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1. G.R. No. 161135. April 8, 2005SWAGMAN HOTELS AND TRAVEL, INC.,Petitioners,vs.HON. COURT OF APPEALS, and NEAL B. CHRISTIAN,Respondents.

Facts of the Case:

On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City, Branch 59, a complaint for a sum of money and damages against the petitioner corporation, Hegerty, and Atty. Infante. The complaint alleged as follows: On 7 August 1996, 14 March 1997, and 14 July 1997, the petitioner, as well as its president and vice-president obtained loans from him in the total amount of US$150,000 payable after three years, with an interest of 15% per annum payable quarterly or every three months. For a while, they paid an interest of 15% per annum every three months in accordance with the three promissory notes. However, starting January 1998 until December 1998, they paid him only an interest of 6% per annum, instead of 15% per annum, in violation of the terms of the three promissory notes. Thus, Christian prayed that the trial court order them to pay him jointly and solidarily the amount of US$150,000 representing the total amount of the loans; US$13,500 representing unpaid interests from January 1998 until December 1998;P100,000 for moral damages;P50,000 for attorneys fees; and the cost of the suit.3The petitioner corporation, together with its president and vice-president, filed an Answer raising as defenses lack of cause of action and novation of the principal obligations. According to them, Christian had no cause of action because the three promissory notes were not yet due and demandable. In December 1997, since the petitioner corporation was experiencing huge losses due to the Asian financial crisis, Christian agreed (a) to waive the interest of 15% per annum, and (b) accept payments of the principal loans in installment basis, the amount and period of which would depend on the state of business of the petitioner corporation. Thus, the petitioner paid Christian capital repayment in the amount of US$750 per month from January 1998 until the time the complaint was filed in February 1999. The petitioner and its co-defendants then prayed that the complaint be dismissed and that Christian be ordered to payP1 million as moral damages;P500,000 as exemplary damages; andP100,000 as attorneys fees.4Issue: W/N there was novation during the renegotiation of the three promissory notes in December 1997.

Held:

It is worthy to note that the cash voucher dated January 199821states that the payment of US$750 represents "INVESTMENT PAYMENT." All the succeeding cash vouchers describe the payments from February 1998 to September 1999 as "CAPITAL REPAYMENT."22All these cash vouchers served as receipts evidencing private respondents acknowledgment of the payments made by the petitioner: two of which were signed by the private respondent himself and all the others were signed by his representatives. The private respondent even identified and confirmed the existence of these receipts during the hearing.23Significantly, cognizant of these receipts, the private respondent applied these payments to the three consolidated principal loans in the summary of payments he submitted to the court.24Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal shall not be deemed to have been made until the interest has been covered. In this case, the private respondent would not have signed the receipts describing the payments made by the petitioner as "capital repayment" if the obligation to pay the interest was still subsisting. The receipts, as well as private respondents summary of payments, lend credence to petitioners claim that the payments were for the principal loans and that the interests on the three consolidated loans were waived by the private respondent during the undisputed renegotiation of the loans on account of the business reverses suffered by the petitioner at the time.

There was therefore a novation of the terms of the three promissory notes in that the interest was waived and the principal was payable in monthly installments of US$750. Alterations of the terms and conditions of the obligation would generally result only in modificatory novation unless such terms and conditions are considered to be the essence of the obligation itself.25The resulting novation in this case was, therefore, of the modificatory type, not the extinctive type, since the obligation to pay a sum of money remains in force.

2. ISAIAS F. FABRIGAS and MARCELINA R. FABRIGAS,Petitioners,vs.SAN FRANCISCO DEL MONTE, INC.,Respondent.

Facts of the Case:On April 23, 1983, herein petitioner spouses Isaias and Marcelina Fabrigas ("Spouses Fabrigas" or "petitioners") and respondent San Francisco Del Monte, Inc. ("Del Monte") entered into an agreement, denominated asContract to Sell No. 2482-V, whereby the latter agreed to sell to Spouses Fabrigas a parcel of residential land situated in Barrio Almanza, Las Pias, Manila for and in consideration of the amount ofP109,200.00. Said property, which is known as Lot No. 9, Block No. 3 of Subdivision Plan (LRC) Psd-50064, is covered by Transfer Certificate of Title No. 4980 (161653) T-1083 registered in the name of respondent Del Monte. The agreement stipulated that Spouses Fabrigas shall payP30,000.00 as downpayment and the balance within ten (10) years in monthly successive installments ofP1,285.69.2Among the clauses in the contract is an automatic cancellation clause in case of default. After payingP30,000.00, Spouses Fabrigas took possession of the property but failed to make any installment payments on the balance of the purchase price. Del Monte sent demand letters on four occasions to remind Spouses Fabrigas to satisfy their contractual obligation.4In particular, Del Montes third letter dated November 9, 1983 demanded the payment of arrears in the amount ofP8,999.00. Said notice granted Spouses Fabrigas a fifteen-day grace period within which to settle their accounts. Petitioners failure to heed Del Montes demands prompted the latter to send a final demand letter dated December 7, 1983, granting Spouses Fabrigas another grace period of fifteen days within which to pay the overdue amount and warned them that their failure to satisfy their obligation would cause the rescission of the contract and the forfeiture of the sums of money already paid. Petitioners received Del Montes final demand letter on December 23, 1983. Del Monte consideredContract to Sell No. 2482-Vcancelled fifteen days thereafter, but did not furnish petitioners any notice regarding its cancellation.5On November 6, 1984, petitioner Marcelina Fabrigas ("petitioner Marcelina") remitted the amount ofP13,000.00 to Del Monte.6On January 12, 1985, petitioner Marcelina again remitted the amount ofP12,000.00.7A few days thereafter, or on January 21, 1985, petitioner Marcelina and Del Monte entered into another agreement denominated asContract to Sell No. 2491-V, covering the same property but under restructured terms of payment. Under the second contract, the parties agreed on a new purchase price ofP131,642.58, the amount ofP26,328.52 as downpayment and the balance to be paid in monthly installments ofP2,984.60 each.8Between March 1985 and January 1986, Spouses Fabrigas made irregular payments underContract to Sell No. 2491-V, to wit:

