, pp. 237-240.

24 TSN, 18 September 1997, pp. 709-712.

25 Exhibit "B", Records, p. 392.

26 Exhibit "Q", Records, p. 407.

27 Exhibits "N"-"P", Records, pp. 404-406.

28 Exhibit "R", Records, p. 408.

29 She was 76 years old when she testified on November 7, 1995.

30 Son of Juanario Torreon and interchangeably referred to as "Rudy" and "Rudolfo" in the transcript of stenographic notes.

31 TSN, 27 November 1995, pp. 180-181.

32 TSN, 7 November 1995, pp. 69-70 (Emphasis supplied).

33 TSN, 27 November 1995, p. 188 (Emphasis supplied).

34 Dauden-Hernaez v. De los Angeles, G.R. No. L-27010, 30 April 1969, 27 SCRA 1276, 1281-1282; Vitug, Compendium of Civil Law and Jurisprudence, 1993 edition, pp. 549-550.

35 Bagnas v. Court of Appeals, G.R. No. 38498, 10 August 1989, 176 SCRA 159, 167; Pershing Tan Queto v. Court of Appeals, G.R. No. L-35648, 27 February 1987, 148 SCRA 54, 57-58.

36 Pershing Tan Queto v. Court of Appeals, supra.

37 Concurring Opinion of Justice Reyes, J.B.L. in Armentia v. Patriarca, 125 Phil. 382, 395 (1966).

38 Article 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

39 Article 748. The donation of a movable may be made orally or in writing.

An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated.

If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall be made in writing. Otherwise, the donation shall be void.

40 Vitug, Compendium of Civil Law and Jurisprudence, 1993 edition, p. 536.

41 Felix Gochan and Sons Realty Corporation v. Heirs of Raymundo Baba, G.R. No. 138945, 19 August 2003, 409 SCRA 306, 314.

42 Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.

43 Padilla v. Court of Appeals, 152 Phil. 548, 561 (1973); Morales v. Court of Appeals, G.R. No. 117228, 19 June 1997, 274 SCRA 282, 299.

44 Morales v. Court of Appeals, supra.

45 Morales, supra.

46 Diamonon v. Department of Labor and Employment, 384 Phil. 15, 22-23 (2000).


47 Cometa v. Court of Appeals, G.R. No. 141855, 6 February 2001, 351 SCRA 294, 307.

48 Siguan v. Lim, 376 Phil. 840, 856 (1999).


Manila

SECOND DIVISION

G.R. No. 140667 August 12, 2004

WOODCHILD HOLDINGS, INC., petitioner, vs.ROXAS ELECTRIC AND CONSTRUCTION COMPANY, INC., respondent.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 56125 reversing the Decision2 of the Regional Trial Court of Makati, Branch 57, which ruled in favor of the petitioner.

The Antecedents

The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas Electric and Construction Company, was the

owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No. 78086. A portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.

At a special meeting on May 17, 1991, the respondent's Board of Directors approved a resolution authorizing the corporation, through its president, Roberto B. Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of 7,213 square meters, at a price and under such terms and conditions which he deemed most reasonable and advantageous to the corporation; and to execute, sign and deliver the pertinent sales documents and receive the proceeds of the sale for and on behalf of the company.3

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2 covered by TCT No. 78086 on which it planned to construct its warehouse building, and a portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot container van would be able to readily enter or leave the property. In a Letter to Roxas dated June 21, 1991, WHI President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and conditions for P1,000 per square meter or at the price of P7,213,000.4 One of the terms incorporated in Dy's offer was the following provision:

http://www.lawphil.net/judjuris/juri2004/aug2004/gr_140667_2004.html#fnt1





5. This Offer to Purchase is made on the representation and warranty of the OWNER/SELLER, that he holds a good and registrable title to the property, which shall be conveyed CLEAR and FREE of all liens and encumbrances, and that the area of 7,213 square meters of the subject property already includes the area on which the right of way traverses from the main lot (area) towards the exit to the Sumulong Highway as shown in the location plan furnished by the Owner/Seller to the buyer. Furthermore, in the event that the right of way is insufficient for the buyer's purposes (example: entry of a 45-foot container), the seller agrees to sell additional square meter from his current adjacent property to allow the buyer to full access and full use of the property.5

Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a month later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as President of WHI, as vendee, executed a contract to sell in which RECCI bound and obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086 for P7,213,000.6 On September 5, 1991, a Deed of Absolute Sale7 in favor of WHI was issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold for P5,000,000, receipt of which was acknowledged by Roxas under the following terms and conditions:

The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of and a right of way from Sumulong Highway to the property herein conveyed consists of 25 square meters wide to be used as the latter's egress from and ingress to and an additional 25 square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for Vendee's vehicles.

The Vendor agrees that in the event that the right of way is insufficient for the Vendee's use (ex entry of a 45-foot container) the Vendor agrees to sell additional square meters from its current adjacent property to allow the Vendee full access and full use of the property.

…

The Vendor hereby undertakes and agrees, at its account, to defend the title of the Vendee to the parcel of land and improvements herein conveyed, against all claims of any and all persons or entities, and that the Vendor hereby warrants the right of the Vendee to possess and own the said parcel of land and improvements thereon and will defend the Vendee against all present and future claims and/or action in relation thereto, judicial and/or administrative. In particular, the Vendor shall eject all existing squatters and occupants of the premises within two (2) weeks from the signing hereof. In case of failure on the part of the Vendor to eject all occupants and squatters within the two-week period or breach of any of the stipulations, covenants and terms and conditions herein provided and that of contract to sell dated 1 July 1991, the Vendee shall have the right to cancel the sale and demand reimbursement for all payments made to the Vendor with interest thereon at 36% per annum.8

On September 10, 1991, the Wimbeco Builder's, Inc. (WBI) submitted its quotation for P8,649,000 to WHI for the construction of the warehouse building on a portion of the property with an area of 5,088 square meters.9 WBI proposed to start the project on October 1, 1991 and to turn over the building to WHI on February 29, 1992.10

In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc. confirmed its lease agreement with WHI of a 5,000-square-meter portion of the warehouse yet to be constructed at the rental rate of P65 per square meter. Ponderosa emphasized the need for the warehouse to be ready for occupancy before April 1, 1992.11 WHI accepted the offer. However, WBI failed to commence the construction of the warehouse in October 1, 1991 as planned because of the presence of squatters in the property and suggested a renegotiation of the contract after the squatters shall have been evicted.12 Subsequently, the squatters were evicted from the property.

On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction of the warehouse building for P11,804,160.13 The contractor started construction in April 1992 even before the building officials of Antipolo City issued a building permit on May 28, 1992. After the warehouse was finished, WHI issued on March 21, 1993 a certificate of occupancy by the building official. Earlier, or on March 18, 1993, WHI, as lessor, and Ponderosa, as lessee, executed a contract of lease over a portion of the property for a monthly rental of P300,000 for a period of three years from March 1, 1993 up to February 28, 1996.14

In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI were parked on a portion of the property over which WHI had been granted a right of way. Roxas promised to look into the matter. Dy and Roxas discussed the need of the WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 as provided for in the deed of absolute sale. However, Roxas died soon thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to purchase a portion of the said lot as provided for in the deed of absolute sale, and complained about the latter's failure to eject the squatters within the three-month period agreed upon in the said deed.

The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 for its beneficial use within 72 hours from notice thereof, otherwise the appropriate action would be filed against it. RECCI rejected the demand of WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There was no response from RECCI.

On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional Trial Court of Makati, for specific performance and damages, and alleged, inter alia, the following in its complaint:

5. The "current adjacent property" referred to in the aforequoted paragraph of the Deed of Absolute Sale pertains to the property covered by Transfer Certificate of Title No. N-78085 of the Registry of Deeds of Antipolo, Rizal, registered in the name of herein defendant Roxas Electric.

6. Defendant Roxas Electric in patent violation of the express and valid terms of the Deed of Absolute Sale unjustifiably refused to deliver to Woodchild Holdings the stipulated beneficial use and right of way consisting of 25 square meters and 55 square meters to the prejudice of the plaintiff.

7. Similarly, in as much as the 25 square meters and 55 square meters alloted to Woodchild Holdings for its beneficial use is inadequate as turning and/or maneuvering area of its 45-foot container van, Woodchild Holdings manifested its intention pursuant to para. 5 of the Deed of Sale to purchase additional square meters from Roxas Electric to allow it full access and use of the purchased property, however, Roxas Electric refused and failed to merit Woodchild Holdings' request contrary to defendant Roxas Electric's obligation under the Deed of Absolute Sale (Annex "A").

8. Moreover, defendant, likewise, failed to eject all existing squatters and occupants of the premises within the stipulated time frame and as a consequence thereof, plaintiff's planned construction has been considerably delayed for seven (7) months due to the squatters who continue to trespass and obstruct the subject property, thereby Woodchild Holdings incurred substantial losses amounting to P3,560,000.00 occasioned by the increased cost of construction materials and labor.

9. Owing further to Roxas Electric's deliberate refusal to comply with its obligation under Annex "A," Woodchild Holdings suffered unrealized income of P300,000.00 a month or P2,100,000.00 supposed income from rentals of the subject property for seven (7) months.

10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas Electric to comply with its obligations and warranties under the Deed of Absolute Sale but notwithstanding such demand, defendant Roxas Electric refused and failed and continue to refuse and fail to heed plaintiff's demand for compliance.

Copy of the demand letter dated April 15, 1992 is hereto attached as Annex "B" and made an integral part hereof.












11. Finally, on 29 May 1991, Woodchild Holdings made a letter request addressed to Roxas Electric to particularly annotate on Transfer Certificate of Title No. N-78085 the agreement under Annex "A" with respect to the beneficial use and right of way, however, Roxas Electric unjustifiably ignored and disregarded the same.

Copy of the letter request dated 29 May 1992 is hereto attached as Annex "C" and made an integral part hereof.

12. By reason of Roxas Electric's continuous refusal and failure to comply with Woodchild Holdings' valid demand for compliance under Annex "A," the latter was constrained to litigate, thereby incurring damages as and by way of attorney's fees in the amount of P100,000.00 plus costs of suit and expenses of litigation.15

The WHI prayed that, after due proceedings, judgment be rendered in its favor, thus:

WHEREFORE, it is respectfully prayed that judgment be rendered in favor of Woodchild Holdings and ordering Roxas Electric the following:

a) to deliver to Woodchild Holdings the beneficial use of the stipulated 25 square meters and 55 square meters;

b) to sell to Woodchild Holdings additional 25 and 100 square meters to allow it full access and use of the purchased property pursuant to para. 5 of the Deed of Absolute Sale;

c) to cause annotation on Transfer Certificate of Title No. N-78085 the beneficial use and right of way granted to Woodchild Holdings under the Deed of Absolute Sale;

d) to pay Woodchild Holdings the amount of P5,660,000.00, representing actual damages and unrealized income;

e) to pay attorney's fees in the amount of P100,000.00; and

f) to pay the costs of suit.

Other reliefs just and equitable are prayed for.16

In its answer to the complaint, the RECCI alleged that it never authorized its former president, Roberto Roxas, to grant the beneficial use of any portion of Lot No. 491-A-3-B-1, nor agreed to sell any portion thereof or create a lien or burden thereon. It alleged that, under the Resolution approved on May 17, 1991, it merely authorized Roxas to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086. As such, the grant of a right of way and the agreement to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the said deed are ultra vires. The RECCI further alleged that the provision therein that it would sell a portion of Lot No. 491-A-3-B-1 to the WHI lacked the essential elements of a binding contract.17

In its amended answer to the complaint, the RECCI alleged that the delay in the construction of its warehouse building was due to the failure of the WHI's contractor to secure a building permit thereon.18

During the trial, Dy testified that he told Roxas that the petitioner was buying a portion of Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the price of P1,000 per square meter.

On November 11, 1996, the trial court rendered judgment in favor of the WHI, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered directing defendant:

(1) To allow plaintiff the beneficial use of the existing right of way plus the stipulated 25 sq. m. and 55 sq. m.;

(2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000 per sq. m. to allow said plaintiff full access and use of the purchased property pursuant to Par. 5 of their Deed of Absolute Sale;

(3) To cause annotation on TCT No. N-78085 the beneficial use and right of way granted by their Deed of Absolute Sale;

(4) To pay plaintiff the amount of P5,568,000 representing actual damages and plaintiff's unrealized income;

(5) To pay plaintiff P100,000 representing attorney's fees; and

To pay the costs of suit.

SO ORDERED.19

The trial court ruled that the RECCI was estopped from disowning the apparent authority of Roxas under the May 17, 1991 Resolution of its Board of Directors. The court reasoned that to do so would prejudice the WHI which transacted with Roxas in good faith, believing that he had the authority to bind the WHI relating to the easement of right of way, as well as the right to purchase a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085.

The RECCI appealed the decision to the CA, which rendered a decision on November 9, 1999 reversing that of the trial court, and ordering the dismissal of the complaint. The CA ruled that, under the resolution of the Board of Directors of the RECCI, Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, but not to grant right of way in favor of the WHI over a portion of Lot No. 491-A-3-B-1, or to grant an option to the petitioner to buy a portion thereof. The appellate court also ruled that the grant of a right of way and an option to the respondent were so lopsided in favor of the respondent because the latter was authorized to fix the location as well as the price of the portion of its property to be sold to the respondent. Hence, such provisions contained in the deed of absolute sale were not binding on the RECCI. The appellate court ruled that the delay in the construction of WHI's warehouse was due to its fault.

The Present Petition







The petitioner now comes to this Court asserting that:

I.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE SALE (EXH. "C") IS ULTRA VIRES.

II.

THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO ALLOWING THE PLAINTIFF-APPELLEE THE BENEFICIAL USE OF THE EXISTING RIGHT OF WAY PLUS THE STIPULATED 25 SQUARE METERS AND 55 SQUARE METERS BECAUSE THESE ARE VALID STIPULATIONS AGREED BY BOTH PARTIES TO THE DEED OF ABSOLUTE SALE (EXH. "C").

III.

THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF APPEALS TO RULE THAT THE STIPULATIONS OF THE DEED OF ABSOLUTE SALE (EXH. "C") WERE DISADVANTAGEOUS TO THE APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS PROPERTY WITHOUT DUE PROCESS.

IV.

IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY WITHOUT DUE PROCESS BY THE ASSAILED DECISION.

V.

THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE APPELLANT TO EVICT THE SQUATTERS ON THE LAND AS AGREED IN THE DEED OF ABSOLUTE SALE (EXH. "C").

VI.

THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO DIRECTING THE DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT OF P5,568,000.00 REPRESENTING ACTUAL DAMAGES AND PLAINTIFF'S UNREALIZED INCOME AS WELL AS ATTORNEY'S FEES.20

The threshold issues for resolution are the following: (a) whether the respondent is bound by the provisions in the deed of absolute sale granting to the petitioner beneficial use and a right of way over a portion of Lot

No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to the petitioner to buy a portion thereof, and, if so, whether such agreement is enforceable against the respondent; (b) whether the respondent failed to eject the squatters on its property within two weeks from the execution of the deed of absolute sale; and, (c) whether the respondent is liable to the petitioner for damages.

On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the respondent authorized Roxas, then its president, to grant a right of way over a portion of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the respondent to buy a portion of the said property. The petitioner contends that when the respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it (respondent) was well aware of its obligation to provide the petitioner with a means of ingress to or egress from the property to the Sumulong Highway, since the latter had no adequate outlet to the public highway. The petitioner asserts that it agreed to buy the property covered by TCT No. 78085 because of the grant by the respondent of a right of way and an option in its favor to buy a portion of the property covered by TCT No. 78085. It contends that the respondent never objected to Roxas' acceptance of its offer to purchase the property and the terms and conditions therein; the respondent even allowed Roxas to execute the deed of absolute sale in its behalf. The petitioner asserts that the respondent even received the purchase price of the property without any objection to the terms and conditions of the said deed of sale. The petitioner claims that it acted in good faith, and contends that after having been benefited by the said sale, the respondent is estopped from assailing its terms and conditions. The petitioner notes that the respondent's Board of Directors never approved any resolution rejecting the deed of absolute sale executed by Roxas for and in its behalf. As such, the respondent is obliged to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 with an area of 500 square meters at the price of P1,000 per square meter, based on its evidence and Articles 649 and 651 of the New Civil Code.

For its part, the respondent posits that Roxas was not so authorized under the May 17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right of way in favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to the petitioner. Hence, the respondent was not bound by such provisions contained in the deed of absolute sale. Besides, the respondent contends, the petitioner cannot enforce its right to buy a portion of the said property since there was no agreement in the deed of absolute sale on the price thereof as well as the specific portion and area to be purchased by the petitioner.

We agree with the respondent.

In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,21 we held that:

A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation's board of directors. Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides:

"SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified."

Indubitably, a corporation may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law. …22





Generally, the acts of the corporate officers within the scope of their authority are binding on the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers beyond the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying them:

Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly.

Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable against the corporation unless ratified by the corporation.23

In BA Finance Corporation v. Court of Appeals,24 we also ruled that persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.

In this case, the respondent denied authorizing its then president Roberto B. Roxas to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or burden thereon. The petitioner was thus burdened to prove that the respondent so authorized Roxas to sell the same and to create a lien thereon.

Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of the respondent, which is worded as follows:

RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell to any interested buyer, its 7,213-sq.-meter property at the Sumulong Highway, Antipolo, Rizal, covered by Transfer Certificate of Title No. N-78086, at a price and on terms and conditions which he deems most reasonable and advantageous to the corporation;

FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the corporation, be, as he is hereby authorized to execute, sign and deliver the pertinent sales documents and receive the proceeds of sale for and on behalf of the company.25

Evidently, Roxas was not specifically authorized under the said resolution to grant a right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such authority be implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner "on such terms and conditions which he deems most reasonable and advantageous." Under paragraph 12, Article 1878 of the New Civil Code, a special power of attorney is required to convey real rights over immovable property.26 Article 1358 of the New Civil Code requires that contracts which have for their object the creation of real rights over immovable property must appear in a public document.27 The petitioner cannot feign ignorance of the need for Roxas to have been specifically authorized in writing by the Board of Directors to be able to validly grant a right of way and agree to sell a portion of Lot No. 491-A-3-B-1. The rule is that if the act of the agent is one which requires authority in writing, those dealing with him are charged with notice of that fact.28

Powers of attorney are generally construed strictly and courts will not infer or presume broad powers from deeds which do not sufficiently include property or subject under which the agent is to deal.29

The general rule is that the power of attorney must be pursued within legal strictures, and the agent can neither go beyond it; nor beside it. The act done must be legally identical with that authorized to be done.30 In sum, then, the consent of the respondent to the assailed provisions in the deed of absolute sale was not obtained; hence, the assailed provisions are not binding on it.

We reject the petitioner's submission that, in allowing Roxas to execute the contract to sell and the deed of absolute sale and failing to reject or disapprove the same, the respondent thereby gave him apparent authority to grant a right of way over Lot No. 491-A-3-B-1 and to grant an option for the respondent to sell a portion thereof to the petitioner. Absent estoppel or ratification, apparent authority cannot remedy the lack of the written power required under the statement of frauds.31 In addition, the petitioner's fallacy is its wrong assumption of the unproved premise that the respondent had full knowledge of all the terms and conditions contained in the deed of absolute sale when Roxas executed it.

It bears stressing that apparent authority is based on estoppel and can arise from two instances: first, the principal may knowingly permit the agent to so hold himself out as having such authority, and in this way, the principal becomes estopped to claim that the agent does not have such authority; second, the principal may so clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that he actually has such authority.32 There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant and such must have produced a change of position to its detriment. The apparent power of an agent is to be determined by the acts of the principal and not by the acts of the agent.33

For the principle of apparent authority to apply, the petitioner was burdened to prove the following: (a) the acts of the respondent justifying belief in the agency by the petitioner; (b) knowledge thereof by the respondent which is sought to be held; and, (c) reliance thereon by the petitioner consistent with ordinary care and prudence.34 In this case, there is no evidence on record of specific acts made by the respondent35 showing or indicating that it had full knowledge of any representations made by Roxas to the petitioner that the respondent had authorized him to grant to the respondent an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, or to create a burden or lien thereon, or that the respondent allowed him to do so.

The petitioner's contention that by receiving and retaining the P5,000,000 purchase price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly ratified the grant of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the petitioner an option to sell a portion thereof, is barren of merit. It bears stressing that the respondent sold Lot No. 491-A-3-B-2 to the petitioner, and the latter had taken possession of the property. As such, the respondent had the right to retain the P5,000,000, the purchase price of the property it had sold to the petitioner. For an act of the principal to be considered as an implied ratification of an unauthorized act of an agent, such act must be inconsistent with any other hypothesis than that he approved and intended to adopt what had been done in his name.36 Ratification is based on waiver – the intentional relinquishment of a known right. Ratification cannot be inferred from acts that a principal has a right to do independently of the unauthorized act of the agent. Moreover, if a writing is required to grant an authority to do a particular act, ratification of that act must also be in writing.37 Since the respondent had not ratified the unauthorized acts of Roxas, the same are unenforceable.38 Hence, by the respondent's retention of the amount, it cannot thereby be implied that it had ratified the unauthorized acts of its agent, Roberto Roxas.

On the last issue, the petitioner contends that the CA erred in dismissing its complaint for damages against the respondent on its finding that the delay in the construction of its warehouse was due to its (petitioner's) fault. The petitioner asserts that the CA should have affirmed the ruling of the trial court that the respondent failed to cause the eviction of the squatters from the property on or before September 29, 1991; hence, was liable for P5,660,000. The respondent, for its part, asserts that the delay in the construction of the petitioner's warehouse was due to its late filing of an application for a building permit, only on May 28, 1992.

The petitioner's contention is meritorious. The respondent does not deny that it failed to cause the eviction of the squatters on or before September 29, 1991. Indeed, the respondent does not deny the fact that when the petitioner wrote the respondent demanding that the latter cause the eviction of the squatters on April 15, 1992, the latter were still in the premises. It was only after receiving the said letter in April 1992 that the respondent caused the eviction of the squatters, which thus cleared the way for the petitioner's contractor to commence the construction of its warehouse and secure the appropriate building permit therefor.

The petitioner could not be expected to file its application for a building permit before April 1992 because the squatters were still occupying the property. Because of the respondent's failure to cause their eviction as agreed upon, the petitioner's contractor failed to commence the construction of the warehouse in October 1991 for the agreed price of P8,649,000. In the meantime, costs of


















construction materials spiraled. Under the construction contract entered into between the petitioner and the contractor, the petitioner was obliged to pay P11,804,160,39 including the additional work costing P1,441,500, or a net increase of P1,712,980.40 The respondent is liable for the difference between the original cost of construction and the increase thereon, conformably to Article 1170 of the New Civil Code, which reads:

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.

The petitioner, likewise, lost the amount of P3,900,000 by way of unearned income from the lease of the property to the Ponderosa Leather Goods Company. The respondent is, thus, liable to the petitioner for the said amount, under Articles 2200 and 2201 of the New Civil Code:

Art. 2200. Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.

In sum, we affirm the trial court's award of damages and attorney's fees to the petitioner.

IN LIGHT OF ALL THE FOREGOING, judgment is hereby rendered AFFIRMING the assailed Decision of the Court of Appeals WITH MODIFICATION. The respondent is ordered to pay to the petitioner the amount of P5,612,980 by way of actual damages and P100,000 by way of attorney's fees. No costs.

SO ORDERED.

Puno, J., Chairman, Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

Footnotes

1 Penned by Associate Justice Salome A. Montoya, with Associate Justices Conrado M. Vasquez, Jr. and Teodoro P. Regino, concurring.

2 Penned by Judge Francisco X. Velez.

3 Exhibit "L," Records, p. 213.

4 Exhibit "M," Id. at 214.

5 Ibid.

6 Exhibit "N," Id. at 216.

7 Exhibit "C," Id. at 192-195.

8 Id. at 193-194.

9 Exhibit "D," Id. at 196.

10 Exhibit "D-1," Id. at 197.

11 Exhibit "G," Id. at 201.

12 Exhibit "E," Id. at 198.

13 Exhibit "F," Id. at 199.

14 Exhibit "H," Id. at 202-206.

15 Records, pp. 2-4.

16 Id. at 4-5.

17 Id. at 24-25.

18 Id. at 247.

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19 Id. at 482.

20 Rollo, pp. 22-23.

21 296 SCRA 631 (1998).

22 Id. at 644-645.

23 Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers.

24 211 SCRA 112 (1992).

25 Records, p. 213.

26 Art. 1878. Special powers of attorney are necessary in the following cases:

…

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

…

(12) To create or convey real rights over immovable property;

…

(14) To ratify or recognize obligations contracted before the agency;

(15) Any other act of strict dominion.

27 Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by articles 1403, No. 2, and 1405;

…

(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

28 State v. Sellers and Resolute Insurance Company, 258 N.W.2d 292 (1977).

29 Prior v. Hager, 440 S.W.2d 167 (1969).

30 Lang v. Bair, 36 Mo. 85, id.

31 Union Camp Corporation v. Dyal, Jr., 460 F.2d 678 (1972).

32 Banker's Protective Life Insurance Co. v. Addison, 273 S.W.2d 694 (1951).

33 Id. at 696.

34 Residon v. Miller Distributors Co., Inc., 139 N.W.2d 12 (1966).

35 See Wells Fargo Business v. Kozoff, 695 F.2d 940 (1983).

36 The Board of Supervisors v. Schack, 18 L.E.2d 556 (1897); American Food Corporation v. Central Carolina Bank & Trust Company, 291 S.W.2d 892.

37 Reuschlin and Gregory, The Law of Agency and Partnership, 2nd ed., p. 75.





















38 Article 1403, New Civil Code (infra).

39 Exhibit "F," Records, p. 199.

40 TSN, 30 September 1993, p. 13.

SECOND DIVISION

[G.R. No. 130759. June 20, 2003]

ASIATRUST DEVELOPMENT BANK, petitioner, vs. CONCEPTS TRADING CORPORATION, respondent.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision of the Court of Appeals and its Resolution in CA-G.R. CV No. 44211 affirming on appeal with modification the Decision of the Regional Trial Court of Makati, Branch 68, in Civil Case No. 89-3789.

As culled from the records, the facts of the case are as follows:

In March 1996, respondent Concepts Trading Corporation obtained from petitioner Asiatrust Development Corporation a credit accommodation in the amount of P2,000,000 covered by a loan agreement and secured by real and chattel mortgages. The amount was drawn from an Industrial Guarantee Loan Fund (IGLF) account opened by the petitioner in favor of the respondent. On March 4, 1986, the respondent executed Promissory Note (PN) No. 3574 in favor of the petitioner. Under the promissory note, the principal amount of P2,000,000 would be charged an interest of 23% per annum, inclusive of 1% service fee. Attached to and made part of the promissory note was the schedule of amortization agreed upon by the parties. As set forth in the schedule, the payment of the loan was to be amortized quarterly over a period of ten years with a two-year grace period on the principal payment. The first payment fell due on May 15, 1986 and the subsequent installments were to be paid every three months thereafter.

In the event that the respondent defaulted in the payment of any installment or interest thereof, paragraph 4 of the promissory note provided that:

... the entire amount outstanding under this Note shall immediately, without need for any notice, demand, presentment, protest, or of any other act or deed, the right to all of which is hereby waived by the undersigned: (i) become due, payable and defaulted; (ii) be subject to a penalty equivalent to thirty-six percent (36%) per annum thereof; (iii) together with said penalty, commence to earn interest as [sic] the rate of twenty-three percent (23%) per annum counted from the date of default until full payment thereof.

The respondent failed to pay the amortizations due on August 15 and November 15, 1987, prompting the petitioner to enforce the aforementioned acceleration clause. On January 25, 1988, the petitioner sent a letter to the respondent demanding payment of its outstanding loan obligation, amounting to P3,203,049 under PN No. 3574 and PN No. 4132.

In its Letter to the petitioner dated February 3, 1988, the respondent expressed its willingness to settle its obligation and, due to its tight financial situation, negotiated for a modified payment scheme. Thereafter, on March 30, 1988, the parties entered into a Memorandum of Agreement (MOA), the pertinent provisions of which read:

WHEREAS, CONCEPTS hereby acknowledges and affirms that it has applied and was granted by the Bank a credit accommodation consisting of an Industrial Guarantee Loan Fund (“IGLF”) Account in the amount of P2.0 Million dated 4 March 1986 (hereinafter, the “LOAN OBLIGATION”) which, to date, is already overdue and demandable in its entirety including all interests, penalties, service and other miscellaneous charges.

...

1. CONCEPTS hereby promises and undertakes to pay the BANK the LOAN OBLIGATION in the following manner, to wit:

a) On 5 May 1988, the amount of P159,259.14, to be covered by a post-dated check for the same amount to be issued by CONCEPTS; and

b) On 5 June 1988 and every 5th of every succeeding month, P150,000.00 until the LOAN OBLIGATION shall have been fully paid. CONCEPTS hereby undertakes to cover the above-mentioned payments by post-dated checks, by first delivering to the BANK five (5) checks covering the first five (5) month period, without prejudice to the BANK’s right to demand the delivery of another set of five (5) checks covering the subsequent five (5) month period, 15 days prior to the due date of the last check in the BANK’s possession, and so on and so forth, until the LOAN OBLIGATION shall have been fully paid.

It is likewise understood that upon payment of ten (10) monthly amortizations as above-indicated or upon updating of payments of the LOAN OBLIGATION, CONCEPTS shall have the right to re-negotiate with the Bank the reinstatement of the original terms of payment under Promissory Note No. 3574.

…

3. The BANK and CONCEPTS hereby further agree that all other provisions and stipulations in the existing Promissory Notes and other documents evidencing the LOAN OBLIGATION shall remain in force and effect, except those which are inconsistent with the above-mentioned Mode of Payment.





4. CONCEPTS hereby waives notice of dishonor and/or default of its LOAN OBLIGATION: provided, however, that the BANK reserves the right to grant a grace period of (15) days for settlement of the obligation; provided, further, that such grant of a grace period shall not constitute waiver of any right of the BANK. It shall also be understood that CONCEPTS’ default in this mode of payment shall likewise automatically accelerate the entire LOAN OBLIGATION.

5. It shall likewise be understood that this mode of payment arises out of the BANK’s liberality and is without prejudice and without waiver of the BANK’s accrued rights under the existing chattel and real estate mortgages as well as the Continuing Suretyship Agreement pertinent to the LOAN OBLIGATION, all of which mortgages and Agreement are hereby expressly continued to be in force and effect.

In compliance with its undertaking under the MOA, the respondent delivered the first check dated May 5, 1988 in the amount of P159,259.14 and four other checks in the sum of P150,000 each or for the total amount of P759,259.14. This was followed by another batch of five checks covering the months of October 1988 to February 1989, also in the amount of P150,000 each or for a total amount of P750,000.

On March 30, 1989, the petitioner wrote to the respondent requesting for the delivery of the “last checks to completely rehabilitate” its account in accordance with the MOA. When the respondent failed to make the said payments, the petitioner on April 25, 1989 sent a final demand on the respondent to pay its entire obligation under the IGLF in the amount of P2,361,970.10 within five days from receipt thereof.

The respondent thereafter filed with the Regional Trial Court of Makati City, Branch 149, a petition for declaratory relief. The respondent alleged that it is up to date in the payment of its loan obligation and, according to its record, the remaining balance amounted to only P316,550.48. The respondent prayed for the trial court to determine the rights and duties of the parties under the MOA to avoid the miscomputation of the loan obligation and any breach thereof.

In its answer, the petitioner averred that as of February 15, 1988, the outstanding obligation of the respondent amounted to P2,833,867.04. According to the petitioner, the monthly amortizations paid by the respondent covered only the penalties accruing on the loan. Further, declaratory relief as a remedy sought by the respondent was allegedly improper as it already committed a breach of its obligations. The respondent filed the action a quo merely to defer or avoid payment of its legally contracted loan obligation with the petitioner. By way of compulsory counterclaim, the petitioner prayed for damages and attorney’s fees.

The respondent then filed an amended complaint alleging that as of August 1989, it had already paid the petitioner the total amount of P2,259,259 and that there was an overpayment of P100,000. The respondent prayed that the petitioner be ordered to refund the amount overpaid, as well as to release the mortgages and to pay damages and attorney’s fees.

After due trial, the trial court rendered judgment, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered:

a) ordering the subject complaint DISMISSED for lack of merit:

b) ordering the plaintiff to pay to the defendant the amount of P395,210.30 to earn interest at 22% per annum from the date of this decision;

c) declaring the Real Estate Mortgage and the Chattel Mortgage as valid and subsisting which may be foreclosed by the defendant in case of non-payment of the aforestated obligation after demand;

d) ordering the plaintiff to pay to the defendant the amount of P10,000.00 as attorney’s fees and litigation expenses.

So ordered.

On appeal by the petitioner, the Court of Appeals (CA) affirmed with modification the decision of the trial court. The CA found that the respondent’s outstanding obligation to the petitioner amounted only to P309,298.58. The CA likewise reduced the penalty accruing thereon from 36% to 3% per annum. The dispositive portion of the assailed decision reads:

WHEREFORE, IN VIEW OF THE FOREGOING, the Decision of the lower court dated December 14, 1992 is AFFIRMED with the modification that the outstanding balance of plaintiff-appellee as of September 5, 1989 is P309,298.58 subject to a penalty of 3% per annum, and together with said penalty, the whole amount is subject to an interest of 23% per annum inclusive of service charges, until the entire amount has been fully paid. No pronouncement as to costs.

SO ORDERED.

Aggrieved, the petitioner now comes to this Court alleging that:

A.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN ACCORD WITH LAW AND SUPREME COURT DECISIONS IN RULING THAT ASIATRUST WAIVED COLLECTION OF ACCRUED PENALTIES AND CHARGES DUE FROM CONCEPTS UNDER PN 3574 BY EXECUTING THE MOA, BECAUSE THE MOA DID NOT EXPRESSLY PROVIDE FOR SUCH WAIVER, AND STIPULATED THAT, UNLESS INCONSISTENT WITH THE MOA MODE OF PAYMENT, “ALL OTHER EXISTING PROVISIONS AND STIPULATIONS IN THE EXISTING PROMISSORY NOTES X X X SHALL REMAIN IN FORCE AND EFFECT.”

B.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN ACCORD WITH §20 OF RULE 132 OF THE RULES OF COURT IN FINDING WITNESS REBECCA DE LA CRUZ’ UNREBUTTED IDENTIFICATION OF ASIATRUST’S EXHIBIT “7” AS A STATEMENT OF ACCOUNT, AND HER UNREBUTTED IDENTIFICATION OF THE SIGNATURE OF THE EXHIBIT, AS INSUFFICIENT AUTHENTICATION OF THAT EXHIBIT, AND IN RELYING ON TESTIMONY READ FROM A LEDGER NEITHER IDENTIFIED NOR OFFERED IN EVIDENCE.

The petition is bereft of merit.


The petitioner maintains that the CA erred in holding that the petitioner waived collection of accrued penalties and miscellaneous charges under PN 3574 by entering into the MOA. No such waiver was expressed in the MOA and, in fact, paragraph 3 thereof expressly provides that “all other provisions and stipulations in the existing promissory notes and other documents evidencing the LOAN OBLIGATION shall remain in force and effect, except those which are inconsistent with the above-mentioned mode of payment.” Further, the petitioner’s consistent application of the payments respondent made to the penalties, charges and interests is a plain manifestation of its contractual intent, and is properly cognizable as evidence of that intent under Article 1371 of the Civil Code which provides:

Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.

The petitioner likewise avers that the CA erred in not according probative value to the statement of account which the petitioner offered in evidence. The petitioner contends that, contrary to the holding of the CA, the statement of account was properly identified by its witness, Rebecca de la Cruz.

The Court does not agree with the petitioner.

It is a time-honored rule of evidence that when the terms of an agreement are reduced to writing, it is deemed to contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents of the agreement itself. This rule allows exceptions, in that a party may present parole evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleadings:

a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

c) The validity of the written agreement; or

d) The existence of other terms agreed to by the parties or their successors-in-interest after the execution of the written agreement.

A careful perusal of the MOA reveals that it fixed the respondent’s loan obligation to the petitioner at P2,000,000 which was already due and demandable in its entirety, including “all interests, penalties, service and other miscellaneous charges.” Further, Paragraph 1 thereof set forth the manner by which the loan obligation was to be paid, to wit:





However, the MOA failed to state the exact amounts of interests, service charges and penalties accruing on the loan obligation. To determine the same, the CA relied on the testimony of the petitioner’s comptroller, Rebecca de la Cruz, who testified thereon as follows:

Atty. Ortiz:

Q: Now, as of the date January 25, 1988 what was the total obligation of the plaintiff to the defendant?

COURT: (to the witness)

According to your ledger it could be any date closer to January 25, 1988?

WITNESS:

A: The date which is closer to January 25, 1988 is April 28, 1988. It says here if you still have a 2 MILLION PESO principal balance. We have here an interest of P24,000.00 and still we have service charges.

COURT:

Service charges of how much?

WITNESS:

A: P123,000.00 and still we have unpaid penalties of P76,000.00, Your Honor.

Based on the foregoing, the CA correctly fixed the respondent’s outstanding balance to the petitioner as of the execution of the MOA at P2,223,000 consisting of the principal obligation of P2,000,000, penalties of P76,000, service charges of P123,000 and interests of P24,000:


After a thorough review of the MOA, We are convinced that plaintiff-appellee’s obligation consists of its original P2 million loan under PN No. 3574 including interests and service fees but excluding penalty and other miscellaneous charges.

Thus, the MOA itself provides:

“1. CONCEPTS hereby promises and undertakes to pay the BANK the LOAN OBLIGATION in the following manner, to wit:”

(p. 2, MOA; Exhs. “B” and “10,” pp. 5 and 45, Folder of Exhibits)

In the MOA’s first whereas clause, the term “loan obligation” was referred to as “the amount of P2 Million, which to date, is already overdue and demandable in its entirety including all interests, penalties, service and other miscellaneous charges.” (p. 1, MOA; pp. 4 and 44, ibid.). The MOA, therefore, acknowledged that plaintiff-appellee, having failed to pay several amortizations under the PN, was liable for the entire amount of P2 million plus interest in arrears, penalties and other charges in accordance with the acceleration clause of the PN.

However, due to the bank’s liberality, it waived the demandability of the entire loan by entering into the MOA, allowing plaintiff-appellee to continue paying its amortization, this time on a monthly basis. By such waiver, plaintiff-appellee has effectively not been rendered in default thereby waiving likewise the penalty imposable on the loan in the event of default.

Accordingly, under the MOA, plaintiff-appellee continues to be liable for its obligation under the note, i.e., principal amount of P2 million plus interests and service fees, as if it was not yet in default. The first installment under the MOA in the amount of P159,259.14 including several of the monthly installments of P150,000 were applicable to interest and service fees in arrears while the remaining monthly amortizations covered the principal and interest falling due thereon.

The petitioner nonetheless assails the above figures, insisting that the CA erred in holding that:

However, due to the bank’s liberality, it waived the demandability of the entire loan by entering into the MOA, allowing plaintiff-appellee to continue paying its amortization, this time on a monthly basis. By such waiver, plaintiff-appellee has effectively not been rendered in default thereby waiving likewise the penalty imposable on the loan in event of default.

The petitioner asserts that the respondent continued to be liable for penalty charges as provided under the promissory note notwithstanding the execution of the MOA. This contention is untenable. Under the schedule of amortization contained in the promissory note, the respondent obliged to pay the principal obligation in quarterly amortizations over a period of ten years and that in case of default, the entire amount shall be due and demandable in its entirety. On the other hand, under the MOA, a new mode of payment was agreed upon, i.e., the payment by the respondent of the initial amount of P159,259.14 and subsequent payments of P150,000 every month until full payment of the loan obligation. The MOA, in effect, rendered the loan no longer due and demandable in its entirety at the time of its execution, precisely because it allowed the respondent under the new schedule of payments to pay the same by monthly installments. It bears stressing that the MOA provided that the mode of payment arose “out of the BANK’s liberality.” To allow the petitioner to collect penalty charges as if the respondent were in default, notwithstanding the existence of a new payment schedule, would be inconsistent with the aforesaid agreement.

It must be stressed, however, that the foregoing should not be construed as to mean that the respondent could no longer be held in default and that the petitioner completely waived collection of penalty charges in case of default. Non-payment by the respondent of any of the monthly installments as provided under the MOA would render it in default and the petitioner could collect the penalty charges therefor. As will be shown later, the CA did in fact determine the exact time when the respondent defaulted on its obligation under the MOA and accordingly reckoned therefrom the penalty charges due the petitioner.

The records show that the respondent, in accordance with the MOA, made the initial payment of P159,259.16 on May 5, 1988. Thereafter, the respondent made payments in the amount of P150,000 every month up to September 1989. The CA then tabulated these payments as follows:

Principal Interest Service Charge Penalty Subtotal Payment Total

4/28/88 P2,000,000.00 P24,000.00 P123,000.00 P76,000.00 P2,063,740.86 P159,259.14 P2,063,740.86

1. 2,063,740.90 37,835.25 1,719.78 2,103,295.90 150,000.00 1,953,295.90

2. 1,953,295.90 35,810.42 1,627.75 1,990,734.00 150,000.00 1,840,734.00

3. 1,840,734.00 33,746.79 1,533.94 1,876,014.70 150,000.00 1,726,014.70

4. 1,726,014.70 31,643.60 1,438.34 1,759,096.60 150,000.00 1,609,096.60

5. 1,609,096.60 29,500.10 1,340.91 1,639,937.60 150,000.00 1,489,937.60

6. 1,489,937.60 27,315.52 1,241.61 1,518,494.70 150,000.00 1,368,494.70

7. 1,368,494.70 25,089.07 1,140.41 1,394,724.10 150,000.00 1,244,724.10

8. 1,244,724.10 22,819.94 1,037.27 1,268,581.30 150,000.00 1,118,581.30

9. 1,118,581.30 20,507.32 932.15 1,140,020.70 150,000.00 990,020.70

10. 990,020.70 18,150.38 825.02 1,008,996.00 150,000.00 858,996.00

11. 858,996.00 15,748.28 715.83 875,460.11 150,000.00 725,460.11


12. 725,460.11 13,300.10 604.55 739,364.76 150,000.00 589,364.76

13. 589,364.76 10,805.02 491.14 600,660.91 150,000.00 450,660.91

14. 450,660.91 8,262.12 375.55 459,298.58 150,000.00 309,298.58

As noted by the CA, after the last payment of P150,000 on September 1989, the respondent still owed the petitioner the sum of P309,298.58. The respondent’s non-payment of the amortizations due after the said date rendered the balance due and demandable in its entirety, in accordance with the acceleration clause under the MOA. Further, since the respondent defaulted in its monthly payments after September 1989, it was only then that it could be rightfully imposed the penalty charges in accordance with the promissory note. Thus, contrary to the petitioner’s contention, the CA did not rule that the MOA operated as a waiver by the petitioner of its right to collect penalty charges.

The petitioner faults the CA for reducing the penalty charges from 36% to 3% per annum on its finding that the former rate was too excessive, considering that the petitioner had already charged an interest rate of 23% per annum and that the principal obligation had been partly complied with.

This Court does not agree with the petitioner. Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

Indeed, this Court had equitably reduced the penalty in not a few cases. In the recent case of Ligutan v. Court of Appeals, the Court affirmed the reduction of the penalty charges by the CA upon its finding that the debtors therein had partially complied with their obligation. In Rizal Commercial Banking Corp. v. Court of Appeals, the Court tempered the penalty charges after taking into account the debtor’s pitiful situation and its offer to settle the entire obligation with the creditor bank. In Insular Bank of Asia and America v. Spouses Salazar, the Court reduced the penalty charge on a loan of P42,050, considering that the debtor spouses paid a total of P68,676.75 which the creditor bank applied to satisfy the penalty and interest charges.

Given the peculiar circumstances in this case, particularly that the principal obligation had been partially complied with by the respondent, the Court sees no justifiable reason to modify the reduction by the CA of the penalty charges made by the CA.

Anent the second issue, the petitioner insists that the CA should have relied on the petitioner’s statement of account to determine the amount owed by the respondent. According to the said statement, the respondent still owed the petitioner P5,665,906 as of June 29, 1990, since previous payments made were applied only to the penalties and service charges. The Court does not agree. The MOA clearly provides that the loan obligation of P2,000,000 shall be paid by the respondent by issuing the post-dated checks in the amount of P150,000 every month beginning June 5, 1998 until the same shall have been fully paid. Thus, the monthly payments made by the respondent were for the satisfaction of the principal loan obligation, not merely as payments of the penalties and service charges.

Further, as correctly pointed out by the CA, the petitioner’s statement of account could not be given any probative value because it was belied for the most part by its key witness, comptroller Rebecca de la Cruz. Even the trial court gave scant consideration to this statement of account, upon its finding that certain entries therein were inconsistent with the terms of the promissory note. The Court thus finds no cogent reason to deviate from the trial court’s and the CA’s assessment of the probative value of the same. After all, it is not this Court’s function under Rule 45 of the Rules of Court, as amended, to review, examine, and evaluate or weigh the probative value of the evidence presented.

WHEREFORE, the petition is hereby DENIED for lack of merit. The assailed Decision dated July 18, 1997 and Resolution dated September 12, 1997 of the Court of Appeals in CA-G.R. CV No. 44211 are AFFIRMED in toto.

SO ORDERED.

Bellosillo, (Chairman), and Quisumbing, JJ., concur.

Austria-Martinez, J., on official leave.

Penned by Associate Justice Fermin N. Martin, Jr., with Associate Justices Ruben T. Reyes and Omar U. Amin concurring.

Penned by Eriberto Rosario, Jr. who was later promoted as Associate Justice of the Court of Appeals.

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SECOND DIVISION

[G.R. No. 130759. June 20, 2003]

ASIATRUST DEVELOPMENT BANK, petitioner, vs. CONCEPTS TRADING CORPORATION, respondent.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision of the Court of Appeals and its Resolution in CA-G.R. CV No. 44211 affirming on appeal with modification the Decision of the Regional Trial Court of Makati, Branch 68, in Civil Case No. 89-3789.

As culled from the records, the facts of the case are as follows:

In March 1996, respondent Concepts Trading Corporation obtained from petitioner Asiatrust Development Corporation a credit accommodation in the amount of P2,000,000 covered by a loan agreement and secured by real and chattel mortgages. The amount was drawn from an Industrial Guarantee Loan Fund (IGLF) account opened by the petitioner in favor of the respondent. On March 4, 1986, the respondent executed Promissory Note (PN) No. 3574 in favor of the petitioner. Under the promissory note, the principal amount of P2,000,000 would be charged an interest of 23% per annum, inclusive of 1% service fee. Attached to and made part of the promissory note was the schedule of amortization agreed upon by the parties. As set forth in the schedule, the payment of the loan was to be amortized quarterly over a period of ten years with a two-year grace period on the principal payment. The first payment fell due on May 15, 1986 and the subsequent installments were to be paid every three months thereafter.

In the event that the respondent defaulted in the payment of any installment or interest thereof, paragraph 4 of the promissory note provided that:

... the entire amount outstanding under this Note shall immediately, without need for any notice, demand, presentment, protest, or of any other act or deed, the right to all of which is hereby waived by the undersigned: (i) become due, payable and defaulted; (ii) be subject to a penalty equivalent to thirty-six percent (36%) per annum thereof; (iii) together with said penalty, commence to earn interest as [sic] the rate of twenty-three percent (23%) per annum counted from the date of default until full payment thereof.

The respondent failed to pay the amortizations due on August 15 and November 15, 1987, prompting the petitioner to enforce the aforementioned acceleration clause. On January 25, 1988, the petitioner sent a letter to the respondent demanding payment of its outstanding loan obligation, amounting to P3,203,049 under PN No. 3574 and PN No. 4132.

In its Letter to the petitioner dated February 3, 1988, the respondent expressed its willingness to settle its obligation and, due to its tight financial situation, negotiated for a modified payment scheme. Thereafter, on March 30, 1988, the parties entered into a Memorandum of Agreement (MOA), the pertinent provisions of which read:

WHEREAS, CONCEPTS hereby acknowledges and affirms that it has applied and was granted by the Bank a credit accommodation consisting of an Industrial Guarantee Loan Fund (“IGLF”) Account in the amount of P2.0 Million dated 4 March 1986 (hereinafter, the “LOAN OBLIGATION”) which, to date, is already overdue and demandable in its entirety including all interests, penalties, service and other miscellaneous charges.

...





…

3. The BANK and CONCEPTS hereby further agree that all other provisions and stipulations in the existing Promissory Notes and other documents evidencing the LOAN OBLIGATION shall remain in force and effect, except those which are inconsistent with the above-mentioned Mode of Payment.

4. CONCEPTS hereby waives notice of dishonor and/or default of its LOAN OBLIGATION: provided, however, that the BANK reserves the right to grant a grace period of (15) days for settlement of the obligation; provided, further, that such grant of a grace period shall not constitute waiver of any right of the BANK. It shall also be understood that CONCEPTS’ default in this mode of payment shall likewise automatically accelerate the entire LOAN OBLIGATION.

5. It shall likewise be understood that this mode of payment arises out of the BANK’s liberality and is without prejudice and without waiver of the BANK’s accrued rights under the existing chattel and real estate mortgages as well as the Continuing Suretyship Agreement pertinent to the LOAN OBLIGATION, all of which mortgages and Agreement are hereby expressly continued to be in force and effect.

In compliance with its undertaking under the MOA, the respondent delivered the first check dated May 5, 1988 in the amount of P159,259.14 and four other checks in the sum of P150,000 each or for the total amount of P759,259.14. This was followed by another batch of five checks covering the months of October 1988 to February 1989, also in the amount of P150,000 each or for a total amount of P750,000.


On March 30, 1989, the petitioner wrote to the respondent requesting for the delivery of the “last checks to completely rehabilitate” its account in accordance with the MOA. When the respondent failed to make the said payments, the petitioner on April 25, 1989 sent a final demand on the respondent to pay its entire obligation under the IGLF in the amount of P2,361,970.10 within five days from receipt thereof.

The respondent thereafter filed with the Regional Trial Court of Makati City, Branch 149, a petition for declaratory relief. The respondent alleged that it is up to date in the payment of its loan obligation and, according to its record, the remaining balance amounted to only P316,550.48. The respondent prayed for the trial court to determine the rights and duties of the parties under the MOA to avoid the miscomputation of the loan obligation and any breach thereof.

In its answer, the petitioner averred that as of February 15, 1988, the outstanding obligation of the respondent amounted to P2,833,867.04. According to the petitioner, the monthly amortizations paid by the respondent covered only the penalties accruing on the loan. Further, declaratory relief as a remedy sought by the respondent was allegedly improper as it already committed a breach of its obligations. The respondent filed the action a quo merely to defer or avoid payment of its legally contracted loan obligation with the petitioner. By way of compulsory counterclaim, the petitioner prayed for damages and attorney’s fees.

The respondent then filed an amended complaint alleging that as of August 1989, it had already paid the petitioner the total amount of P2,259,259 and that there was an overpayment of P100,000. The respondent prayed that the petitioner be ordered to refund the amount overpaid, as well as to release the mortgages and to pay damages and attorney’s fees.

After due trial, the trial court rendered judgment, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered:

a) ordering the subject complaint DISMISSED for lack of merit:

b) ordering the plaintiff to pay to the defendant the amount of P395,210.30 to earn interest at 22% per annum from the date of this decision;

c) declaring the Real Estate Mortgage and the Chattel Mortgage as valid and subsisting which may be foreclosed by the defendant in case of non-payment of the aforestated obligation after demand;

d) ordering the plaintiff to pay to the defendant the amount of P10,000.00 as attorney’s fees and litigation expenses.

So ordered.

On appeal by the petitioner, the Court of Appeals (CA) affirmed with modification the decision of the trial court. The CA found that the respondent’s outstanding obligation to the petitioner amounted only to P309,298.58. The CA likewise reduced the penalty accruing thereon from 36% to 3% per annum. The dispositive portion of the assailed decision reads:

WHEREFORE, IN VIEW OF THE FOREGOING, the Decision of the lower court dated December 14, 1992 is AFFIRMED with the modification that the outstanding balance of plaintiff-appellee as of September 5, 1989 is P309,298.58 subject to a penalty of 3% per annum, and together with said penalty, the whole amount is subject to an interest of 23% per annum inclusive of service charges, until the entire amount has been fully paid. No pronouncement as to costs.

SO ORDERED.

Aggrieved, the petitioner now comes to this Court alleging that:

A.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN ACCORD WITH LAW AND SUPREME COURT DECISIONS IN RULING THAT ASIATRUST WAIVED COLLECTION OF ACCRUED PENALTIES AND CHARGES DUE FROM CONCEPTS UNDER PN 3574 BY EXECUTING THE MOA, BECAUSE THE MOA DID NOT EXPRESSLY PROVIDE FOR SUCH WAIVER, AND STIPULATED THAT, UNLESS INCONSISTENT WITH THE MOA MODE OF PAYMENT, “ALL OTHER EXISTING PROVISIONS AND STIPULATIONS IN THE EXISTING PROMISSORY NOTES X X X SHALL REMAIN IN FORCE AND EFFECT.”

B.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN ACCORD WITH §20 OF RULE 132 OF THE RULES OF COURT IN FINDING WITNESS REBECCA DE LA CRUZ’ UNREBUTTED IDENTIFICATION OF ASIATRUST’S EXHIBIT “7” AS A STATEMENT OF ACCOUNT, AND HER UNREBUTTED IDENTIFICATION OF THE SIGNATURE OF THE EXHIBIT, AS INSUFFICIENT AUTHENTICATION OF THAT EXHIBIT, AND IN RELYING ON TESTIMONY READ FROM A LEDGER NEITHER IDENTIFIED NOR OFFERED IN EVIDENCE.

The petition is bereft of merit.

The petitioner maintains that the CA erred in holding that the petitioner waived collection of accrued penalties and miscellaneous charges under PN 3574 by entering into the MOA. No such waiver was expressed in the MOA and, in fact, paragraph 3 thereof expressly provides that “all other provisions and stipulations in the existing promissory notes and other documents evidencing the LOAN OBLIGATION shall remain in force and effect, except those which are inconsistent with the above-mentioned mode of payment.” Further, the petitioner’s consistent application of the payments respondent made to the penalties, charges and interests is a plain manifestation of its contractual intent, and is properly cognizable as evidence of that intent under Article 1371 of the Civil Code which provides:

Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.

The petitioner likewise avers that the CA erred in not according probative value to the statement of account which the petitioner offered in evidence. The petitioner contends that, contrary to the holding of the CA, the statement of account was properly identified by its witness, Rebecca de la Cruz.

The Court does not agree with the petitioner.


It is a time-honored rule of evidence that when the terms of an agreement are reduced to writing, it is deemed to contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents of the agreement itself. This rule allows exceptions, in that a party may present parole evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleadings:

a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

c) The validity of the written agreement; or

d) The existence of other terms agreed to by the parties or their successors-in-interest after the execution of the written agreement.

A careful perusal of the MOA reveals that it fixed the respondent’s loan obligation to the petitioner at P2,000,000 which was already due and demandable in its entirety, including “all interests, penalties, service and other miscellaneous charges.” Further, Paragraph 1 thereof set forth the manner by which the loan obligation was to be paid, to wit:





However, the MOA failed to state the exact amounts of interests, service charges and penalties accruing on the loan obligation. To determine the same, the CA relied on the testimony of the petitioner’s comptroller, Rebecca de la Cruz, who testified thereon as follows:

Atty. Ortiz:

Q: Now, as of the date January 25, 1988 what was the total obligation of the plaintiff to the defendant?

COURT: (to the witness)

According to your ledger it could be any date closer to January 25, 1988?

WITNESS:

A: The date which is closer to January 25, 1988 is April 28, 1988. It says here if you still have a 2 MILLION PESO principal balance. We have here an interest of P24,000.00 and still we have service charges.

COURT:

Service charges of how much?

WITNESS:

A: P123,000.00 and still we have unpaid penalties of P76,000.00, Your Honor.

Based on the foregoing, the CA correctly fixed the respondent’s outstanding balance to the petitioner as of the execution of the MOA at P2,223,000 consisting of the principal obligation of P2,000,000, penalties of P76,000, service charges of P123,000 and interests of P24,000:

After a thorough review of the MOA, We are convinced that plaintiff-appellee’s obligation consists of its original P2 million loan under PN No. 3574 including interests and service fees but excluding penalty and other miscellaneous charges.

Thus, the MOA itself provides:

“1. CONCEPTS hereby promises and undertakes to pay the BANK the LOAN OBLIGATION in the following manner, to wit:”

(p. 2, MOA; Exhs. “B” and “10,” pp. 5 and 45, Folder of Exhibits)

In the MOA’s first whereas clause, the term “loan obligation” was referred to as “the amount of P2 Million, which to date, is already overdue and demandable in its entirety including all interests, penalties, service and other miscellaneous charges.” (p. 1, MOA; pp. 4 and 44, ibid.). The MOA, therefore, acknowledged that plaintiff-appellee, having failed to pay several amortizations under the PN, was liable for the entire amount of P2 million plus interest in arrears, penalties and other charges in accordance with the acceleration clause of the PN.


However, due to the bank’s liberality, it waived the demandability of the entire loan by entering into the MOA, allowing plaintiff-appellee to continue paying its amortization, this time on a monthly basis. By such waiver, plaintiff-appellee has effectively not been rendered in default thereby waiving likewise the penalty imposable on the loan in the event of default.

Accordingly, under the MOA, plaintiff-appellee continues to be liable for its obligation under the note, i.e., principal amount of P2 million plus interests and service fees, as if it was not yet in default. The first installment under the MOA in the amount of P159,259.14 including several of the monthly installments of P150,000 were applicable to interest and service fees in arrears while the remaining monthly amortizations covered the principal and interest falling due thereon.

The petitioner nonetheless assails the above figures, insisting that the CA erred in holding that:

However, due to the bank’s liberality, it waived the demandability of the entire loan by entering into the MOA, allowing plaintiff-appellee to continue paying its amortization, this time on a monthly basis. By such waiver, plaintiff-appellee has effectively not been rendered in default thereby waiving likewise the penalty imposable on the loan in event of default.

The petitioner asserts that the respondent continued to be liable for penalty charges as provided under the promissory note notwithstanding the execution of the MOA. This contention is untenable. Under the schedule of amortization contained in the promissory note, the respondent obliged to pay the principal obligation in quarterly amortizations over a period of ten years and that in case of default, the entire amount shall be due and demandable in its entirety. On the other hand, under the MOA, a new mode of payment was agreed upon, i.e., the payment by the respondent of the initial amount of P159,259.14 and subsequent payments of P150,000 every month until full payment of the loan obligation. The MOA, in effect, rendered the loan no longer due and demandable in its entirety at the time of its execution, precisely because it allowed the respondent under the new schedule of payments to pay the same by monthly installments. It bears stressing that the MOA provided that the mode of payment arose “out of the BANK’s liberality.” To allow the petitioner to collect penalty charges as if the respondent were in default, notwithstanding the existence of a new payment schedule, would be inconsistent with the aforesaid agreement.

It must be stressed, however, that the foregoing should not be construed as to mean that the respondent could no longer be held in default and that the petitioner completely waived collection of penalty charges in case of default. Non-payment by the respondent of any of the monthly installments as provided under the MOA would render it in default and the petitioner could collect the penalty charges therefor. As will be shown later, the CA did in fact determine the exact time when the respondent defaulted on its obligation under the MOA and accordingly reckoned therefrom the penalty charges due the petitioner.

The records show that the respondent, in accordance with the MOA, made the initial payment of P159,259.16 on May 5, 1988. Thereafter, the respondent made payments in the amount of P150,000 every month up to September 1989. The CA then tabulated these payments as follows:

Principal Interest Service Charge Penalty Subtotal Payment Total

4/28/88 P2,000,000.00 P24,000.00 P123,000.00 P76,000.00 P2,063,740.86 P159,259.14 P2,063,740.86

1. 2,063,740.90 37,835.25 1,719.78 2,103,295.90 150,000.00 1,953,295.902. 1,953,295.90 35,810.42 1,627.75 1,990,734.00 150,000.00 1,840,734.003. 1,840,734.00 33,746.79 1,533.94 1,876,014.70 150,000.00 1,726,014.704. 1,726,014.70 31,643.60 1,438.34 1,759,096.60 150,000.00 1,609,096.605. 1,609,096.60 29,500.10 1,340.91 1,639,937.60 150,000.00 1,489,937.606. 1,489,937.60 27,315.52 1,241.61 1,518,494.70 150,000.00 1,368,494.707. 1,368,494.70 25,089.07 1,140.41 1,394,724.10 150,000.00 1,244,724.108. 1,244,724.10 22,819.94 1,037.27 1,268,581.30 150,000.00 1,118,581.309. 1,118,581.30 20,507.32 932.15 1,140,020.70 150,000.00 990,020.7010. 990,020.70 18,150.38 825.02 1,008,996.00 150,000.00 858,996.0011. 858,996.00 15,748.28 715.83 875,460.11 150,000.00 725,460.1112. 725,460.11 13,300.10 604.55 739,364.76 150,000.00 589,364.7613. 589,364.76 10,805.02 491.14 600,660.91 150,000.00 450,660.9114. 450,660.91 8,262.12 375.55 459,298.58 150,000.00 309,298.58As noted by the CA, after the last payment of P150,000 on September 1989, the respondent still owed the petitioner the sum of P309,298.58. The respondent’s non-payment of the amortizations due after the said date rendered the balance due and demandable in its entirety, in accordance with the acceleration clause under the MOA. Further, since the respondent defaulted in its monthly payments after September 1989, it was only then that it could be rightfully imposed the penalty charges in accordance with the promissory note. Thus, contrary to the petitioner’s contention, the CA did not rule that the MOA operated as a waiver by the petitioner of its right to collect penalty charges.

The petitioner faults the CA for reducing the penalty charges from 36% to 3% per annum on its finding that the former rate was too excessive, considering that the petitioner had already charged an interest rate of 23% per annum and that the principal obligation had been partly complied with.

This Court does not agree with the petitioner. Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

Indeed, this Court had equitably reduced the penalty in not a few cases. In the recent case of Ligutan v. Court of Appeals, the Court affirmed the reduction of the penalty charges by the CA upon its finding that the debtors therein had partially complied with their obligation. In Rizal Commercial Banking Corp. v. Court of Appeals, the Court tempered the penalty charges after taking into account the debtor’s pitiful situation and its offer to settle the entire obligation with the creditor bank. In Insular Bank of Asia and America v. Spouses Salazar, the Court reduced the penalty charge on a loan of P42,050, considering that the debtor spouses paid a total of P68,676.75 which the creditor bank applied to satisfy the penalty and interest charges.

Given the peculiar circumstances in this case, particularly that the principal obligation had been partially complied with by the respondent, the Court sees no justifiable reason to modify the reduction by the CA of the penalty charges made by the CA.

Anent the second issue, the petitioner insists that the CA should have relied on the petitioner’s statement of account to determine the amount owed by the respondent. According to the said statement, the respondent still owed the petitioner P5,665,906 as of June 29, 1990, since previous payments made were applied only to the penalties and service charges. The Court does not agree. The MOA clearly provides that the loan obligation of P2,000,000 shall be paid by the respondent by issuing the post-dated checks in the amount of P150,000 every month beginning June 5, 1998 until the same shall have been fully paid. Thus, the monthly payments made by the respondent were for the satisfaction of the principal loan obligation, not merely as payments of the penalties and service charges.

http://sc.judiciary.gov.ph/jurisprudence/2003/jun2003/..%5C..%5C1998%5Capr1998%5C128833.htm

http://sc.judiciary.gov.ph/jurisprudence/2003/jun2003/..%5C..%5C2002%5Cfeb2002%5C138677.htm


Further, as correctly pointed out by the CA, the petitioner’s statement of account could not be given any probative value because it was belied for the most part by its key witness, comptroller Rebecca de la Cruz. Even the trial court gave scant consideration to this statement of account, upon its finding that certain entries therein were inconsistent with the terms of the promissory note. The Court thus finds no cogent reason to deviate from the trial court’s and the CA’s assessment of the probative value of the same. After all, it is not this Court’s function under Rule 45 of the Rules of Court, as amended, to review, examine, and evaluate or weigh the probative value of the evidence presented.

WHEREFORE, the petition is hereby DENIED for lack of merit. The assailed Decision dated July 18, 1997 and Resolution dated September 12, 1997 of the Court of Appeals in CA-G.R. CV No. 44211 are AFFIRMED in toto.

SO ORDERED.

Bellosillo, (Chairman), and Quisumbing, JJ., concur.

Austria-Martinez, J., on official leave.

Penned by Associate Justice Fermin N. Martin, Jr., with Associate Justices Ruben T. Reyes and Omar U. Amin concurring.

Penned by Eriberto Rosario, Jr. who was later promoted as Associate Justice of the Court of Appeals.


Manila

SECOND DIVISION

G.R. No. 135634 May 31, 2000

HEIRS OF JUAN SAN ANDRES (VICTOR S. ZIGA) and SALVACION S. TRIA, petitioners,vs.

VICENTE RODRIGUEZ, respondent.


MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals 1 reversing the decision of the Regional Trial Court, Naga City, Branch 19, in Civil Case No. 87-1335, as well as the appellate court's resolution denying reconsideration.

The antecedent facts are as follows:

Juan San Andres was the registered owner of Lot No. 1914-B-2 situated in Liboton, Naga City. On September 28, 1964, he sold a portion thereof, consisting of 345 square meters, to respondent Vicente S. Rodriguez for P2,415.00. The sale is evidenced by a Deed of Sale. 2

Upon the death of Juan San Andres on May 5, 1965, Ramon San Andres was appointed judicial administrator of the decedent's estate in Special Proceedings No. R-21, RTC, Branch 19, Naga City. Ramon San Andres engaged the services of a geodetic engineer, Jose Peñero, to prepare a consolidated plan (Exh. A) of the estate. Engineer Peñero also prepared a sketch plan of the 345-square meter lot sold to respondent. From the result of the survey, it was found that respondent had enlarged the area which he purchased from the late Juan San Andres by 509 square meters. 3

Accordingly, the judicial administrator sent a letter, 4 dated July 27, 1987, to respondent demanding that the latter vacate the portion allegedly encroached by him. However, respondent refused to do so, claiming he had purchased the same from the late Juan San Andres. Thereafter, on November 24, 1987, the judicial administrator brought an action, in behalf of the estate of Juan San Andres, for recovery of possession of the 509-square meter lot.

In his Re-amended Answer filed on February 6, 1989, respondent alleged that apart from the 345-square meter lot which had been sold to him by Juan San Andres on September 28, 1964, the latter likewise sold to him the following day the remaining portion of the lot consisting of 509 square meters, with both parties treating the two lots as one whole parcel with a total area of 854 square meters. Respondent alleged that the full payment of the 509-square meter lot would be effected within five (5) years from the execution of a formal deed of sale after a survey is conducted over said property. He further alleged that with the consent of the former owner, Juan San Andres, he took possession of the same and introduced improvements thereon as early as 1964.

As proof of the sale to him of 509 square meters, respondent attached to his answer a receipt (Exh. 2) 5 signed by the late Juan San Andres, which reads in full as follows:

Received from Vicente Rodriguez the sum of Five Hundred (P500.00) Pesos representing an advance payment for a residential lot adjoining his previously paid lot on three sides excepting on the frontage with the agreed price of Fifteen (15.00) Pesos per square meter and the payment of the full consideration based on a survey shall be due and payable in five (5) years period from the execution of the formal deed of sale; and it is agreed that the expenses of survey and its approval by the Bureau of Lands shall be borne by Mr. Rodriguez.

Naga City, September 29, 1964.

(Sgd.)JUAN R. SAN ANDRES

VendorNoted:(Sgd.)

VICENTE RODRIGUEZVendee

Respondent also attached to his answer a letter of judicial administrator Ramon San Andres (Exh. 3), 6 asking payment of the balance of the purchase price. The letter reads:Dear Inting,Please accommodate my request for Three Hundred (P300.00) Pesos as I am in need of funds as I intimated to you the other day.We will just adjust it with whatever balance you have payable to the subdivision.Thanks.

Sincerely,(Sgd.)

RAMON SAN ANDRESVicente Rodriguez

Penafrancia Subdivision, Naga CityP.S.

You can let bearer Enrique del Castillo sign for the amount.Received One Hundred Only

(Sgd.)RAMON SAN ANDRES

3/30/66Respondent deposited in court the balance of the purchase price amounting to P7,035.00 for the aforesaid 509-square meter lot.

While the proceedings were pending, judicial administrator Ramon San Andres died and was substituted by his son Ricardo San Andres. On the other band, respondent Vicente Rodriguez died on August 15, 1989 and was substituted by his heirs. 7

Petitioner, as plaintiff, presented two witnesses. The first witness, Engr. Jose Peñero, 8 testified that based on his survey conducted sometime between 1982 and 1985, respondent had enlarged the area which he purchased from the late Juan San Andres by 509 square meters belonging to the latter's estate. According to Peñero, the titled property (Exh. A-5) of respondent was enclosed with a fence with metal holes and barbed wire, while the expanded area was fenced with barbed wire and bamboo and light materials.

The second witness, Ricardo San Andres, 9 administrator of the estate, testified that respondent had not filed any claim before Special Proceedings No. R-21 and denied knowledge of Exhibits 2 and 3. However, he recognized the signature in Exhibit 3 as similar to that of the former administrator, Ramon San Andres. Finally, he declared that the expanded portion occupied by the family of respondent is now enclosed with barbed wire fence unlike before where it was found without fence.

On the other hand, Bibiana B. Rodriguez, 10 widow of respondent Vicente Rodriguez, testified that they had purchased the subject lot from Juan San Andres, who was their compadre, on September 29, 1964, at P15.00 per square meter. According to her, they gave P500.00 to the late Juan San Andres who later affixed his signature to Exhibit 2. She added that on March 30, 1966; Ramon San Andres wrote them a letter asking for P300.00 as partial payment for the subject lot, but they were able to give him only P100.00. She added that they had paid the total purchase price of P7,035.00 on November 21, 1988 by depositing it in court. Bibiana B. Rodriquez stated that they had been in possession of the 509-square meter lot since 1964 when the late Juan San Andres signed the receipt. (Exh. 2) Lastly, she testified that they did not know at that time the exact area sold to them because they were told that the same would be known after the survey of the subject lot.


On September 20, 1994, the trial court 11 rendered judgment in favor of petitioner. It ruled that there was no contract of sale to speak of for lack of a valid object because there was no sufficient indication in Exhibit 2 to identify the property subject of the sale, hence, the need to execute a new contract.

Respondent appealed to the Court of Appeals, which on April 21, 1998 rendered a decision reversing the decision of the trial court. The appellate court held that the object of the contract was determinable, and that there was a conditional sale with the balance of the purchase price payable within five years from the execution of the deed of sale. The dispositive portion of its decision's reads:

IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby REVERSED and SET ASIDE and a new one entered DISMISSING the complaint and rendering judgment against the plaintiff-appellee:

1. to accept the P7,035.00 representing the balance of the purchase price of the portion and which is deposited in court under Official Receipt No. 105754 (page 122, Records);

2. to execute the formal deed of sale over the said 509 square meter portion of Lot 1914-B-2 in favor of appellant Vicente Rodriguez;

3. to pay the defendant-appellant the amount of P50,000.00 as damages and P10,000.00 attorney's fees as stipulated by them during the trial of this case; and

4. to pay the costs of the suit.

SO ORDERED.

Hence, this petition. Petitioner assigns the following errors as having been allegedly committed by the trial court:

I. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT THE DOCUMENT (EXHIBIT "2") IS A CONTRACT TO SELL DESPITE ITS LACKING ONE OF THE ESSENTIAL ELEMENTS OF A CONTRACT, NAMELY, OBJECT CERTAIN AND SUFFICIENTLY DESCRIBED.

II. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS OBLIGED TO HONOR THE PURPORTED CONTRACT TO SELL DESPITE NON-FULFILLMENT BY RESPONDENT OF THE CONDITION THEREIN OF PAYMENT OF THE BALANCE OF THE PURCHASE PRICE.

III. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT CONSIGNATION WAS VALID DESPITE NON-COMPLIANCE WITH THE MANDATORY REQUIREMENTS THEREOF.

IV. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT LACHES AND PRESCRIPTION DO NOT APPLY TO RESPONDENT WHO SOUGHT INDIRECTLY TO ENFORCE THE PURPORTED CONTRACT AFTER THE LAPSE OF 24 YEARS.

The petition has no merit.

First. Art. 1458 of the Civil Code provides:

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.

As thus defined, the essential elements of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

b) Determinate subject matter; and,

c) Price certain in money or its equivalent. 12

As shown in the receipt, dated September 29, 1964, the late Juan San Andres received P500.00 from respondent as "advance payment for the residential lot adjoining his previously paid lot on three sides excepting on the frontage; the agreed purchase price was P15.00 per square meter; and the full amount of the purchase price was to be based on the results of a survey and would be due and payable in five (5) years from the execution of a deed of sale.

Petitioner contends, however, that the "property subject of the sale was not described with sufficient certainty such that there is a necessity of another agreement between the parties to finally ascertain the identity; size and purchase price of the property which is the object of the alleged sale." 1 He argues that the "quantity of the object is not determinate as in fact a survey is needed to determine its exact size and the full purchase price therefor" 14 In support

of his contention, petitioner cites the following provisions of the Civil Code:

Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinable shall not be an obstacle to the existence of a contract, provided it is possible to determine the same without the need of a new contract between the parties.

Art. 1460. . . . The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new and further agreement between the parties.

Petitioner's contention is without merit. There is no dispute that respondent purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This portion is located in the middle of Lot 1914-B-2, which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the "previously paid lot." Since the lot

subsequently sold to respondent is said to adjoin the "previously paid lot" on three sides thereof, the subject lot is capable of being determined without the need of any new contract. The fact that the exact area of these adjoining residential lots is subject to the result of a survey does not detract from the fact that they are determinate or

determinable. As the Court of Appeals explained: 15


Concomitantly, the object of the sale is certain and determinate. Under Article 1460 of the New Civil Code, a thing sold is determinate if at the time the contract is entered into, the thing is capable of being determinate without necessity of a new or further agreement between the parties. Here, this

definition finds realization.

Appellee's Exhibit "A" (page 4, Records) affirmingly shows that the original 345 sq. m. portion earlier sold lies at the middle of Lot 1914-B-2 surrounded by the remaining portion of the said Lot 1914-B-2 on three (3) sides, in the east, in the west and in the north. The northern boundary is a 12 meter

road. Conclusively, therefore, this is the only remaining 509 sq. m. portion of Lot 1914-B-2 surrounding the 345 sq. m. lot initially purchased by Rodriguez. It is quite difined, determinate and certain. Withal, this is the same portion adjunctively occupied and possessed by Rodriguez since

September 29, 1964, unperturbed by anyone for over twenty (20) years until appellee instituted this suit.

Thus, all of the essential elements of a contract of sale are present, i.e., that there was a meeting of the minds between the parties, by virtue of which the late Juan San Andres undertook to transfer ownership of and to deliver a determinate thing for a price certain in money. As Art. 1475 of the Civil Code provides:

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. . . .

That the contract of sale is perfected was confirmed by the former administrator of the estates, Ramon San Andres, who wrote a letter to respondent on March 30, 1966 asking for P300.00 as partial payment for the subject lot. As the Court of Appeals observed:

Without any doubt, the receipt profoundly speaks of a meeting of the mind between San Andres and Rodriguez for the sale of the property adjoining the 345 square meter portion previously sold to Rodriguez on its three (3) sides excepting the frontage. The price is certain, which is P15.00 per

square meter. Evidently, this is a perfected contract of sale on a deferred payment of the purchase price. All the pre-requisite elements for a valid purchase transaction are present. Sale does not require any formal document for its existence and validity. And delivery of possession of land sold is a

consummation of the sale (Galar vs. Husain, 20 SCRA 186 [1967]). A private deed of sale is a valid contract between the parties (Carbonell v. CA, 69 SCRA 99 [1976]).

In the same vein, after the late Juan R. San Andres received the P500.00 downpayment on March 30, 1966, Ramon R. San Andres wrote a letter to Rodriguez and received from Rodriguez the amount of P100.00 (although P300.00 was being requested) deductible from the purchase price of the

subject portion. Enrique del Castillo, Ramon's authorized agent, correspondingly signed the receipt for the P100.00. Surely, this is explicitly a veritable proof of he sale over the remaining portion of Lot 1914-B-2 and a confirmation by Ramon San Andres of the existence thereof. 16

There is a need, however, to clarify what the Court of Appeals said is a conditional contract of sale. Apparently, the appellate court considered as a "condition" the stipulation of the parties that the full consideration, based on a survey of the lot, would be due and payable within five (5) years from the execution of a formal deed of sale. It is

evident from the stipulations in the receipt that the vendor Juan San Andres sold the residential lot in question to respondent and undertook to transfer the ownership thereof to respondent without any qualification, reservation or condition. In Ang Yu Asuncion v. Court of Appeals, 17 we held:

In Dignos v. 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. 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).

Thus, in. one case, when the sellers declared in a "Receipt of Down Payment" that they received an amount as purchase price for a house and lot without any reservation of title until full payment of the entire purchase price, the implication was that they sold their property. 18 In People's Industrial Commercial Corporation v. Court of Appeals,

19 it was stated:

A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed

period.

Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent. 20 Thus, Art. 1477 provides

that the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.

The stipulation that the "payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale" is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and the time within which the

same is to be paid. But it does not affect in any manner the effectivity of the contract. Consequently, the contention that the absence of a formal deed of sale stipulated in the receipt prevents the happening of a sale has no merit.

Second. With respect to the contention that the Court of Appeals erred in upholding the validity of a consignation of P7,035.00 representing the balance of the purchase price of the lot, nowhere in the decision of the appellate court is there any mention of consignation. Under Art. 1257 of this Civil Code, consignation is proper only in cases

where an existing obligation is due. In this case, however, the contracting parties agreed that full payment of purchase price shall be due and payable within five (5) years from the execution of a formal deed of sale. At the time respondent deposited the amount of P7,035.00 in the court, no formal deed of sale had yet been executed by the

parties, and, therefore, the five-year period during which the purchase price should be paid had not commenced. In short, the purchase price was not yet due and payable.

This is not to say, however, that the deposit of the purchase price in the court is erroneous. The Court of Appeals correctly ordered the execution of a deed of sale and petitioners to accept the amount deposited by respondent.

Third. The claim of petitioners that the price of P7,035.00 is iniquitous is untenable. The amount is based on the agreement of the parties as evidenced by the receipt (Exh. 2). Time and again, we have stressed the rule that a contract is the law between the parties, and courts have no choice but to enforce such contract so long as they are not

contrary to law, morals, good customs or public policy. Otherwise, court would be interfering with the freedom of contract of the parties. Simply put, courts cannot stipulate for the parties nor amend the latter's agreement, for to do so would be to alter the real intentions of the contracting parties when the contrary function of courts is to give

force and effect to the intentions of the parties.

Fourth. Finally, petitioners argue that respondent is barred by prescription and laches from enforcing the contract. This contention is likewise untenable. The contract of sale in this case is perfected, and the delivery of the subject lot to respondent effectively transferred ownership to him. For this reason, respondent seeks to comply with his

obligation to pay the full purchase price, but because the deed of sale is yet to be executed, he deemed it appropriate to deposit the balance of the purchase price in court. Accordingly, Art. 1144 of the Civil Code has no application to the instant case. 21 Considering that a survey of the lot has already been conducted and approved by the

Bureau of Lands, respondent's heirs, assign or successors-in-interest should reimburse the expenses incurred by herein petitioners, pursuant to the provisions of the contract.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that respondent is ORDERED to reimburse petitioners for the expenses of the survey.

SO ORDERED.

Bellosillo and Buena, JJ., concur.

Quisumbing and De Leon, Jr., JJ., are on leave.


SECOND DIVISION

[G.R. No. 137290. July 31, 2000]

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES ALFREDO HUANG and GRACE HUANG, respondents.

D E C I S I O N

MENDOZA, J.:

This is a petition for review of the decision, dated April 8, 1997, of the Court of Appeals which reversed the decision of the Regional Trial Court, Branch 153, Pasig City dismissing the complaint brought by respondents against petitioner for enforcement of a contract of sale.

The facts are not in dispute.

Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of real properties. Part of its inventory are two parcels of land totalling 1, 738 square meters at the corner of Meralco Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and PT-82396 of the Register of Deeds of Pasig City.

On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash. The offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter dated March 24, 1994, Atty. Dauz signified her clients’ interest in purchasing the properties for the amount for which they were offered by petitioner, under the following terms: the sum of P500,000.00 would be given as earnest money and the balance would be paid in eight equal monthly installments from May to December, 1994. However, petitioner refused the counter-offer.

On March 29, 1994, Atty. Dauz wrote another letter proposing the following terms for the purchase of the properties, viz:

This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters. For this purpose, we are enclosing herewith the sum of P1,000,000.00 representing earnest-deposit money, subject to the following conditions.


1. We will be given the exclusive option to purchase the property within the 30 days from date of your acceptance of this offer.

2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will secure the necessary Management and Board approvals; and we initiate the documentation if there is mutual agreement between us.

3. In the event that we do not come to an agreement on this transaction, the said amount of P1,000,000.00 shall be refundable to us in full upon demand. . . .

Isidro A. Sobrecarey, petitioner’s vice-president and operations manager for corporate real estate, indicated his conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of P1 million. Upon request of respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign from the properties.

Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994, Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day term. Atty. Dauz countered with an offer of six months within which to pay.

On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had not yet acted on her counter-offer. This prompted Atty. Dauz to propose a four-month period of amortization.

On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within which to exercise her option to purchase the property, adding that within that period, "[we] hope to finalize [our] agreement on the matter." Her request was granted.

On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty. Dauz informing her that because the parties failed to agree on the terms and conditions of the sale despite the extension granted by petitioner, the latter was returning the amount of P1 million given as "earnest-deposit."

On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five days of a deed of sale covering the properties. Respondents attempted to return the "earnest-deposit" but petitioner refused on the ground that respondents’ option to purchase had already expired.

On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner before the Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660.

Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint alleging that (1) the alleged "exclusive option" of respondent spouses lacked a consideration separate and distinct from the purchase price and was thus unenforceable and (2) the complaint did not allege a cause of action because there was no "meeting of the minds" between the parties and, therefore, no perfected contract of sale. The motion was opposed by respondents.

On December 12, 1994, the trial court granted petitioner’s motion and dismissed the action. Respondents filed a motion for reconsideration, but it was denied by the trial court. They then appealed to the Court of Appeals which, on April 8, 1997, rendered a decision reversing the judgment of the trial court. The appellate court held that all the requisites of a perfected contract of sale had been complied with as the offer made on March 29, 1994, in connection with which the earnest money in the amount of P1 million was tendered by respondents, had already been accepted by petitioner. The court cited Art. 1482 of the Civil Code which provides that "[w]henever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract." The fact the parties had not agreed on the mode of payment did not affect the contract as such is not an essential element for its validity. In addition, the court found that Sobrecarey had authority to act in behalf of petitioner for the sale of the properties.

Petitioner moved for reconsideration of the trial court’s decision, but its motion was denied. Hence, this petition.

Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale between the parties because the March 29, 1994 letter of respondents, which petitioner accepted, merely resulted in an option contract, albeit it was unenforceable for lack of a distinct consideration. Petitioner argues that the absence of agreement as to the mode of payment was fatal to the perfection of the contract of sale. Petitioner also disputes the appellate court’s ruling that Isidro A. Sobrecarey had authority to sell the subject real properties.

Respondents were required to comment within ten (10) days from notice. However, despite 13 extensions totalling 142 days which the Court had given to them, respondents failed to file their comment. They were thus considered to have waived the filing of a comment.

The petition is meritorious.

In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings: (1) earnest money was allegedly given by respondents and accepted by petitioner through its vice-president and operations manager, Isidro A. Sobrecarey; and (2) the documentary evidence in the records show that there was a perfected contract of sale.

With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents did not give the P1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount merely as a deposit of what would eventually become the earnest money or downpayment should a contract of sale be made by them. The amount was thus given not as a part of the purchase price and as proof of the perfection of the contract of sale but only as a guarantee that respondents would not back out of the sale. Respondents in fact described the amount as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals, it was held:

. . . While the P5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show that the same was in the concept of the earnest money contemplated in Art. 1482 of the Civil Code, invoked by petitioner, as signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the record, We are more inclined to believe that the said P 5,000.00 were paid in the concept of earnest money as the term was understood under the Old Civil Code, that is, as a guarantee that the buyer would not back out, considering that it is not clear that there was already a definite agreement as to the price then and that petitioners were decided to buy 6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7 share.

In the present case, the P1 million "earnest-deposit" could not have been given as earnest money as contemplated in Art. 1482 because, at the time when petitioner accepted the terms of respondents’ offer of March 29, 1994, their contract had not yet been perfected. This is evident from the following conditions attached by respondents to their letter, to wit: (1) that they be given the exclusive option to purchase the property within 30 days from acceptance of the offer; (2) that during the option period, the parties would negotiate the terms and conditions of the purchase; and (3) petitioner would secure the necessary approvals while respondents would handle the documentation.

The first condition for an option period of 30 days sufficiently shows that a sale was never perfected. As petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to an option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days from the date of acceptance of the offer. Such option giving


respondents the exclusive right to buy the properties within the period agreed upon is separate and distinct from the contract of sale which the parties may enter. All that respondents had was just the option to buy the properties which privilege was not, however, exercised by them because there was a failure to agree on the terms of payment. No contract of sale may thus be enforced by respondents.

Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor only if the promise is supported by a distinct consideration. Consideration in an option contract may be anything of value, unlike in sale where it must be the price certain in money or its equivalent. There is no showing here of any consideration for the option. Lacking any proof of such consideration, the option is unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option period, the parties would negotiate the terms and conditions of the purchase. The stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. In the present case, the parties never got past the negotiation stage. The alleged "indubitable evidence" of a perfected sale cited by the appellate court was nothing more than offers and counter-offers which did not amount to any final arrangement containing the essential elements of a contract of sale. While the parties already agreed on the real properties which were the objects of the sale and on the purchase price, the fact remains that they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension given by petitioner.

The appellate court opined that the failure to agree on the terms of payment was no bar to the perfection of the sale because Art. 1475 only requires agreement by the parties as to the price of the object. This is error. In Navarro v. Sugar Producers Cooperative Marketing Association, Inc., we laid down the rule that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals, agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. In Velasco v. Court of Appeals, the parties to a proposed sale had already agreed on the object of sale and on the purchase price. By the buyer’s own admission, however, the parties still had to agree on how and when the downpayment and the installments were to be paid. It was held:

. . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement between the parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000 as part of the down-payment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under Art. 1482 of the new Civil Code, as the petitioners themselves admit that some essential matter - the terms of the payment - still had to be mutually covenanted.

Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale.

In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had the authority to enter into a contract of sale in behalf of petitioner. This issue, therefore, needs no further discussion.

WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents’ complaint is DISMISSED.

THIRD DIVISION

[G.R. No. 134692. August 1, 2000]

ELISEO FAJARDO, JR., and MARISSA FAJARDO, petitioners, vs. FREEDOM TO BUILD, INC., respondent.

D E C I S I O N

VITUG, J.:

Freedom To Build, Incorporated, an owner-developer and seller of low-cost housing, sold to petitioner-spouses, a house and lot designated Lot No. 33, Block 14, of the De la Costa Homes in Barangka, Marikina, Metro Manila. The Contract to Sell executed between the parties, contained a Restrictive Covenant providing certain prohibitions, to wit:

"Easements. For the good of the entire community, the homeowner must observe a two-meter easement in front. No structure of any kind (store, garage, bodega, etc.) may be built on the front easement.

"x x x.............................x x x.............................x x x

"Upward expansion. A second storey is not prohibited. But the second storey expansion must be placed above the back portion of the house and should not extend forward beyond the apex of the original building.

"x x x.............................x x x.............................x x x

"Front expansion: 2nd Storey: No unit may be extended in the front beyond the line as designed and implemented by the developer in the 60 sq. m. unit. In other words, the 2nd floor expansion, in front, is 6 meters back from the front property line and 4 meters back from the front wall of the house, just as provided in the 60 sq. m. units."

The above restrictions were also contained in Transfer Certificate of Title No. N-115384 covering the lot issued in the name of petitioner-spouses.

The controversy arose when petitioners, despite repeated warnings from respondent, extended the roof of their house to the property line and expanded the second floor of their house to a point directly above the original front wall. Respondent filed before the Regional Trial Court, National Capital Judicial Region, Branch 261, Pasig City, an action to demolish the unauthorized structures.


After trial, judgment was rendered against petitioners; thus:

"WHEREFORE, premises considered, defendant spouses Eliseo B. Fajardo, Jr., and Marissa F. Fajardo are hereby directed to immediately demolish and remove the extension of their expanded housing unit that exceeds the limitations imposed by the Restrictive Covenant, otherwise the Branch Sheriff of this Court shall execute this decision at the expense of the defendants.

"As to damages and attorney's fees, it appearing from the records of this case that no evidence to sustain the same was adduced by either of the parties, the Court deems it proper not to award any.

"SO ORDERED."

On appeal to it, the Court of Appeals affirmed the decision of the trial court.

In their petition for review to this Court, the spouses contest the judgment of the courts below. Adjacent owners reportedly have no objection to the construction, and have even expressed interest in undertaking a similar expansion in their respective residences. Moreover, the couple's two children, a son and a daughter, might soon get married and then share, with their families, living quarters with petitioners. The latter also assail the personality of private respondent to question the construction which have effectively relinquished its ownership, right or interest over the subdivision upon the execution of the Deed of Absolute Sale in favor of the individual homeowners. Per the contract between Freedom to Build Incorporated and the De la Costa Low Income Project Homeowners' Association (hereinafter homeowners' association), petitioners aver, the enforcement of the prohibitions contained in the "Restrictive Covenant" originally residing on respondent is now lodged in the homeowners' association. Petitioners maintain that it is incumbent upon the homeowners' association, not on respondent, to enforce compliance with the provisions of the covenant.

A perusal of the provisions of the covenant would show that the restrictions therein imposed were intended -

"For the protection and benefit of the De La Costa Low Income Housing Project, and of all the persons who may now, or hereafter become owners of any part of the project, and as part of the consideration for the conveyance of the housing unit, these restrictions are promulgated in order that; the intents and purposes for which the project was designed shall be upheld; to wit: subsequent duly approved sale and assignments of housing units shall be made only to low income families; a certain level of privacy shall be observed; a community spirit shall be fostered; and an undisturbed possession and occupancy at the homeowners shall be maintained."

Restrictive covenants are not, strictly speaking, synonymous with easements. While it may be correct to state that restrictive covenants on the use of land or the location or character of buildings or other structures thereon may broadly be said to create easements or rights, it can also be contended that such covenants, being limitations on the manner in which one may use his own property, do not result in true easements, but a case of servitudes (burden), sometimes characterized to be negative easements or reciprocal negative easements. Negative easement is the most common easement created by covenant or agreement whose effect is to preclude the owner of the land from doing an act, which, if no easement existed, he would be entitled to do.

Courts which generally view restrictive covenants with disfavor for being a restriction on the use of one's property, have, nevertheless, sustained them where the covenants are reasonable, not contrary to public policy, or to law, and not in restraint of trade. Subject to these limitations, courts enforce restrictions to the same extent that will lend judicial sanction to any other valid contractual relationship. In general, frontline restrictions on constructions have been held to be valid stipulations.

The provisions in a restrictive covenant prescribing the type of the building to be erected are crafted not solely for the purpose of creating easements, generally of light and view, nor as a restriction as to the type of construction, but may also be aimed as a check on the subsequent uses of the building conformably with what the developer originally might have intended the stipulations to be. In its Memorandum, respondent states in arguing for the validity of the restrictive covenant that the -

"x x x restrictions are not without specific purpose. In a low cost-socialized housing, it is of public knowledge that owners-developers are constrained to build as many number of houses on a limited land area precisely to accommodate marginalized lot buyers, providing as much as possible the safety, aesthetic and decent living condition by controlling overcrowding. Such project has been designed to accommodate at least 100 families per hectare."

There appears to be no cogent reasons for not upholding restrictive covenants aimed to promote aesthetics, health, and privacy or to prevent overcrowding.

Viewed accordingly, the statement of petitioners that their immediate neighbors have not opposed the construction is unavailing to their cause, the subject restrictive covenant not being intended for the benefit of adjacent owners but to prescribe the uses of the building, i.e., to ensure, among other things, that the structures built on De la Costa Homes Subdivision would prevent overcrowding and promote privacy among subdivision dwellers. The argument then of petitioners that expansion is necessary in order to accommodate the individual families of their two children must fail for like reason. Nor can petitioners claim good faith; the restrictive covenants are explicitly written in the Contract To Sell and annotated at the back of the Transfer Certificate of Title.

Petitioners raise the issue of the personality of respondent to enforce the provisions of the covenant. Broadly speaking, a suit for equitable enforcement of a restrictive covenant can only be made by one for whose benefit it is intended. It is not thus normally enforceable by one who has no right nor interest in the land for the benefit of which the restriction has been imposed. Thus, a developer of a subdivision can enforce restrictions, even as against remote grantees of lots, only if he retains part of the land. There would have been merit in the argument of petitioners - that respondent, having relinquished ownership of the subdivision to the homeowners, is precluded from claiming any right or interest on the same property - had not the homeowners' association, confirmed by its board of directors, allowed respondent to enforce the provisions of the restrictive covenant.

Finally, petitioners argue that for lack of a specific provision, prescribing the penalty of demolition in the "Restrictive Covenant" in the event of a breach thereof, the prayer of respondent to demolish the structure should fail. This argument has no merit; Article 1168 of the New Civil Code states:

"When the obligation consists in not doing and the obligor does what has been forbidden him, it shall be undone at his expense."

This Court is not unaware of its ruling in Ayala Corporation vs. Ray Burton Development Corporation, which has merely adjudged the payment of damages in lieu of demolition. In the aforementioned case, however, the elaborate mathematical formula for the determination of compensatory damages which takes into account the current construction cost index during the immediately preceding 5 years based on the weighted average of wholesale price and wage indices of the National Census and Statistics Office and the Bureau of Labor Statistics is explicitly provided for in the Deed of Restrictions entered into by the parties. This unique and peculiar circumstance, among other strong justifications therein mentioned, is not extant in the case at bar.

In sum, the Court holds that -


(1)....The provisions of the Restrictive Covenant are valid;

(2)....Petitioners must be held to be bound thereby; and

(3)....Since the extension constructed exceeds the floor area limits of the Restrictive Covenant, petitioner-spouses can be required to demolish the structure to the extent that it exceeds the prescribed floor area limits.

WHEREFORE, the assailed decision, dated 13 July 1998, of the Court of Appeals in CA-G.R. CV No. 50085, sustaining that of the court a quo, is AFFIRMED. No costs.

SO ORDERED.

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

EN BANC

[G.R. Nos. 135180-81; 135425-26. August 16, 2000]

Heirs of the Late Justice JOSE B. L. REYES represented by ADORACION D. REYES and Heirs of EDMUNDO A. REYES, namely, MA. TERESA P. REYES and CARLOS P. REYES, petitioners, vs. COURT OF APPEALS AND METRO MANILA BUILDERS, INC., respondents.

D E C I S I O N

PARDO, J.:

The cases before the Court are consolidated petitions for review on certiorari to nullify: (1) the decision of the Court of Appeals setting aside that of the Metropolitan Trial Court, Pasay City, Branch 45 and the orders of the Regional Trial Court, Pasay City branch 231, and ordering petitioners to restore the subject property to the possession of respondent MMB, Inc. until the expiration of the lease contract, and (2) the resolution of the Court of Appeals allowing execution pending appeal of its aforesaid decision and issuing a writ of execution depriving petitioners of possession of the leased property and giving its possession to respondent MMB, Inc. which was a deforciant and worse, declaring petitioners guilty of indirect contempt of court and sentencing them to pay a fine of P30,000.00.

The factual background of the case dates back to November 30, 1976. Brothers Justice Jose Benedicto Luna Reyes (also known as Justice J. B. L. Reyes) and Dr. Edmundo A. Reyes were co-owners of a parcel of land located at Taft Avenue, Pasay City, near Buendia, with a land area of more than one hectare, covered by two Transfer Certificates of Title. On November 30, 1976, the brothers entered into a 25-year lease contractwith Metro Manila Builders, Inc. (MMB, Inc.) at a very low rate of rental (P15,000.00 to P30,000.00 a month) in consideration of the fact that the lessee would cover all present and future improvements in the property with insurance against certain risks and maintain the premises in good, sanitary and tenantable condition at all times.

However, in the course of the lease, petitioners found out that respondent MMB, Inc. had not properly maintained the premises or covered the same with an adequate insurance policy. Worse, respondent MMB, Inc. had sub-leased the property to third parties and was earning therefrom about P500,000.00 a month. On December 2, 1996, petitioners served on respondent MMB, Inc. a notice terminating the lease contract and demanding that they vacate and surrender the premises subject of the lease to petitioners.

Failing to do so, on February 3, 1997, petitioners filed with the Metropolitan Trial Court, Pasay City, Branch 45 a complaint for unlawful detainer based on breach of the contract of lease.

On March 5, 1997, respondent MMB, Inc. filed its answer to the complaint. MMB, Inc. did not deny the violations imputed to it but questioned the absence of a judicial rescission of the contract of lease.

On May 9, 1997, the trial court rendered a decision in favor of petitioners, thus:

"WHEREFORE, and considering the foregoing, judgment is hereby rendered in favor of the plaintiff heirs of J.B.L. Reyes, thru Adoracion D. Reyes, and heirs of Edmundo Reyes namely Ma. Teresa P. Reyes, and Carlos P. Reyes and against the defendant Metro Manila Builders, Inc. ordering the latter:

1. And all persons claiming right under it to vacate, surrender and cede possession of the leased premises to plaintiffs;

2. To pay plaintiffs, P300,000.00 for every month from notice to vacate until possession is finally turned over to plaintiffs, with legal interest;


3. To pay plaintiff the amount of P20,000.00 as for attorneys fees; and,

4. To pay the cost of suit"

On May 16, 1997, petitioners filed with the Metropolitan Trial Court, Pasay City, Branch 45 a motion for execution of the judgment of eviction. On the other hand, respondent appealed the decision to the Regional Trial Court, Pasay City, Branch 113. However, respondents failed to file their appeal memorandum on time and so the court dismissed their appeal. In its appeal to the RTC, respondent MMB, Inc. never raised the issue of jurisdiction. Hence, on November 5, 1997, respondent MMB, Inc. filed an appeal to the Court of Appeals.

On November 26, 1997, MTC Branch 45, Pasay City, granted the motion for execution that petitioners filed. Consequently, on December 1, 1997, the trial court issued the corresponding writ of execution. However, on December 8, 1997, the Court of Appeals issued a temporary restraining order against the execution of the ejectment judgment.

Even before the appellate court could rule on the injunctive relief, respondent MMB, Inc. withdrew its appeal. In a resolution dated February 17, 1998, the Court of Appeals allowed the withdrawal.

Simultaneously with the withdrawal of the first CA case, on February 17, 1998, private respondent also filed a petition for annulment of the ejectment decision before the Regional Trial Court, Pasay City, Branch 231 (RTC 231) on the ground that the MTC had no jurisdiction over the ejectment case. MMB, Inc. prayed for a temporary restraining order and/or preliminary injunction against the execution of the ejectment decision. The court, however, did not issue a temporary restraining order (TRO) against MTC Branch 45, Pasay City.

On March 5, 1998, petitioners filed with the Regional Trial Court their memorandum in support of their opposition against the injunctive relief sought by MMB, Inc. On March 20, 1998, petitioners filed with the same court a motion to dismiss.

In an attempt to dramatize its plea, on March 23, 1998, respondent MMB, Inc. filed another petition with the Court of Appeals, for certiorari and mandamus complaining about what it termed as the sub-silencio denial by the lower court of their application for injunctive relief.

On March 23, 1998, the Court of Appeals issued a resolution giving petitioners, as respondents therein, ten ((10) days from notice within which to file their comment on the petition, not a motion to dismiss, and in the meantime, restrained them from enforcing the writ of execution in Civil Case No. 113-97, MTC-Pasay City, Branch 45.

Incidentally, the resolution was signed by only two members of the Court of Appeals, Special Fourth Division, namely, Justice Demetrio G. Demetria, ponente, and Justice Ramon A. Barcelona, member, concurring. Justice Omar U. Amin, member, did not sign. Hence, the resolution is void, which the division clerk of court should not have received for filing, much less served on the parties. By law, the attendance of three members of the Court of Appeals shall constitute a quorum for the sessions of a division. The unanimous vote of three members of a division shall be necessary for the pronouncement of a decision, or final resolution which shall be reached in consultation before the writing of the opinion by any member of the division. This rule applies to interlocutory resolutions. True, any member of the Court of Appeals may issue preliminary injunction or temporary restraining order. However, this power is exercised only in case of extreme urgency, and in the tradition of the Supreme Court, the Court en banc or division ratifies or confirms the act of the single justice at the very next session of the Court.

On April 14, 1998, upon motion of petitioners, RTC-Pasay 231 issued an order dismissing the petition on the ground that respondent's remedy is appeal in due time which, when withdrawn, was effectively abandoned. The Regional Trial Court, Pasay City, Branch 231, thus ruled:

"If jurisdiction was indeed a valid concern of the petitioner, it should have been raised at the first opportunity i.e. At the inception of the ejectment case before the Metropolitan Trial Court. Although, the question of jurisdiction may be raised at any stage of the proceedings, it should not be used as a scheme to delay the proceedings and petitioner cannot feign ignorance or inadvertence in a manner aptly illustrated by the respondents, to wit:

6.1 What gave petitioner away is its silence on why it failed, nay refused to raise the issue of jurisdiction in its petition before the appellate court. Jurisdiction it is elementary may be raised anytime even before the first time on appeal. (Govt. vs. American Surety Company 11 PHIL 203; Vda De Roxas vs. Rafferty, 37 PHIL 957; People vs. Que Po Lay, 94 PHIL 6400).

Furthermore, this Court reiterates that “the remedy under Rule 47 is unavailable to the petitioner." It can be availed of only "as the last remedy and cannot be resorted to if the ordinary remedies of a new trial, appeal, petition for relief or other appropriate remedies are available." In this case, appeal is the ordinary remedy which was available to and had in fact been availed of by the petitioner. Lamentably, it caused the withdrawal of its appeal expressing preference and venturing to obtain instead relief under Rule 47 which appears inappropriate under the circumstances."

With the imminent expiration of the temporary restraining order, respondent MMB, Inc. filed with the Court of Appeals a series of petitions and motions urging the Court of Appeals to issue injunctive relief. Thus, on May 14, 1998, respondent MMB, Inc. filed with the Court of Appeals a motion for leave of court to admit a supplemental petition.

On May 18, 1998, respondent MMB, Inc. filed with the Court of Appeals an urgent motion for the issuance of another temporary restraining order in the second CA case. Respondent sought a TRO to enjoin the MTC-Branch 45, Pasay City from enforcing the writ of execution of the decision in Civil Case No. 113-97 and the Regional Trial Court from proceeding with Civil Case No. 98-0366 pending the resolution of the supplemental petition.

Also on the same date, respondent filed with the Court of Appeals a manifestation alleging that it filed with the Regional Trial Court, Quezon City, Branch 88 an action for annulment of the unilateral termination of lease contract and damages. On the ground that such case was still pending, respondents prayed for a temporary restraining order and a writ of preliminary inj

unction to prevent the execution of the judgment in Civil Case No. 113-97.

On May 20, 1998, respondent MMB, Inc. filed with the Court of Appeals another case seeking to set aside the order of the RTC Pasay, Branch 231, dismissing the action and praying that a temporary restraining order be issued against the MTC-45 Pasay City enjoining the writ of execution issued in Civil Case No. 113-97, to desist from proceeding with CA-G. R. SP No. 47158, to declare the order of respondent judge in Civil Case No. 98-0366 as null and void for being issued in grave abuse of discretion, without or in excess of its jurisdiction, and to declare the TRO/injunction permanent.

On May 22, 1998, the Court of Appeals consolidated the second and third CA cases.

In the meantime, on June 29, 1998, the Court of Appeals issued a resolution in the third CA case, as follows:

"We hereby resolve:


a. to require the respondent in CA GR SP. No. 47720 to file the petition, not a motion to dismiss, which may be considered as their answer should we decide to give it due course;

b. Considering that respondent's comment and petitioner's reply in C.A. G.R. SP. No. 47158, to set for hearing the application for preliminary injunction on July 15, 1998, at 2:00 A.M. at Paras Hall, Court of Appeals, Ma. Orosa St., Ermita Manila; and

c. For a comprehensive appreciation of the consolidated cases before us, to require the RTC Branch 231 of Pasay City to Elevate the Original Records of Civil Case No. 98-0366 and other pertinent pleadings and papers related thereto within five (5) days from notice.”

On July 2, 1998, respondents filed with the Regional Trial Court, Branch 110, Pasay City a petition seeking a temporary restraining order to enjoin MTC Branch 45, Pasay City, and the sheriff from enforcing the writ of execution issued on December 1, 1997.

In compliance with the said resolution, on July 15, 1998, petitioners filed their comment/opposition, alleging that:

a. The petition of private respondent is moot and academic as the entire premises has already been turned over by the sheriff of MTC-45 Albert Zaragoza except 14 lessees which were allowed by the petitioners to remove their improvements within fifteen days;

b. Assuming the dismissal of the petition for annulment was erroneous, the remedy is appeal not certiorari;

c. Private respondent is guilty of forum shopping as the issue pending in the Second CA Case, which in RTC-Q.C. is docketed as Civil Case No. Q-98-34382 (for annulment of unilateral termination of lease contract) and the third CA Case are one and the same;

d. Judge Ylagan committed no abuse of discretion. Petitioners are not guilty of contempt since there is no order violated;

e. The dismissal order (April 14, 1998) did not pre-empt the Second CA case;

f. Private respondent failed to allege, much less prove, irreparable injury to it.

On August 21, 1998, the Court of Appeals promulgated its decision, the dispositive portion of which reads as follows:

"WHEREFORE, the decision of the Metropolitan Trial Court, Branch 45, Pasay City in Civil Case No. 113-97 dated May 9, 1997 is SET ASIDE and the orders dated March 23, 1998 and April 14, 1998, issued in Civil Case No. 98-0366 are likewise SET ASIDE. Private respondent is hereby ordered to restore the subject property in the possession of petitioner and are hereby permanently enjoined from further committing acts disturbing physical possession of the subject property by petitioner until after the expiration of the Contract of Lease.”

On the same date the decision of the Court of Appeals was promulgated, respondent MMB, Inc. filed with that court a very urgent ex-parte motion for execution pending appea1. On August 26, 1998, the Court of Appeals required petitioners to comment on such motion for execution pending appeal within ten (10) days from notice.

On August 25, 1998, respondent filed with the Court of Appeals another motion ex-parte for execution pending appeal, motion to cite in contempt and motion to stop demolition.

On August 27, 1998, the Court of Appeals issued a resolution stating thus:

"a. Considering that discretionary execution may only issue after due hearing pursuant to Section (2)a, Rule 39 of the 1997 Rules on Civil Procedure, to set for hearing the very urgent motion for execution pending appeal on September 1, 1998, at 10:00 AM at Moran Hall, Court of Appeals x x x;"b. To require private respondents and counsel to explain within five (5) days from receipt hereof why they should not be cited for contempt; and"c. To restrain private respondents and all persons acting in their behalf from further demolishing the buildings and improvements on the subject premises.”

On August 31, 1998, petitioners filed with the Court of Appeals a motion requesting for an extension of time to file explanation on the motion to declare petitioners and counsel in contempt. In a resolution dated September 3, 1998, the Court of Appeals granted the motion, giving petitioners and counsel ten (10) days from September 1, 1998, or up to September 11, 1998, within which to file the explanation. The case was set for oral argument, parties were directed to submit simultaneously their respective memoranda to the very urgent motion for the issuance of a writ of execution pending appeal/motion to stop demolition within ten (10) days from date, or until September 11, 1998.

On September 11, 1998, petitioners filed with the Court of Appeals a motion for extension of time to file comment/memorandum for at least five (5) days from September 11, 1998, or up September 16, 1998 .

On September 14, 1998, petitioners filed with the Supreme Court a petition for review of the decision of the Court of Appeals. On September 17, 1998, petitioners filed with the Court of Appeals their consolidated comment to the very urgent motion for execution pending appeal, manifestation/motion to cite in contempt/motion to stop demolition, with motion to defer consideration.

The Court of Appeals, however, despite the pending petition with this Court, promulgated on September 18, 1998, its resolution, the dispositive portion of which reads:

"Accordingly, this Court hereby RESOLVES to grant the instant petition.

"1. A writ of Execution Pending Appeal of the Decision of this Court dated August 21, 1998 is hereby issued.

"The Division Clerk of this Court is hereby ordered to furnish a certified true copy of this resolution and the decision of this Court dated August 21, 1998 to the Metropolitan Trial Court, Branch 45, and Regional Trial Court, Branch 231 both of Pasay City.

"2. Private respondents and their counsel are hereby adjudged guilty of indirect contempt of this Honorable Court and are hereby sentenced to pay a fine of P30,000.00. Private respondents and counsel are also directed to make a complete restoration to petitioner of the subject property.


"SO ORDERED."

On September 21, 1998, the Court of Appeals designated a special sheriff to enforce the writ, and on the same day, he evicted petitioners from the premises and restored possession in favor of private respondent.

On September 29, 1998, petitioners filed with the Supreme Court a petition for certiorari to nullify the resolution of the Court of Appeals allowing execution pending appeal and the writ of execution issued pursuant thereto and more, finding petitioners guilty of indirect contempt of court and sentencing them to pay a fine of P30,000.00.

The issues raised in the petitions may be summed up as to whether or not the Court of Appeals erred:

1. In ruling that the nature of the complaint is for rescission of contract, not ejectment, over which the Metropolitan Trial Court, Pasay City did not have jurisdiction;2. In directing that respondent MMB, Inc. be restored in possession of the leased premises;3. In immediately executing its resolution dated September 18, 1998, transferring possession of the property from petitioners to respondent MMB, Inc. by a "special sheriff".

4. In declaring petitioners guilty of indirect contempt of court, and sentencing them to pay a fine of P30,000.00.

The crux of the case is whether there was a need for judicial rescission of the contract of lease before respondent MMB, Inc. may be compelled to move out of the leased premises.

We find the petitions impressed with merit.

We rule that there is no need for a judicial rescission of the lease contract between lessors heirs of Justice J. B. L. Reyes, et al. and lessee MMB, Inc. The contract provides:

"Section 18, paragraph 4 (a) In the event of default or breach of any of the condition of this contract x x x.

(b) x x x the LESSOR may, in his absolute discretion declare the contract cancelled and terminated and require the TENANT to vacate the leased premises x x x

MMB, Inc. violated the following conditions of the contract:

1. Par. 8 requiring MMB, Inc. to cover all buildings and improvements on the leased premises with insurance against fire, earthquake and extended coverage risks;

2. Par. 9 and 10 of the contract requiring MMB, Inc. to maintain the leased premises and all the buildings and improvements thereon in a state of security and first class repair, in a clean and sanitary condition, to repair and restore or reconstruct such damaged on destroyed improvements;

3. Par. 11 of the contract requiring defendant to secure LESSOR's prior written consent before it may assign or transfer any of its rights under the contacts.

We have ruled that "there is nothing wrong if the parties to a lease contract agreed on certain mandatory provisions concerning their respective rights and obligations, such as the procurement of the insurance and the rescission clause. For it is well to recall that contracts are respected as the law between the contracting parties, and they may establish such stipulations, clauses, terms and conditions as they may want to include. As long as such agreements are not contrary to law, morals, good customs, public policy or public order they shall have the force of law between them."

The law on obligations and contracts does not prohibit parties from entering into agreement providing that a violation of the terms of the contract would cause its cancellation even without judicial intervention. This is what petitioners and respondent entered into, a lease contract with stipulation that the contract is rescinded upon violation of its substantial provisions, which MMB, Inc. does not deny they violated.

The basic issue having been disposed of, we need not resolve the other issues petitioners raised.

On hindsight, the Court of Appeals declared petitioners guilty of indirect contempt of court because they implemented the writ of execution of the trial court despite the order of the court to elevate the entire original records. And petitioners proceeded to demolish the improvements on the property without authority of the Court of Appeals. However, this was because the temporary restraining order issued by the Court of Appeals had lapsed after sixty (60) days. No more restraining order was in effect until the court decided the case on its merits. Hence, petitioners acted in good faith in the exercise of their proprietary rights. There was no willful disobedience to a lawful order. Petitioners were not guilty of contempt. The salutary rule is that the power to punish for contempt must be exercised on the preservative, not vindictive principle, and on the corrective and not retaliatory idea of punishment. The courts must exercise the power to punish for contempt for purposes that are impersonal because that power is intended as a safeguard not for the judges as persons but for the functions that they exercise. The court must exercise the power of contempt judiciously and sparingly, with utmost self-restraint.

One final word. It was bad enough that the Court of Appeals erred in ruling that the lease contract must be judicially rescinded before respondent MMB, Inc. may be evicted from the premises. It was worse that the Court of Appeals immediately enforced its decision pending appeal restoring respondent in possession of the leased premises and worst, appointed a special sheriff to carry out the writ of execution. In the first place, we emphatically rule that the Court of Appeals has no authority to issue immediate execution pending appeal of its own decision. Discretionary execution under Rule 39, Section 2 (a), 1997 Rules of Civil Procedure, as amended, is allowed pending appeal of a judgment or final order of the trial court, upon good reasons to be stated in a special order after due hearing. A judgment of the Court of Appeals cannot be executed pending appeal. Once final and executory, the judgment must be remanded to the lower court, where a motion for its execution may be filed only after its entry. In other words, before its finality, the judgment cannot be executed. There can be no discretionary execution of a decision of the Court of Appeals. In the second place, even in discretionary executions, the same must be firmly founded upon good reasons. The court must state in a special order the "good reasons" justifying the issuance of the writ. The good reasons allowing execution pending appeal must constitute superior circumstances demanding urgency that will outweigh the injuries or damages to the adverse party if the decision is reversed. Jurisprudence teaches us what are "good reasons" that justify a premature execution of judgment, such as "deterioration of commodities subject of litigation" and "the deteriorating condition of the vessel, M/V 'Valiant' . . . left to rot at the pier and without a crew to guard it".In this case, the good reasons given by the Court of Appeals to support the discretionary execution of its decision are (1) that respondent would be deprived of income from its business endeavors; (2) that "it is of public knowledge" that the Court of Appeals and the Supreme Court are clogged with cases and it may take some time before the decision in the case may attain its finality; and (3) that petitioners acted with bad faith and malice. None of the cited reasons is "good" enough. According to jurisprudence, respondent's precarious financial condition is not a compelling circumstance warranting immediate execution. The assertion that "it is of public knowledge" that the Supreme Court is clogged with cases that may take time to decide mocks the integrity and derides the competence of this Court. The remark erodes and undermines the people's trust and confidence in the judiciary, ironically coming from one of its subordinate courts. This is an assault on the Supreme Court that borders on contempt; we cannot permit such attack to pass without sanction. This we cannot countenance. Litigants, lawyers and judges share the responsibility of unclogging the dockets of the judiciary. No lower court justice or judge may deride, chastise or chide the Supreme Court even speaking "with due respect" in his ponencia. In fact, it is the duty of lower courts to obey the decisions of the Supreme Court and render obeisance to its status as the apex of the hierarchy of courts. "A becoming modesty of inferior courts demands conscious realization of the position that they occupy in the interrelation and operation of the integrated judicial system of the nation." "There is only


one Supreme Court from whose decision all other courts should take their bearings" so spoke Justice J. B. L. Reyes. We echo this golden nugget of advice. If a judge of a lower court cannot do so in conscience, he has no alternative but to yield his judicial robe and resign. More, it has been held that urgency resulting from years of delay in the disposal of a case is not a good reason for premature execution of the decision. Bad faith and malice are not indicated simply because petitioners insisted on their rights and exhausted judicial remedies. On the contrary, good faith is always presumed. In the third place, on September 14, 1998, petitioners elevated the decision of the Court of Appeals to the Supreme Court by petition for review. By the mere fact of the filing of the petition, the finality of the Court of Appeals' decision was stayed, and there could be no entry of judgment therein, and, hence, no premature execution could be had. The Court of Appeals adopted its resolution granting execution pending appeal on September 18, 1998, after the petition for review was already filed in the Supreme Court. It thereby encroached on the hallowed grounds of the Supreme Court. Worst of all, the Court of Appeals has no authority to appoint a special sheriff. It appointed an employee of the mailing section, who was not even bonded as required by law. Such display of keen interest in the immediate execution of its decision coupled with the exercise of excessive authority by illegally appointing a "special sheriff' makes the concerned members of the Court of Appeals liable to disciplinary action and the imposition of appropriate penalty.

WHEREFORE, the Court declares VOID the resolution of the Court of Appeals, dated September 18, 1998 in CA-G. R. SP No. 47158 and SP No. 47720, and the writ of execution dated September 21, 1998, issued pursuant thereto. Petitioners are acquitted of the charge of contempt of court.

The Court REVERSES the decision of the Court of Appeals promulgated on August 21, 1998, in CA-G. R. SP No. 47158 and SP No. 47720, and REINSTATES the decision of the Regional Trial Court, Pasay City, Branch 231, dated March 23, 1998, and order dated April 14, 1998, in Civil Case 98-0366.

Costs against respondent MMB, Inc.

Let a copy of this decision be furnished to the Presiding Justice, Court of Appeals, Manila, for dissemination to the Associate Justices, Court of Appeals, for their information and guidance.

SO ORDERED.

Davide, Jr., C.J., Melo, Puno, Kapunan, Mendoza, Panganiban, Quisumbing, Purisima, Buena, Gonzaga-Reyes, Ynares-Santiago, and De Leon, Jr., JJ., concur.


Manila

THIRD DIVISION

G.R. No. 140479 March 8, 2001

ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners, vs.PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN, FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.

GONZAGA-REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal of the Decision1 of the Court of Appeals dated June 25, 1999 in CA-G.R. CV No. 53963. The Court of Appeals decision reversed and set aside the Decision2 dated May 13, 1996 of Branch 217 of the Regional Trial Court of Quezon City in Civil Case No. Q-93-18582.1âwphi1.nêt

The case was originally filed on December 10, 1993 by Paterno Inquing, Irene Guillermo and Federico Bantugan, herein respondents, against Rosencor Development Corporation (hereinafter "Rosencor"), Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was one for annulment of absolute deed of sale but was later amended to one for rescission of absolute deed of sale. A complaint-for intervention was thereafter filed by respondents Fernando Magbanua and Danna Lizza Tiangco. The complaint-in-intervention was admitted by the trial court in an Order dated May 4, 1994.3

The facts of the case, as stated by the trial court and adopted by the appellate court, are as follows:

"This action was originally for the annulment of the Deed of Absolute Sale dated September 4, 1990 between defendants Rosencor and Eufrocina de Leon but later amended (sic) praying for the rescission of the deed of sale.

Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-story residential apartment located at No. 150 Tomas Morato Ave., Quezon City covered by TCT No. 96161 and owned by spouses Faustino and Cresencia Tiangco. The lease was not covered by any contract. The lessees were renting the premises then for P150.00 a month and were allegedly verbally granted by the lessors the pre-emptive right to purchase the property if ever they decide to sell the same.

Upon the death of the spouses Tiangcos in 1975, the management of the property was adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter had knowledge that this right was extended to the former by the late spouses Tiangcos. The lessees continued to stay in the premises and allegedly spent their own money amounting from P50,000.00 to P100,000.00 for its upkeep. These expenses were never deducted from the rentals which already increased to P1,000.00.

In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they vacate the premises so that the demolition of the building be undertaken. They refused to leave the premises. In that same month, de Leon refused to accept the lessees’ rental payment claiming that they have run out of receipts and that a new collector has been assigned to receive the payments. Thereafter, they received a letter from Eufrocina de Leon offering to sell to them the property they were leasing for P2,000,000.00. xxx.

The lessees offered to buy the property from de Leon for the amount of P1,000,000.00. De Leon told them that she will be submitting the offer to the other heirs. Since then, no answer was given by de Leon as to their offer to buy the property. However, in November 1990, Rene Joaquin came to the leased premises introducing himself as its new owner.

In January 1991, the lessees again received another letter from Atty. Aguila demanding that they vacate the premises. A month thereafter, the lessees received a letter from de Leon advising them that the heirs of the late spouses Tiangcos have already sold the property to Rosencor. The following month Atty. Aguila wrote them another letter demanding the rental payment and introducing herself as counsel for Rosencor/Rene Joaquin, the new owners of the premises.


The lessees requested from de Leon why she had disregarded the pre-emptive right she and the late Tiangcos have promised them. They also asked for a copy of the deed of sale between her and the new owners thereof but she refused to heed their request. In the same manner, when they asked Rene Joaquin a copy of the deed of sale, the latter turned down their request and instead Atty. Aguila wrote them several letters demanding that they vacate the premises. The lessees offered to tender their rental payment to de Leon but she refused to accept the same.

In April 1992 before the demolition can be undertaken by the Building Official, the barangay interceded between the parties herein after which Rosencor raised the issue as to the rental payment of the premises. It was also at this instance that the lessees were furnished with a copy of the Deed of Sale and discovered that they were deceived by de Leon since the sale between her and Rene Joaquin/Rosencor took place in September 4, 1990 while de Leon made the offer to them only in October 1990 or after the sale with Rosencor had been consummated. The lessees also noted that the property was sold only for P726,000.00.

The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an additional P274,000.00 to complete their P1,000.000.00 earlier offer. When their offer was refused, they filed the present action praying for the following: a) rescission of the Deed of Absolute Sale between de Leon and Rosencor dated September 4, 1990; b) the defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon; and c) de Leon be ordered to reimburse the plaintiffs for the repairs of the property, or apply the said amount as part of the price for the purchase of the property in the sum of P100,000.00."4

After trial on the merits, the Regional Trial Court rendered a Decision5 dated May 13, 1996 dismissing the complaint. The trial court held that the right of redemption on which the complaint. The trial court held that the right of redemption on which the complaint was based was merely an oral one and as such, is unenforceable under the law. The dispositive portion of the May 13, 1996 Decision is as follows:

"WHEREFORE, in view of the foregoing, the Court DISMISSES the instant action. Plaintiffs and plaintiffs-intervenors are hereby ordered to pay their respective monthly rental of P1,000.00 per month reckoned from May 1990 up to the time they leave the premises. No costs.

SO ORDERED."6

Not satisfied with the decision of the trial court, respondents herein filed a Notice of Appeal dated June 3, 1996. On the same date, the trial court issued an Order for the elevation of the records of the case to the Court of Appeals. On August 8, 1997, respondents filed their appellate brief before the Court of Appeals.

On June 25, 1999, the Court of Appeals rendered its decision7 reversing the decision of the trial court. The dispositive portion of the June 25, 1999 decision is as follows:

"WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the Regional Trial Court (Branch 217) in Quezon City in Case No. Q-93-18582 is hereby REVERSED and SET ASIDE. In its stead, a new one is rendered ordering:

(1) The rescission of the Deed of Absolute Sale executed between the appellees on September 4, 1990;

(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;

(3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de Leon, to afford the appellants thirty days within which to exercise their right of first refusal by paying the amount of ONE MILLION PESOS (P1,000,000.00) for the subject property; and

(4) The appellants to, in turn, pay the appellees back rentals from May 1990 up to the time this decision is promulgated.

No pronouncement as to costs.

SO ORDERED".8

Petitioners herein filed a Motion for Reconsideration of the decision of the Court of Appeals but the same was denied in a Resolution dated October 15, 1999.9

Hence, this petition for review on certiorari where petitioners Rosencor Development Corporation and Rene Joaquin raise the following assignment of errors10:

I.

THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF THE ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE LEON AND PETITIONER ROSENCOR.

II.

THE COURT OF APPEALS COMMTITED MANIFEST ERROR IN MANDATING THAT EUFROCINA DE LEON AFFORD RESPONDENTS THE OPPORTUNITY TO EXERCISE THEIR RIGHT OF FIRST REFUSAL.

III.

THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT RESPONDENTS HAVE ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE PETITIONERS’ RELIANCE ON THEIR DEFENSE BASED ON THE STATUTE OF FRAUDS.

Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and Crescencia Tiangco, did not appeal the decision of the Court of Appeals.

At the onset, we not that both the Court of Appeals and the Regional Trial Court relied on Article 1403 of the New Civil Code, more specifically the provisions on the statute of frauds, in coming out with their respective decisions. The trial court, in denying the petition for reconveyance, held that right of first refusal relied upon by petitioners was not reduced to writing and as such, is


unenforceable by virtue of the said article. The Court of Appeals, on the other hand, also held that the statute of frauds governs the "right of first refusal" claimed by respondents. However, the appellate court ruled that respondents had duly proven the same by reason of petitioners’ waiver of the protection of the statute by reason of their failure to object to the presentation of oral evidence of the said right.

Both the appellate court and the trial court failed to discuss, however, the threshold issue of whether or not a right of first refusal is indeed covered by the provisions of the New Civil Code on the statute of frauds. The resolution of the issue on the applicability of the statute of frauds is important as it will determine the type of evidence which may be considered by the trial court as proof of the alleged right of first refusal.

The term "statute of frauds" is descriptive of statutes which require certain classes of contracts to be in writing. This statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable. Thus, they are included in the provisions of the New Civil Code regarding unenforceable contracts, more particularly Art. 1403, paragraph 2. Said article provides, as follows:

"Art. 1403. The following contracts are unenforceable, unless they are ratified:

xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

a) An agreement that by its terms is not to be performed within a year from the making thereof;

b) A special promise to answer for the debt, default, or miscarriage of another;

c) An agreement made in consideration of marriage, other than a mutual promise to marry;

d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of purchasers and person on whose account the sale is made, it is a sufficient memorandum;

e) An agreement for the leasing of a longer period than one year, or for the sale of real property or of an interest therein;

f) A representation to the credit of a third person."

The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.11 Moreover, the statute of frauds refers to specific kinds of transactions and cannot apply to any other transaction that is not enumerated therein.12 The application of such statute presupposes the existence of a perfected contract.13

The question now is whether a "right of first refusal" is among those enumerated in the list of contracts covered by the Statute of Frauds. More specifically, is a right of first refusal akin to "an agreement for the leasing of a longer period than one year, or for the sale of real property or of an interest therein" as contemplated by Article 1403, par. 2(e) of the New Civil Code.

We have previously held that not all agreements "affecting land" must be put into writing to attain enforceability.14 Thus, we have held that the setting up of boundaries,15 the oral partition of real property16, and an agreement creating a right of way17 are not covered by the provisions of the statute of frauds. The reason simply is that these agreements are not among those enumerated in Article 1403 of the New Civil Code.

A right of first refusal is not among those listed as unenforceable under the statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code presupposes the existence of a perfected, albeit unwritten, contract of sale.18 A right of first refusal, such as the one involved in the instant case, is not by any means a perfected contract of sale of real property. At best, it is a contractual grant, not of the sale of the real property involved, but of the right of first refusal over the property sought to be sold19.

It is thus evident that the statute of frauds does not contemplate cases involving a right of first refusal. As such, a right of first refusal need not be written to be enforceable and may be proven by oral evidence.

The next question to be ascertained is whether or not respondents have satisfactorily proven their right of first refusal over the property subject of the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and Eufrocina de Leon.

On this point, we agree with the factual findings of the Court of Appeals that respondents have adequately proven the existence of their right of first refusal. Federico Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they were promised by the late spouses Faustino and Crescencia Tiangco and, later on, by their heirs a right of first refusal over the property they were currently leasing should they decide to sell the same. Moreover, respondents presented a letter20 dated October 9, 1990 where Eufrocina de Leon, the representative of the heirs of the spouses Tiangco, informed them that they had received an offer to buy the disputed property for P2,000,000.00 and offered to sell the same to the respondents at the same price if they were interested. Verily, if Eufrocina de Leon did not recognize respondents’ right of first refusal over the property they were leasing, then she would not have bothered to offer the property for sale to the respondents.

It must be noted that petitioners did not present evidence before the trial court contradicting the existence of the right of first refusal of respondents over the disputed property. They only presented petitioner Rene Joaquin, the vice-president of petitioner Rosencor, who admitted having no personal knowledge of the details of the sales transaction between Rosencor and the heirs of the spouses Tiangco21. They also dispensed with the testimony of Eufrocina de Leon22 who could have denied the existence or knowledge of the right of first refusal. As such, there being no evidence to the contrary, the right of first refusal claimed by respondents was substantially proven by respondents before the lower court.

Having ruled upon the question as to the existence of respondents’ right of first refusal, the next issue to be answered is whether or not the Court of Appeals erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between Rosencor and Eufrocina de Leon and in decreeing that the heirs of the spouses Tiangco should afford respondents the exercise of their right of first refusal. In other words, may a contract of sale entered into in violation of a third party’s right of first refusal be rescinded in order that such third party can exercise said right?


The issue is not one of first impression.

In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld the decision of a lower court ordering the rescission of a deed of sale which violated a right of first refusal granted to one of the parties therein. The Court held:

"xxx Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparations for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent right created by the contract. Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity.

It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically admitted that it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the occupying the subject property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than presumed notice by registration.

A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property without and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own interests."

Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair Theater, Inc.25, the Court, en banc, with three justices dissenting,26 ordered the rescission of a contract entered into in violation of a right of first refusal. Using the ruling in Guzman Bocaling & Co., Inc. vs. Bonnevie as basis, the Court decreed that since respondent therein had a right of first refusal over the said property, it could only exercise the said right if the fraudulent sale is first set aside or rescinded. Thus:

"What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair’s right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial.

Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question, rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim that to be a purchaser in good faith, and, therefore, rescission lies.

X X X

As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract or lease prior to the sale. Equatorial’s knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests.

Since Mayfair had a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case and leave festering sores to deteriorate into endless litigation. The facts of the case and considerations of justice and equity require that we order rescission here and now. Rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract. The sale of the subject real property should now be rescinded considering that Mayfair, which had substantial interest over the subject property, was prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulate periond.27

In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,28 the Court held that the allegations in a complaint showing violation of a contractual right of "first option or priority to buy the properties subject of the lease" constitute a valid cause of action enforceable by an action for specific performance. Summarizing the rulings in the two previously cited cases, the Court affirmed the nature of and concomitant rights and obligations of parties under a right of first refusal. Thus:

"We hold however, that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the amount of P9,000,000.00, the price for which they were finally sold to respondent Raymundo, should have likewise been offered to petitioner.

The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. In that case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of first priority" to purchase the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the property was cleared of occupants. We held that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and under more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under the same terms and conditions previously offered to the Bonnevies.

X X X


This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. which was decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty "considering that Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period"

In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo or knowingly violating the right of first option of Mayfair, and Equatorial for purchasing the property despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.

In the recent case of Litonjua vs L&R Corporation,29 the Court, also citing the case of Guzman, Bocaling & Co. vs. Bonnevie, held that the sale made therein in violation of a right of first refusal embodied in a mortgage contract, was rescissible. Thus:

"While petitioners question the validity of paragraph 8 of their mortgage contract, they appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon L&R Corporation the right of first refusal over the mortgaged property in the event the mortgagor decides to sell the same. We see nothing wrong in this provision. The right of first refusal has long been recognized as valid in our jurisdiction. The consideration for the loan mortgage includes the consideration for the right of first refusal. L&R Corporation is in effect stating that it consents to lend out money to the spouses Litonjua provided that in case they decide to sell the property mortgaged to it, then L&R Corporation shall be given the right to match the offered purchase price and to buy the property at that price. Thus, while the spouses Litonjua had every right to sell their mortgaged property to PWHAS without securing the prior written consent of L&R Corporation, they had the obligation under paragraph 9, which is a perfectly valid provision, to notify the latter of their intention to sell the property and give it priority over other buyers. It is only upon the failure of L&R Corporation to exercise its right of first refusal could the spouses Litonjua validly sell the subject properties to the others, under the same terms and conditions offered to L&R Corporation.

What then is the status of the sale made to PWHAS in violation of L & R Corporation’s contractual right of first refusal? On this score, we agree with the Amended Decision of the Court of Appeals that the sale made to PWHAS is rescissible. The case of Guzman, Bocaling & Co. v. Bonnevie is instructive on this point.

X X X

It was then held that the Contract of Sale there, which violated the right of first refusal, was rescissible.

In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the subject properties since the Deed of Real Estate Mortgage containing such a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have been notified thereof by registration, which equates to notice to the whole world.

X X X

All things considered, what then are the relative rights and obligations of the parties? To recapitulate: the sale between the spouses Litonjua and PWHAS is valid, notwithstanding the absence of L & R Corporation’s prior written consent thereto. Inasmuch as the sale to PWHAS was valid, its offer to redeem and its tender of the redemption price, as successor-in-interest of the spouses Litonjua, within the one-year period should have been accepted as valid by the L & R Corporation. However, while the sale is, indeed, valid, the same is rescissible because it ignored L & R Corporation’s right of first refusal."

Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible.

There is, however, a circumstance which prevents the application of this doctrine in the case at bench. In the cases cited above, the Court ordered the rescission of sales made in violation of a right of first refusal precisely because the vendees therein could not have acted in good faith as they were aware or should have been aware of the right of first refusal granted to another person by the vendors therein. The rationale for this is found in the provisions of the New Civil Code on rescissible contracts. Under Article 1381 of the New Civil Code, paragraph 3, a contract validly agreed upon may be rescinded if it is "undertaken in fraud of creditors when the latter cannot in any manner collect the claim due them." Moreover, under Article 1385, rescission shall not take place "when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith."30

It must be borne in mind that, unlike the cases cited above, the right of first refusal involved in the instant case was an oral one given to respondents by the deceased spouses Tiangco and subsequently recognized by their heirs. As such, in order to hold that petitioners were in bad faith, there must be clear and convincing proof that petitioners were made aware of the said right of first refusal either by the respondents or by the heirs of the spouses Tiangco.

It is axiomatic that good faith is always presumed unless contrary evidence is adduced.31 A purchaser in good faith is one who buys the property of another without notice that some other person has a right or interest in such a property and pays a full and fair price at the time of the purchase or before he has notice of the claim or interest of some other person in the property.32 In this regard, the rule on constructive notice would be inapplicable as it is undisputed that the right of first refusal was an oral one and that the same was never reduced to writing, much less registered with the Registry of Deeds. In fact, even the lease contract by which respondents derive their right to possess the property involved was an oral one.

On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in entering into the deed of sale over the disputed property with the heirs of the spouses Tiangco. Respondents failed to present any evidence that prior to the sale of the property on September 4, 1990, petitioners were aware or had notice of the oral right of first refusal.

Respondents point to the letter dated June 1, 199033 as indicative of petitioners’ knowledge of the said right. In this letter, a certain Atty. Erlinda Aguila demanded that respondent Irene Guillermo vacate the structure they were occupying to make way for its demolition.

We fail to see how the letter could give rise to bad faith on the part of the petitioner. No mention is made of the right of first refusal granted to respondents. The name of petitioner Rosencor or any of it officers did not appear on the letter and the letter did not state that Atty. Aguila was writing in behalf of petitioner. In fact, Atty. Aguila stated during trial that she wrote the letter in behalf of the heirs of the spouses Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing in behalf of petitioner Rosencor, there is no showing that Rosencor was aware at that time that such a right of first refusal existed.

Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified Rosencor or Atty. Aguila of their right of first refusal over the property. Respondents did not try to communicate with Atty. Aguila and inform her about their preferential right over the disputed property. There is even no showing that they contacted the heirs of the spouses Tiangco after they received this letter to remind them of their right over the property.


Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where she recognized the right of first refusal of respondents, as indicative of the bad faith of petitioners. We do not agree. Eufrocina de Leon wrote the letter on her own behalf and not on behalf of petitioners and, as such, it only shows that Eufrocina de Leon was aware of the existence of the oral right of first refusal. It does not show that petitioners were likewise aware of the existence of the said right. Moreover, the letter was made a month after the execution of the Deed of Absolute Sale on September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no showing that prior to the date of the execution of the said Deed, petitioners were put on notice of the existence of the right of first refusal.

Clearly, if there was any indication of bad faith based on respondents’ evidence, it would only be on the part of Eufrocina de Leon as she was aware of the right of first refusal of respondents yet she still sold the disputed property to Rosencor. However, bad faith on the part of Eufrocina de Leon does not mean that petitioner Rosencor likewise acted in bad faith. There is no showing that prior to the execution of the Deed of Absolute Sale, petitioners were made aware or put on notice of the existence of the oral right of first refusal. Thus, absent clear and convincing evidence to the contrary, petitioner Rosencor will be presumed to have acted in good faith in entering into the Deed of Absolute Sale over the disputed property.

Considering that there is no showing of bad faith on the part of the petitioners, the Court of Appeals thus erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. The acquisition by Rosencor of the property subject of the right of first refusal is an obstacle to the action for its rescission where, as in this case, it was shown that Rosencor is in lawful possession of the subject of the contract and that it did not act in bad faith.34

This does not mean however that respondents are left without any remedy for the unjustified violation of their right of first refusal. Their remedy however is not an action for the rescission of the Deed of Absolute Sale but an action for damages against the heirs of the spouses Tiangco for the unjustified disregard of their right of first refusal35.

WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25, 1999 is REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the Quezon City Regional Trial Court, Branch 217 is hereby REINSTATED insofar as it dismisses the action for rescission of the Deed of Absolute Sale dated September 4, 1990 and orders the payment of monthly rentals of P1,000.00 per month reckoned from May 1990 up to the time respondents leave the premises.

SO ORDERED.

Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.


THIRD DIVISION

[G.R. No. 115788. September 17, 1998]

SPS. SONYA & ISMAEL MATHAY, JR., petitioners, vs. HON. COURT OF APPEALS, SPS. TEODULFO & SYLVIA ATANGAN, SPS. AGUSTINA & AMOR POBLETE, SPS. EDUARDO & FELICISIMA TIRONA, respondents.

D E C I S I O N

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, seeking to set aside the Decision of the Court of Appeals dated November 18, 1993 in CA-G.R. CV No. 37902, reversing the Decision dated March 30, 1992 in Civil Case Nos. TM-175, 180 and 206 of` Branch 23, Regional Trial Court of Trece Martires City, Province of Cavite.

The antecedent facts which gave rise to private respondents’ complaints are summarized in the Decision of the lower court, as follows:

“Civil Case No. TM-175 entitled “Spouses Teodulfo T. Atangan and Silvia [sic] L. Atangan vs. Spouses Sonya Mathay and Ismael Mathay, Jr., and the Register of Deeds of Cavite,” involves (2) [sic] parcels of land situated in Tanza, Cavite, covered by Transfer Certificate of Title Nos. T-195350 covering Lot No. 2186-A, issued by the Office of the Register of Deeds of Cavite in the name of Spouses Teodulfo T. Atangan and Silvia [sic] L. Atangan, and TCT No. T-195351, covering Lot No. 2186-C, issued in the name of Silvia [sic] L. Atangan and Teodulfo T. Atangan, on July 24, 1985.

PLAINTIFFS allege that:

1) they are the registered owners of two (2) parcels of land situated in Tanza, Cavite having purchased the same from Spouses Tomas Lucido and Eustaquia Villanueva as evidenced by a Deed of Sale; 2) they were issued TCT Nos. T-195350 and T-195351; 3) the vendors, spouses Tomas Lucido and Eustaquia Villanaueva were also issued TCT Nos. T-192527 and T-192529 by the Register of Deeds of Cavite, which were cancelled in favor of the plaintiffs; 4) vendors’ titles which were transferred to plaintiffs were obtained by virtue of the decision in Civil Case No. NC-709 entitled Tomas Lucido vs. Juana Onate Batallones and Petronilla C. Quimio, Director of Lands, and Registers (sic) of Deeds of Cavite; 5) the heirs of Onofre Batallones and Norberto Quimio are the vendees of the said lands from the Bureau of Lands as evidenced by a Certification issued by Adelwisa P. Onga, (sic) Record Officer of the District Land Office of Trece Martires City; 6) the sale of the said parcels of land from the Bureau of Lands in favor of the heirs of Batallones and Quimio was also evidenced by a Deed of Conveyance duly issued by Bureau of Lands; 7) from the time they obtained titles of the two parcels of land [they] have taken possession and paid the corresponding realty property taxes; 8) defendants have enclosed a portion of said property with a fence and occupied 23,800 square meters without the consent and will of plaintiffs; 9) plaintiffs have learned that defendants as vendees have also issued title covering the same land in the name of the plaintiffs under TCT No. T-113047; 10) the titles issued to defendants was (sic) the product of forgery because it was based on an alleged TCT No. T-3444 in favor of Pedro Banayo and Pablo Pugay of Trece Martires City who have no right whatsoever on the real estate in question; 11) upon investigation, it was certified by the Bureau of Lands that the said titles were falsified and forged because alleged Deed No. V-12918 was issued to one Jack C. Callado for Lot 18, Block 56, Tala Estate situated in Caloocan City and there was no record in the Bureau of Lands that Deed No. V-12918 was issued for Lot 2886, S.C. Malabon Estate, Cavite in favor of Pedro Banayo and Pablo Pugay from whom defendants have allegedly acquired title over the said property; 12) considering that the title of the defendants have no basis in law and fact and that the same was illegally, unlawfully and maliciously issued by the Register of Deeds on the basis of forged and falsified and none [sic] existing documents as basis for the issuance thereof, the same may be cancelled and defendants have no right to take possession of the real properties thereon including the portion pertaining to the herein plaintiffs consisting of 23,800 square meters, more or less; 13) in view of bad faith, illegal and unlawful actuations of the defendants in obtaining titles over the property in question thru forged and falsified documents, plaintiffs suffered sleepless nights, anxiety, mental anguish for which they are entitled to claim for moral damages in the sum of P100,000.00; 14) despite repeated demands from the plaintiffs for the defendnats (sic) to desist from enclosing the titled property with a fence, the latter without any lawful right insisted and actually closed their property with a fence, causing irreparable damage and prejudice to the plaintiffs; 15) in view of the illegal, unlawful, malicious and bad faith of the defendants and in disregard of the rights of the plaintiffs, the latter are constrained to hire the services of counsel for which they agreed to pay the sum of P50,000.00 in addition to the appearance fee of P500.00 every hearing of this case.

xxx xxx xxx

Involved in Civil Case No. TM-180 entitled Sps. Agustina Poblete and Amor Poblete vs. Sps. Sonya Mathay and Ismael Mathay, Jr., and the Register of Deeds of Cavite for Annulment of Titles and Recovery of Possession, is a parcel of land situated in Tanza, Cavite, covered by Transfer Certificate of Title Nos. T-192532 registered in the name of Juana Batallones and Gaudencio Quimio which was allegedly sold to the herein plaintiff, as per “Deed of Conditional Sale” dated December 28, 1987.

PLAINTIFFS allege that:

1) Plaintiffs are the registered owners of a parcel of land situated in Tanza, Cavite having purchased the same from Juana Batallones and Gaudencio Quimio for themselves and on behalf of their co-heirs as evidenced by Deed of Sale;

2) Plaintiffs-predecessors-in-interest were duly issued Certificate of Title No. T-192532;

3) said vendees whose titles aforesaid was transferred in favor of the plaintiffs have obtained the title by virtue of the decision by then Court of First Instance of Naic, Cavite in Civil Case No. NC-709 entitled Tomas Lucido versus Juana Onate Batallones and Petronilla Q. Quimio, Director of Lands, the Register of Deeds of Cavite;

4) the heirs of Onofre Batallones and Modesta Quimio are the vendees of the land from the Bureau of Lands as evidenced by a Certification issued by Adelwisa P. Ong, Record Officer of the District Land Office of Trece Martires City;

5) the sale of the said parcel of land from the Bureau of Lands in favor of the heirs of Batallones and Quimio was also evidenced by a Deed of Conveyance duly issued by the Bureau of Lands;


6) plaintiffs have taken possession thereof;

7) defendants have enclosed a portion of said property with a fence and occupied 114,987 square meters thereof without the consent and against the will of plaintiffs;

8) plaintiffs have learned that defendants as vendees have been also issued Transfer Certificate of Title covering the same land titled in the name of the plaintiffs under TCT No. T-112047;

9) the title issued to defendants was the product of forgery because it was based on an alleged TCT No. T-111070 in favor of Pedro Banayo and Pablo Pugay of Trece Martires City who have no right whatsoever on the real estate in question;

10) upon investigation it was certified by the Bureau of Lands that the said title was falsified and forged because alleged Deed No. V-12918 was issued to one Juana C. Collado for Lot 18, Block 56, Tala Estate situated in Caloocan City and that there was (sic) no records in the Bureau of Lands that Deed No. 12918 was issued Lot 2886, S.C. Malabon Estate, Cavite in favor of Pedro Banayo and Pablo Pugay to whom defendants have allegedly acquired title over the said property;

11) considering that the title of the defendants have (sic) no basis in law and in fact and that the same was illegally, unlawfully and maliciously issued by the Register of Deeds on the basis of forged and falsified and none [sic] existing documents as basis for issuance thereof, the same may be cancelled and defendants have no right to take possession of the real property thereon including the portion pertaining to the herein plaintiffs consisting of 114,987 square meters more or less, said title creates cloud on the title of plaintiffs and by their predecesors-in-interest and as such plaintiffs could not deal on said property and complete transactions thereto, thereby irreparable damage (sic);

12) as a result of the illegal, unlawful, unjust and malicious actuations of the defendants, plaintiffs were deprived of the use of the said parcel of land unlawfully and illegally occupied by them and they failed to introduce the necessary improvements thereon and for which they suffered damages in the amount of not less than P50,000.00;

13) in view of the bad faith, illegal and unlawful actuations of the defendants in obtaining title over the property [, plaintiffs] suffered from sleepless nights, anxiety, mental anguish for while (sic) they are also entitled to claim for moral damages in the sum of P100,000.00;

14) despite repeated demands from the plaintiffs for the defendants to desist from enclosing the titled property with a fence, the latter without any lawful right insisted and actually enclosed their property with a fence, causing irreparable damage and prejudice to the plaintiffs;

15) in view of the illegal, unlawful, malicious and bad faith of defendants and disregard of the right of the plaintiffs, the latter are constrained to hire the services of counsel for which they agreed to pay the sum of P50,000.00 in addition to appearance of P500.00 every hearing of this case;

xxx xxx xxx

In Civil Case No. TM-206 entitled Spouses Eduardo and Felicisima Tirona, et al., vs. Spouses Sonia (sic) Mathay, et al., for “Quieting of Title, Annulment of Title and Recovery of Possession with Damage,” etc.

PLAINTIFFS, allege that:

3) on December 31, 1985, Spouses Bonifacio Motas and Juliana Motas bought a parcel of land situated at (sic) Tanza, Cavite known as Lot 2186-B of Psu-04-01892, containing an area of 18,943 square meters covered by Transfer of (sic) Certificate of Title No. T-192530 of the Registry of Deeds of Cavite from David Quimio as evidenced by a Deed of Absolute Sale;

4) Spouses Bonifacio Motas and Juliana Motas issued TCT No. T-203730 by the Register of Deeds of Cavite;

5) Vendors David Quimio, Sr., et al., are the previous registered owners of said parcel of land as evidenced by TCT No. T-192530;

6) Vendors David Quimio, Sr., whose title was transferred to Motas have obtained rights and interest thereon from their predecessors who were vendees from the Bureau of Lands which was confirmed in the Decision of then Court of First Instance of Cavite in Civil Case No. 809 entitled Tomas Lucido versus Juana Batallones and Petronila Quimio, et al., issued on January 30, 1981;

7) said parcel of land was subdivided under Psu-04-01763 into eight lots as evidenced by Sub-division Plan; (sic)

8) plaintiffs bought the subdivided lots from Motas in good faith, and issued Transfer Certificate of Titles by the Office of the Register of Deeds of Cavite, as follows:

NAME LOT TCT NO. AREA

1. Sps. Eduardo & 2186-D-6 203728 3,000 sq. m. Felicisima Tirona 2186-D-1 203723 741 sq. m.

2. Soledad Motas & Sps. 2186-D-8 206078 3,409 sq. m. Ignacio San Jose & Lucila San Jose 2186-D-8 206078 1,591 sq. m.

3. Anania Cervania 2186-D-3 203725 2,500 sq. m.

4. Ricardo Malabanan 2186-D-4 203726 2,500 sq. m.

5. Plocerfina Tanyag 2186-D-2 203724 700 sq. m.

6. Ruperta Bartolome 2186-D-5B 220606 550 sq. m. 2186-D-5C 220607 700 sq. m. 2186-D-5D 220608 700 sq. m. 2186-D-A 220605 550 sq. m.

9) plaintiffs are the one (sic) paying the corresponding real property taxes thereon and were issued corresponding tax declaration by the Office of the Provincial Assessor of Cavite;

10) plaintiffs have come to know that defendants Spouses Sonia (sic) Mathay and Ismael Mathay, Jr. have enclosed among others said real properties of the plaintiffs with a fence and took physical possession thereof without the knowledge and consent of the plaintiffs;


11) plaintiffs have learned also that defendants have also issued Transfer Certificate of Title covering among others the same land titled in the name of the plaintiffs under Transfer Certificate of Title No. T-113047;

12) the title issued to defendants was the product of forgery because it was based on an alleged Transfer of Certificate of Title No. 3444 in favor of Pedro Banayo and Pablo Pugay of Trece Martires City who have no right whatsoever on the real estate in question and who have been in prior physical possession thereof, as such said title is void-ab-initio;

13) upon investigation, it was certified by the Bureau of Lands that the said titles were based on falsified and forged documents because alleged Deed No. V-12918 which was the basis for the issuance thereof, was issued to one Jack C. Gallado for Lot 18, Block 56, Tala Estate situated in Caloocan City and that there was no records in the Bureau of Lands that Deed No. V-12918 was issued for Lot 2886, S.C. Malabon Estate, Cavite in favor of Pedro Banayo and Pablo Pugay to whom defendants have allegedly acquired title over the said property;

14) the title of the defendants have no basis in law and in fact and that the same was illegally, unlawfully and maliciously issued by the Register of Deeds of Cavite on the basis of forged and falsified and none [sic] existing documents;

15) said Transfer Certificate of Titles were illegally and unlawfully issued without basis in favor of defendants Mathay and their predecessors-in-interest, creating a cloud on the titles of the plaintiffs and as such may be declared null and void;

16) plaintiffs have the right to exclude defendants Mathays from their enjoyment of their property and considering that said defendants have been duly informed of the defect and nullity of their title yet they insisted and continue to insist in the enjoyment of the right from a void title;

17) as a result of the illegal, unlawful, unjust and malicious actuations of the defendants, plaintiffs were deprived of the use of the said parcel of lands unlawfully and illegally occupied by defendants Mathay as they failed to introduce the necessary improvements thereon and for which they suffered damages in the amount of not less than P50,000.00 and the amount of P500.00 a month for each lot as reasonable compensation for the use of their lands;

18) in view of the bad faith, illegal and unlawful actuations of the defendants in obtaining titles over the property in question thru forged and falsified documents, plaintiffs suffered from sleepless nights, anxiety, mental anguish for which they are also entitled to claim for moral damages in the sum of P150,000.00;

19) in view of the illegal, unlawful, malicious and bad faith of the defendants and in disregard of the right of the plaintiffs, the latter are constrained to hire the services of counsel for which they agreed to pay the sum of P50,000.00 in addition to an appearance fee of P1,000.00 every hearing.

xxx xxx xxx

After trial on the merits, the lower court decided for defendant spouses Sonya Mathay and Ismael Mathay, Jr., and against the plaintiffs in the three consolidated cases; disposing, thus:

“WHEREFORE, foregoing considered, (sic) judgment is hereby rendered in favor of the defendants:

a) declaring Contract of Sale 3397 in favor of Tomas Lucido, the Assignment of Sale Certificate No. 3397 issued by Tomas Lucido in favor of Onofre Batallones and Norberto Quimio, the Deed of Conveyance in favor of Onofre Batallones and Norberto Quimio and Transfer Certificate of Title No. 85866 in the name of Onofre Batallones and Norberto Quimio, as null and void;

b) declaring Transfer Certificates of Title No. T-195350, T-195351, T-192527, T-192529, T192528, T-192532, T-252996, T-252997, T-252998, T-252999, T-253000, T-253001, T-253002, T-253003, T-253004, T-253005, T-253037, T-206078, T-203724, T-220506, T-220607, T-220608, T-220605, T-203728, T-203726, T-203730, T-203723 and T-203725, as null and void, and directing the Register of Deeds of Cavite Province to cancel them;

c) ordering Spouses Teodulfo Atangan & Sylvia Atangan, Onofre Batallones, Norerto (sic) Quimio, Spouses Tomas Lucido and Juana Batallones, Agustin Poblete, Juancho Albert Poblete, Spouses Bonifacio Motas and Juliana Motas, Soledad Mateo, Ricardo Malabanan, Flocerfina Bartolome, Spouses Eugenio Bartolome and Ruperto Bartolome, Spouses Eduardo Tirona and Felicisima Tirona and Anania Gervania (sic) to surrender to the Office of the Register of Deeds of Cavite their owner’s copy of their Transfer of Certificates of Title covering portions of Lot 2186;

d) declaring TCT No. T-11304 [sic] valid and the defendants to have superior rights to the property in question and to be the true and lawful owners of the same;

e) ordering plaintiffs jointly and severally liable to pay defendants attorney’s fees of P50,000.00 and to pay the costs;

f) denying all other claims of the parties for lack of basis in law and/or evidence.

SO ORDERED.”

On appeal, the Court of Appeals culled from the records on hand the following facts, to wit:

“Plaintiff-appellants and defendants-appellees are all holders of Transfer Certificates of Title which all appear duly issued by the Register of Deeds of Cavite.

Plaintiffs derived their titles as follows:

The land claimed by the parties is known as Lot 2186 of the Sta. Cruz de Malabon Estate originally consisting of 174,914 sq. meters and previously covered by a survey in the name of plaintiffs predecessor-in-interest Heirs of Onofre Batallones and Heirs of Patronillo Quimio and Tomas Lucido evidenced by Psd 04-010692 (Exh. A). The Heirs of Batallones and Patronillo Quimio were issued TCT No. 85866 on August 9, 1976 (Exh. C). On July 13, 1976, the Director of Lands transmitted to the Register of Deeds of Cavite the Deed of Conveyance and for issuance of corresponding TCT to the Heirs of Onofre Batallones and Norberto Quimio represented by Juana S. Batallones and Patronillo Quimio (Exh. K.) The original vendee of said lot from the Bureau of Land was Tomas Lucido who was issued contract of Sale 3397 dated March 16, 1936 (Exh. M). Lucido assigned his rights over said parcel of land to Onofre Batallones and Norberto Quimio on October 17, 1944 evidenced by assignment of Sale Certificate No. 3397 (Exh. N). In an [O]rder dated June 18, 1976, said assignment was approved by the Director of Lands (Exh. O). On July 1, 1976 the then Department of Natural Resources through Jose A. Janalo, Assistant Secretary issued Sales Certificate No. 3397, Deed No. T-11692 to Heirs of Batallones and Quimio (Exh. Q). On June 18, 1976, the Bureau of Lands forwarded to the Department of Natural Resources for signature the Deeds of Conveyance in favor of Heirs of Batallones and Quimio (Exh. S).

After the Heirs of Batallones and Quimio were duly issued TCT No. 85866 on August 9, 1976, Tomas Lucido filed Civil Case No. NC 709 before the then Court of First Instance of Cavite, Branch 1, Naic, Cavite (Exh. GG) which ended in a Decision by said court based on a Compromise Agreement duly executed by Juana Onate Batallones representing the heirs of Onofre Batallones and Patronillo Onate Quimio, representing the heirs of Norberto Quimio and pursuant thereto 35,000 sq. meters on the southern portion was given to Tomas Lucido married to Eustaquia Villanueva while the remaining portion of Lot 2186 pertained and belonged to the defendants Heirs of Batallones and Heirs of Norberto Quimio (Exh. Y). Pursuant to the Approved Compromise Agreement in the said decision (Exh. Y), a deed of partition was executed by Juana Batallones, et al., and Tomas Lucido whereby the land covered by TCT No. T-85866 of the Register of Deeds was subdivided into six (6) lots known as Lots 2186-A, 2186-B, 2186-C, 2186-D, 2186-E and 2186-F, pursuant to approved technical descriptions and subdivision plan Psd-04-10692, and that lots 2186-A containing an area of 9,100 sq. meters and lot 2186--C containing an area of 24,700 were assigned to Tomas Lucido while the rest of the lots assigned to Juana Batallones et al., (Exh. FF). After securing clearance from the Department of Agrarian Reform (Exh. PP-1) and payment of required fees and compliance with the requirements or registration the Register of Deeds of Cavite, Trece Martirez (sic) City issued the corresponding Transfer Certificates of Title to the Heirs of Batallones and Quimio and Tomas Lucido, as follows:


Lot 2186-A TCT No. 192527 Lucido, Tomas (sic) Exh. E, V-2

Lot 2186-B TCT No. 192528 Exh. AAA

Lot 2186-C TCT No. 192529 Tomas Lucido Exh. D, V-3

Lot 2186-D TCT No. 192530

Lot 2186-E TCT No. 192531 Exh. AAA-1

Lot 2186-F TCT No. 192532 Exh. G

Tomas Lucido married to Eustaquia Villanueva who was the registered owner of lot 2186-A, TCT No. 192527 (Exh. E; V-2) 2186-A sold to plaintiffs Teodulfo P. Atangan married to Sylvia Atangan evidenced by a Deed of Absolute Sale [e]xecuted on July 12, 1985 (Exh. U-1). and another Deed of Sale for Lot 2186-C (Exh. U) Plaintiffs Atangan were duly issued TCT Nos. T-195350 for lot 2186-A and TCT No. T-195351 for Lot 2186-C (Exhs. V-1 and V, respectively). Said plaintiffs paid the corresponding taxes thereon (Exh. U-6, U-7) and they were duly issued tax declaration No. 11677 and Tax Declaration No. 11679 (Exh. U-4, U-3, respectively).

Juana Batallones, et al., sold lot 2186-F to plaintiffs Agustina Poblete, married to Amor Poblete, Juancho Albert A. Poblete, and Juliana Motas married to Bonifacio Motas evidenced by a deed of absolute sale executed on June 8, 1988 (Exh. XX). Said parcel of land was subdivided under Sub. plan Psd-04-0106-92, and, as a result the following Certificate of Titles were issued to the following plaintiffs:

Lot 2186-F-1 TCT No. T-252996 Agustina Poblete Exh. SS

Lot 2186-F-2 TCT No. T-252997 - do - Exh. SS-1



Lot 2186-F-5 TCT No. T-253000 Juancho Albert Poblete Exh. SS-4


Lot 2186-F-7 TCT No. T-253002 Juancho Albert Poblete Exh. SS-6

Lot 2186-F-8 TCT No. T-253003 Juliana Motas Exh. SS-7



Lot 2186-F-11 TCT No. T-253007 - do -

Exh. SS-10

David Quimio, owners of Lot 2186-D, TCT No. 19530 sold the same to plaintiff Juliana Motas married to Bonifacio Motas evidenced by a notarized deed of absolute sale dated December 31, 1985 (Exh. VV). Said lot contained an area of 18,943 sq. meters more or less. She was issued TCT No. T-201592 by the Register of Deed (sic) of Cavite. Plaintiffs Motas caused said lot to be subdivided under Psd-017063 and sold the same to plaintiffs Tirona, et al., in Civil Case No. TM-206 and corresponding Transfer Certificates of Titles were issued to the said plaintiffs as follows:

NAME LOT TCT NO. AREA

1. Sps. Eduardo & 2186-D-6 203728 3,000 sq. m.Felicisima Tirona 2186-D-1 203723 741 sq. m.

2. Soledad Mateo (sic) & 2186-D-8 206078 3,409 sq. m.Sps. Ignacio San Jose& Lucila San Jose 2186-D-8 206078 1,591 sq. m.

3. Anania Cervania 2186-D-3 203725 2,500 sq. m.

4. Ricardo Malabanan 2186-D-4 203726 2,500 sq. m.

5. Plocerfina Tanyag 2186-D-2 203724 700 sq. m.


6. Ruperta Bartolome 2186-D-5B 220606 550 sq. m. 2186-D-5C 220607 700 sq. m. 2186-D-5D 220608 700 sq. m. 2186-D-A 220605 550 sq. m.

1. Sps. Eduardo R. Tirona Exh. SS-11 Exh. SS-12

2. Soledad Motas & Sps. Ignacio Exh. NN-1 San Jose & Lucila San Jose Exh. SS-13

3. Anania Servnia (sic) Exh. SS-20 Exh. SS-19

4. Ricardo Malabanan Exh. NN-4

5. Plocerfina Tanyag Exh. NN-3

6. Ruperta Malabanan Exh. NN-6 Exh. NN-7 Exh. NN-8 Exh. NN-9

7. Plaintiff Juliana Motas & Lot. No. 2186-D Bonifacio Motas TCT No.203730 Exh. VV-1

Said plaintiffs were duly issued corresponding Tax Declaration and have paid the realty taxes thereon and they were in actual possession of the contested parcels of land until the same were fenced by defendants Mathay’s men over their objection and upon inquires, they discovered that the defendants Mathay were issued TCT No. T-113047 covering same parcel of land (Exh. 2) based on a Deed of Absolute [S]ale executed allegedly on 21 May 1980 by Pedro Banayo and Pablo Pugay (Exh. 3) and notarized by Manalad Santera (Exh. 3-A).

Defendants-appellees Spouses Sonya Mathay and Ismael Mathay, Jr. claimed that the land described as Lot 2186 of the Sta. Cruz de Malabon Estate, situated in Tanza, Cavite, containing an area of 174,917 square meters covered by TCT No. T-111070 (Exh. 8), registered in the name of Pedro Banayo and Pablo Pugay on February 28, 1980 was purchased by the defendants from Pedro Pugay on May 31, 1980 (Exhs. 3, 3-A), and TCT No. T-113047 (Exh. 2) was issued in their favor on June 3, 1980 by the Office of the Register of Deeds of Cavite Province, declared for taxation purposed (sic) (Exh. 4, 5) and corresponding taxes paid (Exh. 18, 19, 20, 21, 22).

It appears that Director of Lands Ramon N. Casanova, under the Deed No. V-12918 and Sales Certificate No. 2454 in consideration of P8,958.00 sold to Pedro Banayo and Pablo Pugay Lot 2186 of the Sta. Cruz de Malabon Estate, friar Lands Estate, situated in the Municipality of Tanza, Province of Cavite, containing an area of 17 hectares, 49 ares and 17 centares of the subdivision plan A-21 approved by the Court of Land Registration on the 4th day of February, 1911 (Exh. 15) with the technical description of the land (Exh. 15-A) and on February 21, 1980, a letter addressed to the Register of Deeds for issuance of title to Pedro Banayo and Pablo Pugay (Exh. 16) which was cancelled by TCT No. 113047 issued in the name of Spouses Sonya Mathay and Ismael Mathay, Jr., (Exh. 2), and that according to the old Sales Register Book kept in the office, Lot 2186 of the Sta. Cruz de Malabon Estate, Cavite, is registered in the name of Pedro Banayo and Pablo Pugay (Exh. 17-A).If appears also that Pugay and Banayo were assignees of the subject lot under Assignment of Sale Certificate No. 3397, of the Bureau of Lands, with Tomas Lucido as assignor.”

xxx xxx xxx

On November 18, 1993, the Court of Appeals came out with a judgment of reversal, the dispositive portion of which, reads:

“WHEREFORE, premises considered, judgment is rendered in favor of plaintiffs-appellants in the above-entitled three cases against defendants-appellees. The consolidated decision of the Regional Trial Court, Branch 23, Trece Martirez (sic) City in Civil Case No. TM-175, Civil Case No. TM-180 and Civil Case No. TM-206 is reversed and set aside. The defendants-appellees Register of Deeds of Cavite, Trece Martirez (sic) City is ordered to cancel Transfer Certificate of Title No. 113047 covering Lot 2186 of Sta. Cruz de Malabon Estate in the name of Spouses Ismael and Sonya Mathay. Spouses Ismael and Sonya Mathay are ordered to vacate Lot 2186, Sta. Cruz de Malabon Estate, Cavite in favor of the plaintiffs-appellants.

SO ORDERED.”

With the denial of their motion for reconsideration, the spouses Sonya Mathay and Ismael Mathay, Jr. found their way to this Court via the present Petition; theorizing, that:

I.

WITH DUE RESPECT, THE COURT OF APPEALS ERRED IN SETTING ASIDE THE GENUINE TRANSFER CERTIFICATE OF TITLE NO. 113047 OF SPS. SONYA & ISMAEL MATHAY JR., WHO ACQUIRED THE SAID TORRENS TITLE AS BUYERS IN GOOD FAITH, SINCE THE DOCUMENTS NECESSARY FOR THE TRANSFER, EVEN PRIOR TO THE SALE, WERE ALL DULY FILED AND CLEARED WITH THE RE REGISTER OF DEEDS, ASSESSOR’S OFFICE, B.I.R., AND OTHER GOVERNMENT ENTITIES. MOREOVER, THE LAW STATED IN “DINO VS. COURT OF APPEALS,” G.R. NO. 95921, SHOULD BE UPHELD, IN CASE OF BASELESS ASSERTION OF ALLEGED FORGERY BY THE RESPONDENTS;

II.

WITH DUE RESPECT, THE COURT OF APPEALS ERRED IN NOT RECOGNIZING THE 1980 TITLE OF SPS. SONYA & ISMAEL MATHAY JR. OVER AND ABOVE THE LATER 1986-88 ALLEGED TITLES OF RESPONDENTS-ATANGAN ET AL., WHICH IS CLEARLY CONTRARY TO THE APPLICABLE LAW ON THE MATTER, NAMELY: ART. 1544 OF THE CIVIL CODE OF THE PHILIPPINES;


III.

WITH DUE RESPECT, THE COURT OF APPEALS ERRED IN NOT CONSIDERING THAT THE DEED OF SALE EXECUTED BY VENDORS - BANAYO & PUGAY IN FAVOR OF VENDEES - SPS. SONYA & ISMAEL MATHAY, JR. IS DULY NOTARIZED IN SO FAR AS THE VENDORS AND VENDEES ARE CONCERNED AND THAT, FURTHERMORE, THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE VALIDITY OF THE PETITIONERS’ DOCUMENTS, WHICH WERE ALL DULY EXECUTED.

The petitioners, spouses Sonya Mathay and Ismael Mathay, Jr., claim to be buyers in good faith, reasoning out that TCT No. T-111070, the derivative title of their TCT No. T-113047, appeared to be free from any encumbrance. They argue that a person dealing on a registered land may safely rely on the correctness of the covering certificate of title and is not required to go beyond the certificate of title to determine the condition of the property.

A purchaser in good faith and for value is defined as “one who buys property of another, without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of the claims or interest of some other person in the property.” As a rule, he who asserts the status of a purchaser in good faith and for value, has the burden of proving such assertion. This onus probandi cannot be discharged by mere invocation of the legal presumption of good faith, i.e., that everyone is presumed to act in good faith.”

Here, petitioners cannot be categorized as purchasers in good faith. Prior to the fencing of subject land, neither they (Mathays) nor their predecessors-in-interest (Banayo and Pugay) ever possessed the same. In fact, at the time the said property was sold to petitioners, the private respondents were not only in actual possession of the same but also built their houses thereon, cultivated it and were in full enjoyment of the produce and fruits gathered therefrom. Although it is a recognized principle that a person dealing on a registered land need not go beyond its certificate of title, it is also a firmly settled rule that where there are circumstances which would put a party on guard and prompt him to investigate or inspect the property being sold to him, such as the presence of occupants/tenants thereon, it is, of course, expected from the purchaser of a valued piece of land to inquire first into the status or nature of possession of the occupants, i.e., whether or not the occupants possess the land en concepto de dueño, in concept of owner. As is the common practice in the real estate industry, an ocular inspection of the premises involved is a safeguard a cautious and prudent purchaser usually takes. Should he find out that the land he intends to buy is occupied by anybody else other than the seller who, as in this case, is not in actual possession, it would then be incumbent upon the purchaser to verify the extent of the occupant’s possessory rights. The failure of a prospective buyer to take such precautionary steps would mean negligence on his part and would thereby preclude him from claiming or invoking the rights of a “purchaser in good faith.”

So also, before the fence around subject property was erected, private respondents communicated their objection to the fencing of the area by petitioners but they were ignored by the petitioners, who continued enclosing the premises under controversy in the presence of armed men employed by them (petitioners).

Consequently, not being “innocent purchasers for value,” within legal contemplation, petitioners’s reliance on Article 1544 of the New Civil Code is misplaced. Such stance of theirs lacks legal and factual basis. The fundamental premise of preferential rights under the law is good faith.

Viewed in proper perspective, we uphold the finding by the Court of Appeals that the petitioners cannot invoke Art. 1544 of the Civil Code in view of the questionable documents from which their title emanated. As the Court of Appeals ratiocinated:

“We think the applicable rule as stated in Baltazar v. Court of Appeals, No. L-78728, December 8, 1988, 168 SCRA 334, is that as between two persons both of whom are in good faith and both innocent of any negligence, the law must protect and prefer the lawful holder of registered title over the transferee of a vendor bereft of any transmissible rights. Under the foregoing principle derived from the above case law, the Mathays have no rights as against plaintiffs-appellants, their recourse is against their vendors Banayo and Pugay.”

The aforesaid ruling of the Court of Appeals accords with the Latin maxim: nemo potest plus juris ad alium transferre quam ipse habet. “No one can transfer a greater right to another than he himself has”. Thus, in Calalang vs. Register of Deeds of Quezon City, this Court held :

“Needless to state, all subsequent certificates of title including petitioner’s titles are void because of the legal truism that the spring cannot rise higher than its source. The law must protect and prefer the lawful owner of registered title over the transferee of a vendor bereft of any transmissible rights.”

In sum, “defective titles cannot be upheld against the unblemished titles of the private respondents.”

Petitioners further submit that requiring them to inquire beyond the face of the torrens title defeats the primordial objective of the torrens system, which is that a person dealing on registered land has the right to rely on the torrens title.

But “a certificate is not conclusive evidence of title if it is shown that the same land had already been registered and an earlier certificate for the same is in existence.” In the case at bar, as borne out by pertinent records, the private respondents obtained their rights and title from TCT No. T-85866, which was registered on August 9, 1976 under the name of Heirs of Onofre Batallones and Patronillo Quimio. On the part of petitioners, their supposed title originated from a spurious title of Pedro Banayo and Pablo Pugay illegally registered on February 28, 1980.

So also, where two transfer certificates of title have been issued on different dates, to two different persons, for the same parcel of land, even if both are presumed to be title holders in good faith, it does not necessarily follow that he who holds the earlier title should prevail. On the assumption that there was regularity in the registration leading to the eventual issuance of subject transfer certificates of title, the better approach is to trace the original certificates from which the certificates of title in dispute were derived. Should there be only one common original certificate of title, as in this case under consideration, the transfer certificate issued on an earlier date along the line must prevail, absent any anomaly or irregularity tainting the process of registration.

In light of the attendant facts and circumstances, there is therefore a need to refer to the background or history of the land under controversy. As conceded by petitioners, their TCT No. T-113047 was derived from TCT No. 111070 under the names of Pedro Banayo and Pablo Pugay. Hence, the necessity of looking into and determining the legitimacy of the title of the two, Banayo and Pugay.

In an effort to support their claim of ownership over subject Lot 2186, Pedro Banayo and Pablo Pugay presented two theories. First, they theorize that on October 17, 1970, under Assignment of Sale Certificate No. 3397, Tomas Lucido assigned and transferred to them all his interests in the contested land. Their second theory is that subject real property was sold to them by then Director of Lands Ramon N. Casanova, under Deed No. V-12918 and Sales Certificate No. 2454.

After a careful examination of germane records, however, we are of the conclusion, and so find, that the aforestated theories of Pedro Banayo and Pablo Pugay are without any factual and legal basis.

The assignment of Sales Certificate No. 3397 allegedly executed by Tomas Lucido in favor of Pedro Banayo and Pablo Pugay was not signed by the said Tomas Lucido. Neither does it bear the signature of the latter. Worse, the same Tomas Lucido testified on the witness stand, that he does not know Pedro Banayo and Pablo Pugay, and he never received P50,000.00 from them. What is more, Tomas Lucido reiterated that he really sold the land in question to the herein private respondents, spouses Teodulfo Atangan and Sylvia Atangan, the plaintiffs in Civil Case No. TM - 175, as shown by the two Deeds of Sale he executed in favor of the said spouses, Teodulfo Atangan and Sylvia Atangan.


To reinforce their aforesaid second theory, Banayo and Pugay declared that, for and in consideration of Eight Thousand Nine Hundred Fifty Eight (P8,958.00) Pesos, former Director of Lands Ramon Casanova issued Deed No. V-12918 with Sales Certificate No. 2454, which Deed was the basis of the issuance to them of TCT No. T-111070 by the Register of Deeds of the Province of Cavite.

But Mr. Marcelino Freiras, Chief of Reservation and Special Land Grant Section of the Bureau of Lands, stressed that the signature of former Lands Director Ramon Casanova on the said Deed No. V-12918 with Sales Certificate No. 2454, was forged. According to him (Freiras), having worked with him for the past thirty (30) years, he is familiar with the signature of Director Casanova.

Then, too, in a letter addressed to Atty. Franco Loyola, counsel for private respondents, the same Mr. Freiras informed that, as indicated by the entries in the Deed of Conveyance Book, Deed V-12918 was issued on October 10, 1979, for Lot No. 18, Block 16, Tala Estate, Caloocan City, in the name of one Zaida C. Calado, and not for the subject land, identified as Lot 2186 of Sta. Cruz de Malabon Estate, Cavite City, originally registered under the names of the Heirs of Onofre Batallones and Patronillo Quimio. In another letter sent in answer to the query of Juana Motas, one of the plaintiffs in Civil Case No. TM-180, Alicia V. Dayrit, Office Caretaker of Land Management Division of the Bureau of Lands, corroborated what Mr. Freiras disclosed, as aforementioned. In her said letter, Alicia V. Dayrit revealed to Mrs. Motas that there is really no record of any Deed No. V-12918 issued for Lot 2186 of Sta. Cruz de Malabon Estate, Cavite City, in favor of Pedro Banayo and Pablo Pugay, and that what appears in the Registry Book of Deeds of Conveyance is Deed of Conveyance No. V-11692 issued on July 1, 1976 in favor of Onofre Batallones and Norberto Quimio by the then Secretary of Natural Resources, which Deed pertains to Lot 2186 of Sta. Cruz de Malabon Estate. The aforesaid revelations were corroborated in open court by witness Freiras. Further, the Court detected discrepancies in the entries of the documents above mentioned. Pedro Banayo and Pablo Pugay contended that by virtue of Sales Certificate No. 2454, the then Director of Lands Ramon Casanova issued Deed V-12918, on February 18, 1980. However, after a meticulous examination of the evidence on record, the Court noticed that former Director Ramon Casanova issued another Deed V-12918 but, bearing Sales Certificate No. 3397 and dated February 19, 1980. It should be remembered that Pedro Banayo and Pablo Pugay declared that the issuance of TCT No. T-111070 in their favor was based on the said two documents, both bearing the signature of Director Casanova.

The foregoing observations jibe with the revelation of Freiras that the alleged signatures of former Lands Director Ramon Casanova appearing on the said documents in question were forged. Also strengthened thereby is the testimony of Mrs. Adelwisa O. Ong, former Record Officer and now Acting Administrative Officer of the Bureau of Lands in Cavite, that subject land was patented under Deed No. V-11692, registered under the name of the Heirs of Onofre Batallones and Norberto Quimio, and the name of Tomas Lucido was mentioned in the Old Sales Register Book as he was the approved vendee of the same.

Besides, it is too evident to be overlooked that the number of the Sales Certificate of the second Deed V-12918 (bearing Sales Certificate No. 3397) is the same number of the Sales Certificate appearing in the Assignment of Sale allegedly executed by Tomas Lucido in favor of Pedro Banayo and Pablo Pugay. This fact alone, which this Court cannot ignore, is fatal to the cause of Pedro Banayo and Pablo Pugay.

Furthermore, the circumstances surrounding the execution of the Deed of Absolute Saleby Pedro Banayo and Pablo Pugay in favor of the spouses Sonya Mathay and Ismael Mathay, Jr. beclouded the issuance of TCT No. 113047. Records disclose that the said Deed of Absolute Sale did not comply with legal formalities and was not duly notarized. Atty. Mapalad Santera, who signed the document as Notary Public, had no commission as Notary Public for the Province of Cavite, at the time subject document was supposedly notarized, and the residence certificates of vendors Banayo and Pugay appeared to be of dubious source.

To bolster their submission that their title is genuine and authentic, private respondents introduced several documentary evidence. They also presented officials concerned and the caretakers of the said documents, who all testified for the private respondents.

On the other hand, the petitioners, spouses Sonya Mathay and Ismael Mathay, Jr., who claim to be buyers in good faith, utterly failed to discharge the burden of proving the sustainability of their posture. Worse for them, as above discussed, the title of Pedro Banayo and Pablo Pugay relied upon by petitioners has been shown by preponderance of evidence to be the product of forgery.

All things studiedly considered, we are of the irresistible conclusion that the respondent Court of Appeals did not err in reversing the appealed decision of the trial court.

WHEREFORE, the Petiton is DISMISSED for lack of merit, and the Decision of the Court of Appeals in CA-GR CV No. 37902 AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

Romero, and Kapunan JJ., concur.

Narvasa, C.J., (Chairman), no part: Close personal relation to a party.

Rollo, pp. 34-80.

Fourth Division, composed of Associate Justices Corona Ibay-Somera (ponente), Nathanael O. De Pano, Jr., (Chairman), and Asaali S. Isnani (member).


Manila

THIRD DIVISION

G.R. No. 138588 August 23, 2001

FAR EAST BANK & TRUST COMPANY, petitioner, vs.DIAZ REALTY INC., respondents.

PANGANIBAN, J.:

For a valid tender of payment, it is necessary that there be a fusion of intent, ability and capability to make good such offer, which must be absolute and must cover the amount due. Though a check is not legal tender, and a creditor may validly refuse to accept it if tendered as payment, one who in fact accepted a fully' funded check after the debtor's manifestation that it had been given to settle an obligation is estopped from later on denouncing the efficacy of such tender of payment.


The Case

The foregoing principle is used by this Court in resolving the Petition for Review1 on Certiorari before us, challenging the January 26, 1999 Decision2 of the Court of Appeals3 (CA) in CA-GR CV No. 45349. The dispositive portion of the assailed Decision reads as follows:

"WHEREFORE, the judgment appealed from is hereby MODIFIED, to read as follows:

'WHEREFORE, JUDGMENT IS HEREBY RENDERED, ORDERING:

'1. The plaintiffs to pay Far East Bank & Trust Company the principal sum of P1,067,000.00 plus interests thereon computed at 12% per annum from July 9, 1988 until fully paid; .

'2. The parties to negotiate for a new lease over the subject premises; and

'3. The defendant to pay the plaintiff the sum of fifteen thousand (P15,000.00) pesos as and for attorney's fees plus the costs of litigation.

"All other claims of the parties against each other are DENIED."4

Likewise assailed is the May 4, 1999 CA Resolution,5 which denied petitioner's Motion for Reconsideration.

The Facts

The court a quo summarized the antecedents of the case as follows:

"Sometime in August 1973, Diaz and Company got a loan from the former PaBC [Pacific Banking Corporation] in the amount of P720,000.00, with interest at 12% per annum, later increased to 14%, 16%, 18% and 20%. The loan was secured by a real estate mortgage over two parcels of land owned by the plaintiff Diaz Realty, both located in Davao City. In 1981, Allied Banking Corporation rented an office space in the building constructed on the properties covered by the mortgage contract, with the conformity of mortgagee PaBC, whereby the parties agreed that the monthly rentals shall be paid directly to the mortgagee for the lessor's account, either to partly or fully pay off the aforesaid mortgage indebtedness. Pursuant to such contract, Allied Bank paid the monthly rentals to PaBC instead of to the plaintiffs. On July 5, 1985, the Central Bank closed PaBC, placed it under receivership, and appointed Renan Santos as its liquidator. Sometime in December 1986, appellant FEBTC purchased the credit of Diaz & Company in favor of PaBC, but it was not until March 23, 1988 that Diaz was informed about it.

"According to the plaintiff as alleged in the complaint and testified to by Antonio Diaz (President of Diaz & Company and Vice-President of Diaz Realty), on March 23, 1988, he went to office of PaBC which by then housed FEBTC and was told that the latter had acquired PaBC; that Cashier Ramon Lim told him that as of such date, his loan was P1,447,142.03; that he (Diaz) asked the defendant to make an accounting of the monthly rental payments made by Allied Bank; that on December 14, 1988,6 Diaz tendered to FEBTC the amount of P1,450,000.00 through an Interbank check, in order to prevent the imposition of additional interests, penalties and surcharges on its loan; that FEBTC did not accept it as payment; that instead, Diaz was asked to deposit the amount with the defendant's Davao City Branch Office, allegedly pending the approval of Central Bank Liquidator Renan Santos; that in the meantime, Diaz wrote the defendant, asking that the interest rate be reduced from 20% to 12% per annum, but no reply was ever made; that subsequently, the defendant told him to change the P1,450,000.00 deposit into a money market placement, which he did; that the money market placement expired on April 14, 1989; that when there was still no news from the defendant whether or not it [would] accept his tender of payment, he filed this case at the Regional Trial Court of Davao City.

"In its responsive pleading, the defendant set up the following special/affirmative defenses: that sometime in December 1986, FEBTC purchased from the PaBC the account of the plaintiffs for a total consideration of P1,828,875.00; that despite such purchase, PaBC Davao Branch continued to collect interests and penalty charges on the loan from January 6, 1987 to July 8, 1988; that it was therefore not FEBTC which collected the interest rates mentioned in the complaint, but PaBC; that it is not true that FEBTC was trying to impose [exorbitant] rates of interest; that as a matter of fact, after the transfer of plaintiff's account, it sought to negotiate with the plaintiffs, and in fact, negotiations were made for a settlement and possible reduction of charges; that FEBTC has no knowledge of the rates of interest imposed and collected by PaBC prior to the purchase of the account from the latter, hence it could not be held responsible for those transactions which transpired prior to the purchase; and that the defendant acted at the opportune time for the settlement of the account, albeit exercising prudence in the handling of such account. The rest of the 'affirmative defenses' are bare denials.

"After trial, the court a quo rendered judgment on August 6, 1993, the dispositive portion of which reads as follows:

'WHEREFORE, judgment is hereby rendered as follows:

'1. The plaintiff and defendant shall jointly compute the interest due on the P1,057,000.00 loan from April 18, 1985 until November 14, 1988 at 12% per annum (IBAA Salazar Case Supra).

'2. That the parties shall then add the result of the joint computation mentioned in paragraph one of the dispositive portion to the P1,057,000.00 principal.

'3. The result of the addition of the P1,057,000.00 principal and the interests arrived at shall then be compared with the P1,450,000.00 deposit and if P1,450,000.00 is not enough, then the plaintiff shall pay the difference/deficiency between the P1,450,000.00 deposit and what the parties jointly computed[;] conversely, if the P1,450,000.00 is more than what the parties have arrived [at] after the computation, the defendant shall return the difference or the excess to the plaintiffs.

'4. The defendant shall cancel the mortgage.

'5. Paragraph eight of the Lease Contract between Allied Bank and the plaintiffs in which the defendant's predecessor, Pacific Banking gave its conformity (Exh. 'H') is hereby cancelled, so that the rental should now be paid to the plaintiffs.

'6. The defendant shall pay the plaintiffs the sums:


'6-A. Fifteen thousand pesos as attorney's fees.

'6-B. Three [h]undred [t]housand [p]esos (P300,000.00) as exemplary damages.

'6-C. The cost of suit.

'SO ORDERED."

"Upon a motion for reconsideration filed by defendant FEBTC and after due notice and hearing, the court a quo issued an order on October 12, 1993, modifying the aforequoted decision, such that its dispositive portion as amended would now read as follows:

'IN VIEW WHEREOF, the decision rendered last August 6, is modified, accordingly, to wit:

'1. The plaintiff and defendant shall jointly compute the interest due on the P1,167,000.00 loan from April 18, 1985 until November 14, 1988 at 12% per annum. '2. That the parties shall then add the result of the joint computation mentioned in paragraph one above to the P1,067,000.00 principal. '3. The result of the addition of the P1,067,000.00 principal and the interests arrived at shall then be compared with the P1,450,000.00 money market placement put up by the plaintiff with the defendant bank if the same is still existing or has not yet matured. '4. The defendant shall cancel the mortgage. '5. Paragraph eight of the lease contract between Allied Bank and the plaintiff in which the defendant['s predecessor], Pacific Banking gave its conformity (Exh. 'H') is hereby cancelled and deleted, so that the rental should now be paid to the plaintiff. '6. The defendant shall pay the plaintiff the sums: '6. A Fifteen [t]housand [p]esos as attorney's fees; '6. B Cost of suit."7

The CA Ruling

The CA sustained the trial court's finding that there was a valid tender of payment in the sum of P1,450,000, made by Diaz Realty Inc. in favor of Far East Bank and Trust Company. The appellate court reasoned that petitioner failed to effectively rebut respondent's evidence that it so tendered the check to liquidate its indebtedness, and that petitioner had unilaterally treated the same as a deposit instead.

The CA further ruled that in the computation of interest charges, the legal rate of 12 percent per annum should apply, reckoned from July 9, 1988, until full and final payment of the whole indebtedness. It explained that while petitioner's purchase of respondent's account from Pacific Banking Corporation (PaBC) was valid, the 20 percent interest stipulated in the Promissory Note should not apply, because the account transfer was without the knowledge and the' consent of respondent -obligor.

The appellate colin, however, sustained petitioner's assertion that the trial court should not have cancelled the real estate mortgage,' inasmuch as the principal obligation upon which it was anchored was yet to be extinguished. Further, the CA held that the lease contract was subject to renegotiation by the parties.

Lastly, the court a quo upheld the trial court's award of attorney's fees, pointing to petitioner's negligence in not immediately informing respondent of the purchase and transfer of its credit, and in failing to negotiate in order to avoid litigation.

Issues

Petitioner submits for our resolution the following issues:

"A."'Whether or not the Court of Appeals correctly ruled that the validity of the tender of payment was not properly raised in the trial court and could not thus be raised in the appeal.

"B."'Whether or not the Court of Appeals erred in failing to apply settled jurisprudential principles militating against the private respondent's contention that a valid tender of payment had been made by it.

"C."Whether or not the Court of Appeals correctly found that the transaction between petitioner and PaBC was an 'ineffective novation' and that the consent of private respondent was necessary therefor.

"D."Whether or not the Court of Appeals erred in refusing to apply the rate of interest freely stipulated upon by the parties to the respondent's obligation.

"E."Whether or not the Court of Appeals committed an irreconcilable error in ordering the parties to re-negotiate the terms of the contract while finding at the same time that the mortgage contract containing the lease was valid.

"F."Whether or not the petition, as argued by private respondent, raises questions of fact not reviewable by certiorari."8

In the main, the Court will determine (1) the efficacy of the alleged tender of payment made by respondent, (2) the effect of the transfer to petitioner of respondent's account with PaBC, (3) the interest rate applicable, and (4) the status of the Real Estate Mortgage.

The Court's Ruling

The Petition9 is not meritorious.

First Issue:

Tender of Payment


Petitioner resolutely argues that the CA erred in upholding the validity of the tender of payment made by respondent. What the latter had tendered to settle its outstanding obligation, it points out, was a check which could not be considered legal tender.

We disagree. The records show that petitioner bank purchased respondent's account from PaBC in December 1986, and that the latter was notified of the transaction only on March 23, 1988. Thereafter, Antonio Diaz, president of respondent corporation, inquired from petitioner on the status and the amount of its obligation. He was informed that the obligation summed up to P1,447,142.03. On November 14, 1988, petitioner; received from respondent Interbank Check No. 81399841 dated November 13, 1988, bearing the amount of P1,450,000, with the notation "Re: Full Payment of Pacific Bank Account now turn[ed] over to Far East Bank."10 The check was subsequently cleared and honored by Interbank, as shown by the Certification it issued on January 20, 1992.11

True, jurisprudence holds that, in general, a check does not constitute legal tender, and that a creditor may validly refuse it.12 It must be emphasized, however, that this dictum does not prevent a creditor from accepting a check as payment. In other words, the creditor has the option and the discretion of refusing or accepting it.

"In the present case, petitioner bank did not refuse respondent's check. On the contrary, it accepted the check which, it insisted, was a deposit. As earlier stated, the check proved to be fully funded and was in fact honored by the drawee bank. Moreover, petitioner was in possession of the money for several months.

In further contending that there was no valid tender of payment, petitioner emphasizes our pronouncement in Roman Catholic Bishop of Malolos, Inc. v. Intermediate Appellate Court,13 as follows:

"Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and demanding that the latter accept the same.

xxx xxx xxx

"Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But whether or not the obligor avails himself of such funds to settle his outstanding account remains to be proven by independent and credible evidence. Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab posse ad actu non vale illatio. 'A proof that an act could have been done is no proof that it was actually done."'

In other words, tender of pament is the definitive act of offering the creditor what is due him or her, together with the demand that the creditor accept the same. More important, there must be a fusion of intent, ability and capability to make good such offer, which must be absolute and must cover the amount due.14

That respondent intended to settle its obligation with petitioner is evident from the records of the case. After learning that its loan balance was P1,447,142.03, it presented to petitioner a check in the amount of P1,450,000, with the specific notation that it was for full payment of its Pacific Bank account that had been purchased by petitioner. The latter accepted the check, even if it now insists that it considered the same as a mere deposit. The check was sufficiently funded, as in fact it was honored by the drawee bank. When petitioner refused to release the mortgage, respondent instituted the present case to compel the bank to acknowledge the tender of payment, accept payment and cancel the mortgage. These acts demonstrate respondent's intent, ability and capability to fully settle and extinguish its obligation to petitioner.

That respondent subsequently withdrew the money from petitioner-bank is of no moment, because such withdrawal would not affect the efficacy or the legal ramifications of the tender of payment made on November 14, 1988. As already discussed, the tender of payment to settle respondent's obligation as computed by petitioner was accepted, the check given in payment thereof converted into money, and the money kept in petitioner's possession for several months.

Finally, petitioner points out that, in any case, tender of payment extinguishes the obligation only after proper consignation, which respondent did not do.

The argument does not persuade. For a consignation to be necessary, the creditor must have refused, without just cause, to accept the debtor's payment.15 However, as pointed out earlier, petitioner accepted respondent's check.

T o iterate, the tender was made by respondent for the purpose of settling its obligation. It was incumbent upon petitioner to refuse, or accept it as payment. The latter did not have the right or the option to accept and treat it as a deposit. Thus, by accepting the tendered check and converting it into money, petitioner is presumed to have accepted it as payment. To hold otherwise would be inequitable and unfair to the obligor.

Second Issue:

Nature of the Transfer of Respondent's Account

Petitioner bewails the CA's characterization of the transfer of respondent's account from Pacific Banking Corporation to petitioner as an "ineffective novation." Petitioner contends that the transfer was an assignment of credit.

Indeed, the transfer of respondent's credit from PaBC to petitioner was an assignment of credit. Petitioner's acquisition of respondent's credit did not involve any changes in the original agreement between PaBC and respondent; neither did it vary the rights and the obligations of the parties. Thus, no novation by conventional subrogation could have taken place.

An assignment of credit is an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause -- such as sale, dation in payment, exchange or donation - and without the need of the debtor's consent, transfers that credit and its accessory rights to another (known as the assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor.16

In the present case, it is undisputed that petitioner purchased respondent's loan from PaBC. In doing so, the former acquired all of the latter's rights against respondent. Thus, petitioner had the right to collect the full value of the credit from respondent, subject to the terms as originally agreed upon in the Promissory Note.

Third Issue:

Applicable Interest Rate


Petitioner bank, as assignee of respondent's credit, is entitled to the interest rate of 20 percent in the computation of the debt of private respondent, as stipulated in the August 26, 1983 Promissory Note executed by the latter in favor of PaBC.17

However, because there was a valid tender of payment made on November 14, 1988, the accrual of interest based on the stipulated rate should stop on that date. Thus, respondent should pay petitioner-bank its principal obligation in the amount of P1,067,000 plus accrued interest thereon at 20 percent per annum until November 14, 1988, less interest payments given to PaBC from December 1986 to July 8, 1988.18

Thereafter, the interest shall be computed at 12 percent per annum until full payment.

Fourth Issue:

Status of Mortgage Contract

The Real Estate Mortgage executed between respondent and PaBC to secure the former's principal obligation, as well as the provision in the Contract of Lease between respondent and Allied Bank with regard to the application of rent payment to the former's indebtedness, should subsist until full and final settlement of such obligation pursuant to the guidelines set forth in this Decision. Thereafter, the parties are free to negotiate a renewal of either or both contracts, or to end any and all of their contractual relations.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of Appeals is AFFIRMED with the following modifications: Respondent Diaz Realty Inc. is ORDERED to pay Far East Bank and Trust Co. its principal loan obligation in the amount of P1,067,000, with interest thereon computed at 20 percent per annum until November 14, 1988, less any interest payments made to PaBC, petitioner's assignor. Thereafter, interest shall be computed at 12 percent per annum until fully paid.1âwphi1.nêt

SO ORDERED.

Melo, Vitug, Gonzaga-Reyes, Sandoval-Gutierrez., JJ., concur.


Manila

SECOND DIVISION

G.R. No. 152411 September 29, 2004

UNIVERSITY OF THE PHILIPPINES, petitioner, vs.PHILAB INDUSTRIES, INC., respondent.

D E C I S I O N

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 44209, as well as its Resolution2 denying the petitioner’s motion for the reconsideration thereof. Themo1 mo2 Court of Appeals set aside the Decision3 of Branch 150 of the Regional Trial Court (RTC) of Makati City, which dismissed the complaint of the respondent against the petitioner for sum of money and damages.

The Facts of the Case

Sometime in 1979, the University of the Philippines (UP) decided to construct an integrated system of research organization known as the Research Complex. As part of the project, laboratory equipment and furniture were purchased for the National Institute of Biotechnology and Applied Microbiology (BIOTECH) at the UP Los Baños. Providentially, the Ferdinand E. Marcos Foundation (FEMF) came forward and agreed to fund the acquisition of the laboratory furniture, including the fabrication thereof.


Renato E. Lirio, the Executive Assistant of the FEMF, gave the go-signal to BIOTECH to contact a corporation to accomplish the project. On July 23, 1982, Dr. William Padolina, the Executive Deputy Director of BIOTECH, arranged for Philippine Laboratory Industries, Inc. (PHILAB), to fabricate the laboratory furniture and deliver the same to BIOTECH for the BIOTECH Building Project, for the account of the FEMF. Lirio directed Padolina to give the go-signal to PHILAB to proceed with the fabrication of the laboratory furniture, and requested Padolina to forward the contract of the project to FEMF for its approval.

On July 13, 1982, Padolina wrote Lirio and requested for the issuance of the purchase order and downpayment for the office and laboratory furniture for the project, thus:

1. Supply and Installation of Laboratory furniture for the BIOTECH Building Project

Amount : P2,934,068.90

Supplier : Philippine Laboratory Furniture Co.,College, Laguna

Attention : Mr. Hector C. NavaseroPresident

Downpayment : 40% or P1,173,627.56

2. Fabrication and Supply of office furniture for the BIOTECH Building Project

Amount : P573,375.00

Supplier : Trans-Oriental Woodworks, Inc.1st Avenue, Bagumbayan Tanyag, Taguig, Metro Manila

Downpayment : 50% or P286,687.504

Padolina assured Lirio that the contract would be prepared as soon as possible before the issuance of the purchase orders and the downpayment for the goods, and would be transmitted to the FEMF as soon as possible.

In a Letter dated July 23, 1982, Padolina informed Hector Navasero, the President of PHILAB, to proceed with the fabrication of the laboratory furniture, per the directive of FEMF Executive Assistant Lirio. Padolina also requested for copies of the shop drawings and a sample contract5 for the project, and that such contract and drawings had to be finalized before the down payment could be remitted to the PHILAB the following week. However, PHILAB failed to forward any sample contract.

Subsequently, PHILAB made partial deliveries of office and laboratory furniture to BIOTECH after having been duly inspected by their representatives and FEMF Executive Assistant Lirio.

On August 24, 1982, FEMF remitted P600,000 to PHILAB as downpayment for the laboratory furniture for the BIOTECH project, for which PHILAB issued Official Receipt No. 253 to FEMF. On October 22, 1982, FEMF made another partial payment of P800,000 to PHILAB, for which the latter issued Official Receipt No. 256 to FEMF. The remittances were in the form of checks drawn by FEMF and delivered to PHILAB, through Padolina.

On October 16, 1982, UP, through Emil Q. Javier, the Chancellor of UP Los Baños and FEMF, represented by its Executive Officer, Rolando Gapud, executed a Memorandum of Agreement (MOA) in which FEMF agreed to grant financial support and donate sums of money to UP for the construction of buildings, installation of laboratory and other capitalization for the project, not to exceed P29,000,000.00. The obligations of FEMF under the MOA are the following:

ARTICLE II

OBLIGATIONS OF THE FOUNDATION

2.1. The FOUNDATION, in carrying out its principal objectives of promoting philantrophic and scientific projects through financial support to such projects that will contribute to the country’s economic development, shall grant such financial support and donate such sums of money to the RESEARCH COMPLEX as may be necessary for the construction of buildings, installation of laboratories, setting up of offices and physical plants and facilities and other capital investment of the RESEARCH COMPLEX and/or any of its component Research Institutes not to exceed P29 Million. For this purpose, the FOUNDATION shall:

(a) Acquire and donate to the UNIVERSITY the site for the RESEARCH COMPLEX; and

(b) Donate or cause to be donated to the UNIVERSITY the sum of TWENTY-NINE MILLION PESOS (P29,000,000.00) for the construction of the buildings of the National Institutes of Biotechnology and Applied Microbiology (BIOTECH) and the installation of their laboratories and their physical plants and other facilities to enable them to commence operations.

2.2. In addition, the FOUNDATION shall, subject to the approval of the Board of Trustees of the FOUNDATION, continue to support the activities of the RESEARCH COMPLEX by way of recurrent additional grants and donations for specific research and development projects which may be mutually agreed upon and, from time to time, additional grants and donations of such amounts as may be necessary to provide the RESEARCH COMPLEX and/or any of its Research Institutes with operational flexibility especially with regard to incentives to staff purchase of equipment/facilities, travel abroad, recruitment of local and expatriate staff and such other activities and inputs which are difficult to obtain under usual government rules and regulations.6

The Board of Regents of the UP approved the MOA on November 25, 1982.7

In the meantime, Navasero promised to submit the contract for the installation of laboratory furniture to BIOTECH, by January 12, 1983. However, Navasero failed to do so. In a Letter dated February 1, 1983, BIOTECH reminded Navasero of the need to submit the contract so that it could be submitted to FEMF for its evaluation and approval.8 Instead of submitting the said contract, PHILAB submitted to BIOTECH an accomplishment report on the project as of February 28, 1983, and requested payment thereon.9 By May 1983, PHILAB had completed 78% of the project, amounting to P2,288,573.74 out of the total cost of P2,934,068.90. The FEMF had already paid forty percent (40%) of the total cost of the project. On May 12, 1983, Padolina wrote Lirio and furnished him the progress billing from PHILAB.10 On August 11, 1983, the FEMF made another partial payment of P836,119.52 representing the already delivered laboratory and office furniture after the requisite


inspection and verification thereof by representatives from the BIOTECH, FEMF, and PHILAB. The payment was made in the form of a check, for which PHILAB issued Official Receipt No. 202 to FEMF through Padolina.11

On July 1, 1984, PHILAB submitted to BIOTECH Invoice No. 01643 in the amount of P702,939.40 for the final payment of laboratory furniture. Representatives from BIOTECH, PHILAB, and Lirio for the FEMF, conducted a verification of the accomplishment of the work and confirmed the same. BIOTECH forwarded the invoice to Lirio on December 18, 1984 for its payment.12 Lirio, in turn, forwarded the invoice to Gapud, presumably sometime in the early part of 1985. However, the FEMF failed to pay the bill. PHILAB reiterated its request for payment through a letter on May 9, 1985.13 BIOTECH again wrote Lirio on March 21, 1985, requesting the payment of PHILAB’s bill.14 It sent another letter to Gapud, on November 22, 1985, again appealing for the payment of PHILAB’s bill.15 In a Letter to BIOTECH dated December 5, 1985, PHILAB requested payment of P702,939.40 plus interest thereon of P224,940.61.16 There was, however, no response from the FEMF. On February 24, 1986, PHILAB wrote BIOTECH, appealing for the payment of its bill even on installment basis.17

President Marcos was ousted from office during the February 1986 EDSA Revolution. On March 26, 1986, Navasero wrote BIOTECH requesting for its much-needed assistance for the payment of the balance already due plus interest of P295,234.55 for its fabrication and supply of laboratory furniture.18

On April 22, 1986, PHILAB wrote President Corazon C. Aquino asking her help to secure the payment of the amount due from the FEMF.19 The letter was referred to then Budget Minister Alberto Romulo, who referred the letter to then UP President Edgardo Angara on June 9, 1986. On September 30, 1986, Raul P. de Guzman, the Chancellor of UP Los Baños, wrote then Chairman of the Presidential Commission on Good Government (PCGG) Jovito Salonga, submitting PHILAB’s claim to be officially entered as "accounts payable" as soon as the assets of FEMF were liquidated by the PCGG.20

In the meantime, the PCGG wrote UP requesting for a copy of the relevant contract and the MOA for its perusal.21

Chancellor De Guzman wrote Navasero requesting for a copy of the contract executed between PHILAB and FEMF. In a Letter dated October 20, 1987, Navasero informed De Guzman that PHILAB and FEMF did not execute any contract regarding the fabrication and delivery of laboratory furniture to BIOTECH.

Exasperated, PHILAB filed a complaint for sum of money and damages against UP. In the complaint, PHILAB prayed that it be paid the following:

(1) PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY NINE & 40/100 (P702,939.40) plus an additional amount (as shall be determined during the hearing) to cover the actual cost of money which at the time of transaction the value of the peso was eleven to a dollar (P11.00:$1) and twenty seven (27%) percent interest on the total amount from August 1982 until fully paid;

(2) PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages;

(3) FIFTY THOUSAND [PESOS] (P50,000.00) as and for attorney’s fees; and

(4) Cost of suit.22

PHILAB alleged, inter alia, that:

3. Sometime in August 1982, defendant, through its officials, particularly MR. WILLIAM PADOLINA, Director, asked plaintiff to supply and install several laboratory furnitures and equipment at BIOTECH, a research laboratory of herein defendant located at its campus in College, Laguna, for a total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90);

4. After the completion of the delivery and installation of said laboratory furnitures and equipment at defendant’s BIOTECH Laboratory, defendant paid three (3) times on installment basis:

a) P600,000.00 as per Official Receipt No. 253 dated August 24, 1982;

b) P800,000.00 as per Official Receipt No. 256 dated October 22, 1982;

c) P836,119.52 as per Official Receipt No. 202 dated August 11, 1983;

thus leaving a balance of PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY-NINE & 40/100 (P702,939.40).

5. That notwithstanding repeated demands for the past eight years, defendant arrogantly and maliciously made plaintiff believe that it was going to pay the balance aforestated, that was why plaintiff’s President and General Manager himself, HECTOR C. NAVASERO, personally went to and from UP Los Baños to talk with defendant’s responsible officers in the hope of expecting payment, when, in truth and in fact, defendant had no intention to pay whatsoever right from the start on a misplaced ground of technicalities. Some of plaintiff’s demand letters since year 1983 up to the present are hereto attached as Annexes A, B, C, D, E, F, G, and H hereof;

6. That by reason of defendant’s malicious, evil and unnecessary misrepresentations that it was going to pay its obligation and asking plaintiff so many red tapes and requirements to submit, compliance of all of which took plaintiff almost eight (8) years to finish, when, in truth and in fact, defendant had no intention to pay, defendant should be ordered to pay plaintiff no less than PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages, so that other government institutions may be warned that they must not unjustly enrich themselves at the expense of the people they serve.23

In its answer, UP denied liability and alleged that PHILAB had no cause of action against it because it was merely the donee/beneficiary of the laboratory furniture in the BIOTECH; and that the FEMF, which funded the project, was liable to the PHILAB for the purchase price of the laboratory furniture. UP specifically denied obliging itself to pay for the laboratory furniture supplied by PHILAB.

After due proceedings, the trial court rendered judgment dismissing the complaint without prejudice to PHILAB’s recourse against the FEMF. The fallo of the decision reads:

WHEREFORE, this case is hereby DISMISSED for lack of merit without prejudice to plaintiff's recourse to the assets of the Marcos Foundation for the unpaid balance of P792,939.49.


SO ORDERED.24

Undaunted, PHILAB appealed to the Court of Appeals (CA) alleging that the trial court erred in finding that:

1. the contract for the supply and installation of subject laboratory furniture and equipment was between PHILAB and the Marcos Foundation; and,

2. the Marcos Foundation, not the University of the Philippines, is liable to pay the respondent the balance of the purchase price.25

The CA reversed and set aside the decision of the RTC and held that there was never a contract between FEMF and PHILAB. Consequently, PHILAB could not be bound by the MOA between the FEMF and UP since it was never a party thereto. The appellate court ruled that, although UP did not bind itself to pay for the laboratory furniture; nevertheless, it is liable to PHILAB under the maxim: "No one should unjustly enrich himself at the expense of another."

The Present Petition

Upon the denial of its motion for reconsideration of the appellate court’s decision, UP, now the petitioner, filed its petition for review contending that:

I. THE COURT OF APPEALS ERRED WHEN IT FAILED TO APPLY THE LAW ON CONTRACTS BETWEEN PHILAB AND THE MARCOS FOUNDATION.

II. THE COURT OF APPEALS ERRED IN APPLYING THE LEGAL PRINCIPLE OF UNJUST ENRICHMENT WHEN IT HELD THAT THE UNIVERSITY, AND NOT THE MARCOS FOUNDATION, IS LIABLE TO PHILAB.26

Prefatorily, the doctrinal rule is that pure questions of facts may not be the subject of appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as this mode of appeal is generally restricted to questions of law.27 However, this rule is not absolute. The Court may review the factual findings of the CA should they be contrary to those of the trial court.28 Correspondingly, this Court may review findings of facts when the judgment of the CA is premised on a misapprehension of facts.29

On the first assigned error, the petitioner argues that the CA overlooked the evidentiary effect and substance of the corresponding letters and communications which support the statements of the witnesses showing affirmatively that an implied contract of sale existed between PHILAB and the FEMF. The petitioner furthermore asserts that no contract existed between it and the respondent as it could not have entered into any agreement without the requisite public bidding and a formal written contract.

The respondent, on the other hand, submits that the CA did not err in not applying the law on contracts between the respondent and the FEMF. It, likewise, attests that it was never privy to the MOA entered into between the petitioner and the FEMF. The respondent adds that what the FEMF donated was a sum of money equivalent to P29,000,000, and not the laboratory equipment supplied by it to the petitioner. The respondent submits that the petitioner, being the recipient of the laboratory furniture, should not enrich itself at the expense of the respondent.

The petition is meritorious.

It bears stressing that the respondent’s cause of action is one for sum of money predicated on the alleged promise of the petitioner to pay for the purchase price of the furniture, which, despite demands, the petitioner failed to do. However, the respondent failed to prove that the petitioner ever obliged itself to pay for the laboratory furniture supplied by it. Hence, the respondent is not entitled to its claim against the petitioner.

There is no dispute that the respondent is not privy to the MOA executed by the petitioner and FEMF; hence, it is not bound by the said agreement. Contracts take effect only between the parties and their assigns.30 A contract cannot be binding upon and cannot be enforced against one who is not a party to it, even if he is aware of such contract and has acted with knowledge thereof.31 Likewise admitted by the parties, is the fact that there was no written contract executed by the petitioner, the respondent and FEMF relating to the fabrication and delivery of office and laboratory furniture to the BIOTECH. Even the CA failed to specifically declare that the petitioner and the respondent entered into a contract of sale over the said laboratory furniture. The parties are in accord that the FEMF had remitted to the respondent partial payments via checks drawn and issued by the FEMF to the respondent, through Padolina, in the total amount of P2,288,573.74 out of the total cost of the project of P2,934,068.90 and that the respondent received the said checks and issued receipts therefor to the FEMF. There is also no controversy that the petitioner did not pay a single centavo for the said furniture delivered by the respondent that the petitioner had been using ever since.

We agree with the petitioner that, based on the records, an implied-in-fact contract of sale was entered into between the respondent and FEMF. A contract implied in fact is one implied from facts and circumstances showing a mutual intention to contract. It arises where the intention of the parties is not expressed, but an agreement in fact creating an obligation. It is a contract, the existence and terms of which are manifested by conduct and not by direct or explicit words between parties but is to be deduced from conduct of the parties, language used, or things done by them, or other pertinent circumstances attending the transaction. To create contracts implied in fact, circumstances must warrant inference that one expected compensation and the other to pay.32 An implied-in-fact contract requires the parties’ intent to enter into a contract; it is a true contract.33 The conduct of the parties is to be viewed as a reasonable man would view it, to determine the existence or not of an implied-in-fact contract.34 The totality of the acts/conducts of the parties must be considered to determine their intention. An implied-in-fact contract will not arise unless the meeting of minds is indicated by some intelligent conduct, act or sign.35

In this case, the respondent was aware, from the time Padolina contacted it for the fabrication and supply of the laboratory furniture until the go-signal was given to it to fabricate and deliver the furniture to BIOTECH as beneficiary, that the FEMF was to pay for the same. Indeed, Padolina asked the respondent to prepare the draft of the contract to be received by the FEMF prior to the execution of the parties (the respondent and FEMF), but somehow, the respondent failed to prepare one. The respondent knew that the petitioner was merely the donee-beneficiary of the laboratory furniture and not the buyer; nor was it liable for the payment of the purchase price thereof. From the inception, the FEMF paid for the bills and statement of accounts of the respondent, for which the latter unconditionally issued receipts to and under the name of the FEMF. Indeed, witness Lirio testified:

Q: Now, did you know, Mr. Witness, if PHILAB Industries was aware that it was the Marcos Foundation who would be paying for this particular transaction for the completion of this particular transaction?

A: I think they are fully aware.

Q: What is your basis for saying so?

A: First, I think they were appraised by Dr. Padolina. Secondly, there were occasions during our inspection in Los Baños, at the installation site, there were occasions, two or three occasions, when we met with Mr. Navasero who is the President, I think, or manager of PHILAB, and we appraised him that it was really between the foundation and him to which includes (sic) the construction company constructing the building. He is fully aware that it is the foundation who (sic) engaged them and issued the payments.36


The respondent, in its Letter dated March 26, 1986, informed the petitioner and sought its assistance for the collection of the amount due from the FEMF:

Dear Dr. Padolina:

May we request for your much-needed assistance in the payment of the balance still due us on the laboratory furniture we supplied and installed two years ago?

Business is still slow and we will appreciate having these funds as soon as possible to keep up our operations.

We look forward to hearing from you regarding this matter.

Very truly yours,

PHILAB INDUSTRIES, INC.37

The respondent even wrote former President Aquino seeking her assistance for the payment of the amount due, in which the respondent admitted it tried to collect from her predecessor, namely, the former President Ferdinand E. Marcos:

YOUR EXCELLENCY:

At the instance of the national government, subject laboratory furnitures were supplied by our company to the National Institute of Biotechnology & Applied Microbiology (BIOTECH), University of the Philippines, Los Baños, Laguna, in 1984.

Out of the total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90), the previous administration had so far paid us the sum of P2,236,119.52 thus leaving a balance of PESOS: ONE MILLION FOUR HUNDRED TWELVE THOUSAND SEVEN HUNDRED FORTY-EIGHT & 61/100 (P1,412.748.61) inclusive of interest of 24% per annum and 30% exchange rate adjustment.

On several occasions, we have tried to collect this amount from your predecessor, the latest of which was subject invoice (01643) we submitted to DR. W. PADOLINA, deputy director of BIOTECH. But this, notwithstanding, our claim has remained unacted upon up to now. Copy of said invoice is hereto attached for easy reference.

Now that your excellency is the head of our government, we sincerely hope that payment of this obligation will soon be made as this is one project the Republic of the Philippines has use of and derives benefit from.38

Admittedly, the respondent sent to the petitioner its bills and statements of accounts for the payments of the laboratory furniture it delivered to the petitioner which the petitioner, through Padolina, transmitted to the FEMF for its payment. However, the FEMF failed to pay the last statement of account of the respondent because of the onset of the EDSA upheaval. It was only when the respondent lost all hope of collecting its claim from the government and/or the PCGG did it file the complaint against the petitioner for the collection of the payment of its last delivery of laboratory furniture.

We reject the ruling of the CA holding the petitioner liable for the claim of the respondent based on the maxim that no one should enrich itself at the expense of another.

Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.39

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit.40 Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.41 Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of restitution.42

Article 22 of the New Civil Code reads:

Every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. (Boldface supplied)

In order that accion in rem verso may prosper, the essential elements must be present: (1) that the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict.43

An accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action under any other institution of positive law, that action must be resorted to, and the principle of accion in rem verso will not lie.44

The essential requisites for the application of Article 22 of the New Civil Code do not obtain in this case. The respondent had a remedy against the FEMF via an action based on an implied-in-fact contract with the FEMF for the payment of its claim. The petitioner legally acquired the laboratory furniture under the MOA with FEMF; hence, it is entitled to keep the laboratory furniture.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED AND SET ASIDE. The Decision of the Regional Trial Court, Makati City, Branch 150, is REINSTATED. No costs.

SO ORDERED.

Puno, Austria-Martinez, Tinga, and Chico-Nazario*, JJ., concur.



Manila

SECOND DIVISION

G.R. No. 155043 September 30, 2004

ARTURO R. ABALOS, petitioner, vs.DR. GALICANO S. MACATANGAY, JR., respondent.

D E C I S I O N

TINGA, J.:

The instant petition seeks a reversal of the Decision of the Court of Appeals in CA-G.R. CV No. 48355 entitled "Dr. Galicano S. Macatangay, Jr. v. Arturo R. Abalos and Esther Palisoc-Abalos," promulgated on March 14, 2002. The appellate court reversed the trial court’s decision which dismissed the action for specific performance filed by respondent, and ordered petitioner and his wife to execute in favor of herein respondent a deed of sale over the subject property.

Spouses Arturo and Esther Abalos are the registered owners of a parcel of land with improvements located at Azucena St., Makati City consisting of about three hundred twenty-seven (327) square meters, covered by Transfer Certificate of Title (TCT) No. 145316 of the Registry of Deeds of Makati.

Armed with a Special Power of Attorney dated June 2, 1988, purportedly issued by his wife, Arturo executed a Receipt and Memorandum of Agreement (RMOA) dated October 17, 1989, in favor of respondent, binding himself to sell to respondent the subject property and not to offer the same to any other party within thirty (30) days from date. Arturo acknowledged receipt of a check from respondent in the amount of Five Thousand Pesos (P5,000.00), representing earnest money for the subject property, the amount of which would be deducted from the purchase price of One Million Three Hundred Three Hundred Thousand Pesos (P1,300,000.00). Further, the RMOA stated that full payment would be effected as soon as possession of the property shall have been turned over to respondent.

Subsequently, Arturo’s wife, Esther, executed a Special Power of Attorney dated October 25, 1989, appointing her sister, Bernadette Ramos, to act for and in her behalf relative to the transfer of the property to respondent. Ostensibly, a marital squabble was brewing between Arturo and Esther at the time and to protect his interest, respondent caused the annotation of his adverse claim on the title of the spouses to the property on November 14, 1989.

On November 16, 1989, respondent sent a letter to Arturo and Esther informing them of his readiness and willingness to pay the full amount of the purchase price. The letter contained a demand upon the spouses to comply with their obligation to turn over possession of the property to him. On the same date, Esther, through her attorney-in-fact, executed in favor of respondent, a Contract to Sell the property to the extent of her conjugal interest therein for the sum of six hundred fifty thousand pesos (P650,000.00) less the sum already received by her and Arturo. Esther agreed to surrender possession of the property to respondent within twenty (20) days from November 16, 1989, while the latter promised to pay the balance of the purchase price in the amount of one million two hundred ninety thousand pesos (P1,290,000.00) after being placed in possession of the property. Esther also obligated herself to execute and deliver to respondent a deed of absolute sale upon full payment.

In a letter dated December 7, 1989, respondent informed the spouses that he had set aside the amount of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) as evidenced by Citibank Check No. 278107 as full payment of the purchase price. He reiterated his demand upon them to comply with their obligation to turn over possession of the property. Arturo and Esther failed to deliver the property which prompted respondent to cause the annotation of another adverse claim on TCT No. 145316. On January 12, 1990, respondent filed a complaint for specific performance with damages against petitioners. Arturo filed his answer to the complaint while his wife was declared in default.


The Regional Trial Court (RTC) dismissed the complaint for specific performance. It ruled that the Special Power of Attorney (SPA) ostensibly issued by Esther in favor of Arturo was void as it was falsified. Hence, the court concluded that the SPA could not have authorized Arturo to sell the property to respondent. The trial court also noted that the check issued by respondent to cover the earnest money was dishonored due to insufficiency of funds and while it was replaced with another check by respondent, there is no showing that the second check was issued as payment for the earnest money on the property.

On appeal taken by respondent, the Court of Appeals reversed the decision of the trial court. It ruled that the SPA in favor of Arturo, assuming that it was void, cannot affect the transaction between Esther and respondent. The appellate court ratiocinated that it was by virtue of the SPA executed by Esther, in favor of her sister, that the sale of the property to respondent was effected. On the other hand, the appellate court considered the RMOA executed by Arturo in favor of respondent valid to effect the sale of Arturo’s conjugal share in the property.

Dissatisfied with the appellate court’s disposition of the case, petitioner seeks a reversal of its decision alleging that:

I.The Court of Appeals committed serious and manifest error when it decided on the appeal without affording petitioner his right to due process.

II.The Court of Appeals committed serious and manifest error in reversing and setting aside the findings of fact by the trial court.

III.The Court of Appeals erred in ruling that a contract to sell is a contract of sale, and in ordering petitioner to execute a registrable form of deed of sale over the property in favor of respondent.1

Petitioner contends that he was not personally served with copies of summons, pleadings, and processes in the appeal proceedings nor was he given an opportunity to submit an appellee’s brief. He alleges that his counsel was in the United States from 1994 to June 2000, and he never received any news or communication from him after the proceedings in the trial court were terminated. Petitioner submits that he was denied due process because he was not informed of the appeal proceedings, nor given the chance to have legal representation before the appellate court.

We are not convinced. The essence of due process is an opportunity to be heard. Petitioner’s failure to participate in the appeal proceedings is not due to a cause imputable to the appellate court but because of petitioner’s own neglect in ascertaining the status of his case. Petitioner’s counsel is equally negligent in failing to inform his client about the recent developments in the appeal proceedings. Settled is the rule that a party is bound by the conduct, negligence and mistakes of his counsel.2 Thus, petitioner’s plea of denial of due process is downright baseless.

Petitioner also blames the appellate court for setting aside the factual findings of the trial court and argues that factual findings of the trial court are given much weight and respect when supported by substantial evidence. He asserts that the sale between him and respondent is void for lack of consent because the SPA purportedly executed by his wife Esther is a forgery and therefore, he could not have validly sold the subject property to respondent.

Next, petitioner theorizes that the RMOA he executed in favor of respondent was not perfected because the check representing the earnest money was dishonored. He adds that there is no evidence on record that the second check issued by respondent was intended to replace the first check representing payment of earnest money.

Respondent admits that the subject property is co-owned by petitioner and his wife, but he objects to the allegations in the petition bearing a relation to the supposed date of the marriage of the vendors. He contends that the alleged date of marriage between petitioner and his wife is a new factual issue which was not raised nor established in the court a quo. Respondent claims that there is no basis to annul the sale freely and voluntarily entered into by the husband and the wife.

The focal issue in the instant petition is whether petitioner may be compelled to convey the property to respondent under the terms of the RMOA and the Contract to Sell. At bottom, the resolution of the issue entails the ascertainment of the contractual nature of the two documents and the status of the contracts contained therein.

Contracts, in general, require the presence of three essential elements: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.3

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation.4 In a contract of sale, the seller must consent to transfer ownership in exchange for the price, the subject matter must be determinate, and the price must be certain in money or its equivalent.5 Being essentially consensual, a contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.6 However, ownership of the thing sold shall not be transferred to the vendee until actual or constructive delivery of the property.7

On the other hand, 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.8 An option merely grants a privilege to buy or sell within an agreed time and at a determined price. It is separate and distinct from that which the parties may enter into upon the consummation of the option.9 A perfected contract of option does not result in the perfection or consummation of the sale; only when the option is exercised may a sale be perfected.10 The option must, however, be supported by a consideration distinct from the price.11

Perusing the RMOA, it signifies a unilateral offer of Arturo to sell the property to respondent for a price certain within a period of thirty days. The RMOA does not impose upon respondent an obligation to buy petitioner’s property, as in fact it does not even bear his signature thereon. It is quite clear that after the lapse of the thirty-day period, without respondent having exercised his option, Arturo is free to sell the property to another. This shows that the intent of Arturo is merely to grant respondent the privilege to buy the property within the period therein stated. There is nothing in the RMOA which indicates that Arturo agreed therein to transfer ownership of the land which is an essential element in a contract of sale. Unfortunately, the option is not binding upon the promissory since it is not supported by a consideration distinct from the price.12

As a rule, the holder of the option, after accepting the promise and before he exercises his option, is not bound to buy. He is free either to buy or not to buy later. In Sanchez v. Rigos13 we ruled that in an accepted unilateral promise to sell, the promissor is not bound by his promise and may, accordingly, withdraw it, since there may be no valid contract without a cause or consideration. Pending notice of its withdrawal, his accepted promise partakes of the nature of an offer to sell which, if acceded or consented to, results in a perfected contract of sale.

Even conceding for the nonce that respondent had accepted the offer within the period stated and, as a consequence, a bilateral contract of purchase and sale was perfected, the outcome would be the same. To benefit from such situation, respondent would have to pay or at least make a valid tender of payment of the price for only then could he exact compliance with the undertaking of the other party.14 This respondent failed to do. By his own admission, he merely informed respondent spouses of his readiness and willingness to pay. The fact that he had set aside a check in the amount of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) representing the balance of the purchase price could not help his cause. Settled is the rule that tender of payment must be made in legal tender. A check is not legal tender, and therefore cannot constitute a valid tender of payment.15 Not having made a valid tender of payment, respondent’s action for specific performance must fail.

With regard to the payment of Five Thousand Pesos (P5,000.00), the Court is of the view that the amount is not earnest money as the term is understood in Article 1482 which signifies proof of the perfection of the contract of sale, but merely a guarantee that respondent is really interested to buy the property. It is not the giving of earnest money, but the proof of the concurrence of all the


essential elements of the contract of sale which establishes the existence of a perfected sale.16 No reservation of ownership on the part of Arturo is necessary since, as previously stated, he has never agreed to transfer ownership of the property to respondent.

Granting for the sake of argument that the RMOA is a contract of sale, the same would still be void not only for want of consideration and absence of respondent’s signature thereon, but also for lack of Esther’s conformity thereto. Quite glaring is the absence of the signature of Esther in the RMOA, which proves that she did not give her consent to the transaction initiated by Arturo. The husband cannot alienate any real property of the conjugal partnership without the wife’s consent.17

However, it was the Contract to Sell executed by Esther through her attorney-in-fact which the Court of Appeals made full use of. Holding that the contract is valid, the appellate court explained that while Esther did not authorize Arturo to sell the property, her execution of the SPA authorizing her sister to sell the land to respondent clearly shows her intention to convey her interest in favor of respondent. In effect, the court declared that the lack of Esther’s consent to the sale made by Arturo was cured by her subsequent conveyance of her interest in the property through her attorney-in-fact.

We do not share the ruling.

The nullity of the RMOA as a contract of sale emanates not only from lack of Esther’s consent thereto but also from want of consideration and absence of respondent’s signature thereon. Such nullity cannot be obliterated by Esther’s subsequent confirmation of the putative transaction as expressed in the Contract to Sell. Under the law, a void contract cannot be ratified18 and the action or defense for the declaration of the inexistence of a contract does not prescribe.19 A void contract produces no effect either against or in favor of anyone–it cannot create, modify or extinguish the juridical relation to which it refers.20

True, in the Contract to Sell, Esther made reference to the earlier RMOA executed by Arturo in favor of respondent. However, the RMOA which Arturo signed is different from the deed which Esther executed through her attorney-in-fact. For one, the first is sought to be enforced as a contract of sale while the second is purportedly a contract to sell only. For another, the terms and conditions as to the issuance of title and delivery of possession are divergent.

The congruence of the wills of the spouses is essential for the valid disposition of conjugal property. Where the conveyance is contained in the same document which bears the conformity of both husband and wife, there could be no question on the validity of the transaction. But when there are two (2) documents on which the signatures of the spouses separately appear, textual concordance of the documents is indispensable. Hence, in this case where the wife’s putative consent to the sale of conjugal property appears in a separate document which does not, however, contain the same terms and conditions as in the first document signed by the husband, a valid transaction could not have arisen.

Quite a bit of elucidation on the conjugal partnership of gains is in order.

Arturo and Esther appear to have been married before the effectivity of the Family Code. There being no indication that they have adopted a different property regime, their property relations would automatically be governed by the regime of conjugal partnership of gains.21

The subject land which had been admittedly acquired during the marriage of the spouses forms part of their conjugal partnership.22

Under the Civil Code, the husband is the administrator of the conjugal partnership. This right is clearly granted to him by law.23 More, the husband is the sole administrator. The wife is not entitled as of right to joint administration.24

The husband, even if he is statutorily designated as administrator of the conjugal partnership, cannot validly alienate or encumber any real property of the conjugal partnership without the wife’s consent.25 Similarly, the wife cannot dispose of any property belonging to the conjugal partnership without the conformity of the husband. The law is explicit that the wife cannot bind the conjugal partnership without the husband’s consent, except in cases provided by law.26

More significantly, it has been held that prior to the liquidation of the conjugal partnership, the interest of each spouse in the conjugal assets is inchoate, a mere expectancy, which constitutes neither a legal nor an equitable estate, and does not ripen into title until it appears that there are assets in the community as a result of the liquidation and settlement. The interest of each spouse is limited to the net remainder or "remanente liquido" (haber ganancial) resulting from the liquidation of the affairs of the partnership after its dissolution.27 Thus, the right of the husband or wife to one-half of the conjugal assets does not vest until the dissolution and liquidation of the conjugal partnership, or after dissolution of the marriage, when it is finally determined that, after settlement of conjugal obligations, there are net assets left which can be divided between the spouses or their respective heirs.28

In not a few cases, we ruled that the sale by the husband of property belonging to the conjugal partnership without the consent of the wife when there is no showing that the latter is incapacitated is void ab initio because it is in contravention of the mandatory

requirements of Article 166 of the Civil Code.29 Since Article 166 of the Civil Code requires the consent of the wife before the husband may alienate or encumber any real property of the conjugal partnership, it follows that acts or transactions executed against this mandatory provision are void except when the law itself authorizes their validity.30

Quite recently, in San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,31 we ruled that neither spouse could alienate in favor of another, his or her interest in the partnership or in any property belonging to it, or ask for partition of the properties before the partnership itself had been legally dissolved. Nonetheless, alienation of the share of each spouse in the conjugal partnership could be had after separation of property of the spouses during the marriage had been judicially decreed, upon their petition for any of the causes specified in Article 19132 of the Civil Code in relation to Article 21433 thereof.

As an exception, the husband may dispose of conjugal property without the wife’s consent if such sale is necessary to answer for conjugal liabilities mentioned in Articles 161 and 162 of the Civil Code.34 In Tinitigan v. Tinitigan, Sr.,35 the Court ruled that the husband may sell property belonging to the conjugal partnership even without the consent of the wife if the sale is necessary to answer for a big conjugal liability which might endanger the family’s economic standing. This is one instance where the wife’s consent is not required and, impliedly, no judicial intervention is necessary.

Significantly, the Family Code has introduced some changes particularly on the aspect of the administration of the conjugal partnership. The new law provides that the administration of the conjugal partnership is now a joint undertaking of the husband and the wife. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal partnership, the other spouse may assume sole powers of administration. However, the power of administration does not include the power to dispose or encumber property belonging to the conjugal partnership.36 In all instances, the present law specifically requires the written consent of the other spouse, or authority of the court for the disposition or encumbrance of conjugal partnership property without which, the disposition or encumbrance shall be void.37

Inescapably, herein petitioner’s action for specific performance must fail. Even on the supposition that the parties only disposed of their respective shares in the property, the sale, assuming that it exists, is still void for as previously stated, the right of the husband or the wife to one-half of the conjugal assets does not vest until the liquidation of the conjugal partnership. Nemo dat qui non habet. No one can give what he has not.


WHEREFORE, the appealed Decision is hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 90-106 of the Regional Trial Court of Makati is ordered DISMISSED. No pronouncement as to costs.

SO ORDERED.

Puno, Austria-Martinez, Callejo, Sr., and Chico-Nazario*, JJ., concur.


Manila

SECOND DIVISION

G.R. No. 122796 December 10, 2001

PETROPHIL CORPORATION, petitioner, vs.COURT OF APPEALS, DR. AMANDA TERNIDA-CRUZ, JESSIE DE VERA, MARCIAL MULIG, ANTONIO CUENCA, and RUFINO CUENCA, respondents.

QUISUMBING, J.:

This petition seeks to annul and set aside the decision1 dated September 26, 1995, of the Court of Appeals, affirming with modification the decision of the Regional Trial Court of Manila, Branch 52, in Civil Case No. 87-40930 for specific performance with preliminary injunction and Civil Case No. 88-43946 for damages. It likewise seeks to annul the resolution2 dated November 16, 1995 denying petitioner's motion for reconsideration.

On December 27, 1970, petitioner Petrophil Corporation (Petrophil) entered into contract with private respondent Dr. Amanda Ternida-Cruz, allowing the latter to haul and transport any and all packages and/or bulk products of Petrophil. The contract provided among others, that Petrophil could terminate the contract for breach, negligence, discourtesy, improper and/or inadequate performance or abandonment. Dr. Cruz was also required to reserve the use of at least two (2) units of tank trucks solely for the hauling requirements of Petrophil. Paragraph 11 of the contract also stipulated that the contact shall be for an indefinite period, provided that Petrophil may terminate said contract at any time with 30 days prior written notice.3

Annexed to the contract was the Penalty Clause which contained calibrated penal sanctions for infractions that may be committed by Dr. Cruz and/or her employees.4 Petrophil also required the formation of a Hearing Committee that will hear the offenses committed by hauling contractors or their employees, to give an erring party opportunity to be heard prior to the imposition of any penalty.5

In a letter dated May 21, 1987, Petrophil, through its Operations Manager, advised Dr. Cruz that it was terminating her hauling contract in accordance with paragraph 11 thereof.6 Dr. Cruz appealed to Petrophil for reconsideration but said appeal was denied on June 5, 1987.

On June 23, 1987, Dr. Cruz filed with the Regional Trial Court of Manila, a complaint docketed as Civil Case No. 87-40930, against Petrophil seeking the nullity of the termination of the contract and declaring its suspension as unjustified and contrary to its terms and conditions.7

On March 11, 1988, the other private respondents herein, Jessie de Vera, Marcial Mulig, Antonio and Rufino Cuenca, all tank truck drivers of Dr. Cruz, also filed a complaint docketed as Civil Case No. 88-43946 for damages against Petrophil Operations Manager Antonio Santos, Pandacan Terminal Manager Crispino A. de Castro, and Pandacan Terminal Superintendent Jaime Tamayo.8

The two cases were consolidated and jointly tried.

During the hearing, Dr. Cruz testified that she had been in the gasoline business as dealer, operator and hauling contractor for the last 26 years. She claimed that the termination of her hauling contract was a retaliation against her for allegedly sympathizing with the then striking Petrophil employees and for informing the PNOC president of anomalies perpetrated by some of its officers and employees.

Driver Jessie de Vera corroborated these allegations and said that the termination of Dr. Cruz's contract was intended to silence her. Further, he testified that before the termination of the contract, Petrophil officials reduced their hauling trips to make life harder for them so that they would resign from Dr: Cruz's employ, which in turn would result in the closure of her business.

Petitioner denied that Petrophil officials were out to starve Dr. Cruz's drivers for their support of her. They professed that the hauling trips were reduced not because Dr. Cruz was being punished, but because the company was assigning hauling trips on the basis of compartmentation and not on a first-come first-serve. Additionally, witnesses for Petrophil testified that on April 25, 1987, there was a strike at the Pandacan terminal and Dr. Cruz and her husband were at the picket line. They refused to load petroleum products, resulting in the disruption of delivery to service stations in Metro Manila and in the provinces, which in turn resulted in loss of sales and revenues. Because of Dr. Cruz's refusal to load, the management terminated the hauling contract.

The trial court on May 29, 1991 rendered a decision that reads:


WHEREFORE, judgments are rendered as follows:

1. In Civil Case No. 87-40830 (sic), the defendant Petrophil Corporation is ordered to pay plaintiff Dra. Amanda Ternida-Cruz the sum of P309,723.65 as unearned hauling charges and P20,000.00 as attorney's fees and expenses of suit, without prejudice to indemnification from its officials and employees responsible for the damage, and making the preliminary injunction permanent.2. In Civil Case NO. 88-43949 (sic), ordering the defendants therein, jointly and severally, to pay each of plaintiffs Jessie de Vera and Rufino Cuenca the sums of P64,390.00 and P5,000.00 as unearned income and attorney's fees, respectively.Costs in each case against the respective defendants.

SO ORDERED.9

In Civil Cases Nos. 87-40930 and 88-43946, Dr. Cruz alleged that the trial court erred in not awarding actual damages from loss of income during the illegal and arbitrary suspension of the hauling contract. She asked that Petrophil be ordered to pay her the sum of P309,723.65, representing the unearned hauling charges that ended in 1990 and until said amount is paid and settled; and to award compensatory, exemplary, and moral damages.10

On September 26, 1995, the Court of Appeals affirmed with modification the decision of the trial court. It held:

WHEREFORE, the appealed decision is hereby AFFIRMED, with the modification that the amount of P309,723.65, awarded as unearned hauling charges should earn legal interest from May 29, 1991 until fully paid.

SO ORDERED.11

The Court of Appeals sustained the trial court declaring that the termination of the contract was "for cause", and that the procedures set forth in petitioner's policy guidelines should be followed.

In this petition for review, Petrophil alleges that the Court of Appeals erred in rendering a decision that:

I. . . UNLAWFULLY SET ASIDE A VALID AND EXISTING CONTRACTUAL STIPULATION BETWEEN THE PARTIES.

II. . . IMPOSED TORTIOUS LIABILITY WHERE THE REQUISITES PRESCRIBED BY LAW FOR SUCH LIABILITY WERE NOT ESTABLISHED AT ALL BY THE EVIDENCE.12

On the first assigned error, petitioner contends that the courts' a quo finding that the contract was terminated "for cause" was a superfluity because petitioner was after all not contractually bound to use the mode, "for cause" under par. 7, nor prohibited from using the other mode, "without cause", under par. 1 l. It could use either. Petitioner avers these two modes were not mutually exclusive. The hauling contract did not state that the existence of conditions for the exercise of one, precluded the exercise of the other. Petitioner says it chose to terminate the contract under paragraph 11, whose language was very clear and required no interpretation. Petitioner insists that Article 1377 of the Civil Code,13 applicable to contracts of adhesion, does not apply in this case.

Private respondents, on the other hand, claim that the contract did not envision a situation where the contract can be rescinded or terminated after the occurrence of ambivalent acts which may qualify as cause for termination. The contract's vagueness, according to private respondents, needed an interpretation. Further, they contend that even granting arguendo that petitioner had all the right to terminate the contract even "without cause", petitioner would still be liable to answer for damages under Article 19 of the Civil Code14 on abuse of right for terminating the contract without reason but out of sheer whim and caprice.

Two questions must initially be resolved: (1) whether or not the hauling contract needed interpretation, and (2) whether petitioner was guilty of arbitrary termination of the contract, which would entitle Dr. Cruz to damages.

On the first issue, we agree with petitioner that the contract clearly provided for two ways of terminating the contract, and, one mode does not exclude the other. Although the contract provided for causes for termination, it also stated in paragraph 11 that the contract was for an indefinite term subject to the right of Petrophil to terminate it any time after a written notice of 30 days. When the language of a contract is clear, it requires no interpretation.15 Thus, the finding that the termination of the contract was "for cause", is immaterial. When petitioner terminated the contract "without cause", it was required only to give Dr. Cruz a 30-day prior written notice, which it did in this case.

However, we differ with petitioner on the second issue. Recall that before Petrophil terminated the contract on May 25, 1987, there was a strike of its employees at the Pandacan terminal. Dr. Cruz and her husband were seen at the picket line and were reported to have instructed their truck drivers not to load petroleum products. At the resumption of the operation in Pandacan terminal, Dr. Cruz's contract was suspended for one week and eventually terminated. Based on these circumstances, the Court of Appeals like the trial court concluded that Petrophil terminated the contract because of Dr. Cruz's refusal to load petroleum products during the strike. In respondent court's view, the termination appeared as a retaliation or punishment for her sympathizing with the striking employees. Nowhere in the record do we find that petitioner asked her to explain her actions. Petrophil simply terminated her contract. These factual findings are binding and conclusive on us, especially in the absence of any allegation that said findings are unsupported by the evidence, or that the appellate and trial courts misapprehended these facts.16 In terminating the hauling contract of Dr. Cruz without hearing her side on the factual context above described, a petitioner opened itself to a charge of bad faith. While Petrophil had the right to terminate the contract, petitioner could not act purposely to injure private respondents. In BPI Express Card Corporation vs. CA, 296 SCRA 260, 272 (1998), we held that there is abuse of a right under Article 19 if the following elements are present: 1) there is a legal right or duty; 2) which is exercised in bad faith; 3) for the sole purpose of prejudicing or injuring another. We find all these three elements present in the instant case. Hence, we are convinced that the termination by petitioner of the contract with Dr. Cruz calls for appropriate sanctions by way of damages.

Petitioner likewise contends that the lower court erred when they applied the procedures set forth in the Policy Statement and Guidelines17 and penalty clause.18 Petitioner argues that the offenses in the penalty clause refer to product theft or pilferage or gross violation of company policies on credit, security and the like, as required in tank truck deliveries. Dr. Cruz claims, in turn, that there was no showing that her alleged act was covered by the said offenses, hence petitioner erred when it imposed the procedure in her case. However, this is the first time that petitioner raises this issue. Well-established is the rule that matters not brought out in the proceedings below but raised for the first time on appeal will ordinarily not be considered by a reviewing court.19 Given no compelling reason, we shall not now deviate from this familiar rule.

On the second assigned error, petitioner contends that the Court of Appeals erred when it imposed a tortious liability where the requisites therefor were not established by the evidence. According to petitioner, aside from the hearsay and inadmissible testimony of Jessie de Vera, there is no other evidence that the termination of the contract was done with deliberate intent to harm or for the sole purpose of prejudicing the respondent-drivers. Petitioner adds that the termination was an exercise of a right and directed primarily at Dr. Cruz.

Article 20 of the Civil Code provides that every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the damage done. Petitioner might not have deliberately intended to injure the respondent-drivers. But as a consequence of its willful act directed against Dr. Cruz, respondent-drivers lost their jobs and ,consequently suffered loss of income.


Note that under Article 20, there is no requirement that the act must be directed at a specific person, but it suffices that a person suffers damage as a consequence of a wrongful act of another in order that indemnity could be demanded from the wrongdoer.20The appellate court did not err, given the circumstances of this case, in awarding damages to respondent-drivers.

WHEREFORE, the petition is DENIED. The decision and resolution of the Court of Appeals dated September 26, 1995 and November 16, 1995, respectively, are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.

Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ., concur.

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