March 19, 1985P1, 328.52

July 2, 1985P2, 600.00

September 30, 1985P2, 600.00

November 27, 1985P2, 600.00

January 20, 1986P2, 000.009Del Monte sent a demand letter dated February 3, 1986, informing petitioners of their overdue account equivalent to nine (9) installments or a total amount ofP26,861.40. Del Monte required petitioners to satisfy said amount immediately in two subsequent letters dated March 5 and April 2, 1986.10This prompted petitioners to pay the following amounts:

February 3, 1986P2, 000.00

March 10, 1986P2, 000.00

April 9, 1986P2, 000.00

May 13, 1986P2, 000.00

June 6, 1986P2, 000.00

July 14, 1986P2, 000.0011No other payments were made by petitioners except the amount ofP10,000.00 which petitioners tendered sometime in October 1987 but which Del Monte refused to accept, the latter claiming that the payment was intended for the satisfaction ofContract to Sell No. 2482-Vwhich had already been previously cancelled. On March 24, 1988, Del Monte sent a letter demanding the payment of accrued installments underContract to Sell No. 2491-Vin the amount ofP165,759.60 lessP48,128.52, representing the payments made under the restructured contract, or the net amount ofP117,631.08. Del Monte allowed petitioners a grace period of thirty (30) days within which to pay the amount asked to avoid rescission of the contract. For failure to pay, Del Monte notified petitioners on March 30, 1989 thatContract to Sell No. 2482-Vhad been cancelled and demanded that petitioners vacate the property.12On September 28, 1990, Del Monte instituted an action for Recovery of Possession with Damages against Spouses Fabrigas before the RTC, Branch 63 of Makati City. The complaint alleged that Spouses Fabrigas owed Del Monte the principal amount ofP206,223.80 plus interest of 24% per annum. In their answer, Spouses Fabrigas claimed, among others, that Del Monte unilaterally cancelled the first contract and forced petitioner Marcelina to execute the second contract, which materially and unjustly altered the terms and conditions of the original contract.13After trial on the merits, the trial court rendered aDecisionon January 3, 1994, upholding the validity ofContract to Sell No. 2491-Vand ordering Spouses Fabrigas either to complete payments thereunder or to vacate the property.

Issue:

W/NContract to Sell No. 2482-Vextinguished through rescission or was it novated by the subsequentContract to Sell No. 2491-V?

Held:

Rescission, of course, is not the only mode of extinguishing obligations. Ordinarily, obligations are also extinguished by payment or performance, by the loss of the thing due, by the condonation or remission of the debt, by the confusion or merger of the rights of the creditor and debtor, by compensation, or by novation.20Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functionsone to extinguish an existing obligation, the other to substitute a new one in its placerequiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.21Notwithstanding the improper rescission, the facts of the case show thatContract to Sell No. 2482-Vwas subsequently novated byContract to Sell No. 2491-V. The execution ofContract to Sell No. 2491-Vaccompanied an upward change in the contract price, which constitutes a change in the object or principal conditions of the contract. In entering intoContract to Sell No. 2491-V,the parties were impelled by causes different from those obtaining underContract to Sell No. 2482-V. On the part of petitioners, they agreed to the terms and conditions ofContract to Sell No. 2491-Vnot only to acquire ownership over the subject property but also to avoid the consequences of their default underContract No. 2482-V. On Del Montes end, the upward change in price was the consideration for entering intoContract to Sell No. 2491-V.

In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.22The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first.23The execution ofContract to Sell No. 2491-Vcreated new obligations in lieu of those underContract to Sell No. 2482-V, which are already considered extinguished upon the execution of the second contract. The two contracts do not have independent existence for to hold otherwise would present an absurd situation where the parties would be liable under each contract having only one subject matter.

In sum,Contract to Sell No. 2491-Vis valid and binding. There is nothing to prevent respondent Del Monte from enforcing its contractual stipulations and pursuing the proper court action to hold petitioners liable for their breach thereof.

WHEREFORE, the instant Petition for Review is DENIED and the September 28, 2001Decisionof the Court of Appeals in CA-G.R. CV No. 45203 is AFFIRMED. Costs against petitioners.

3. BENJAMIN RODRIGUEZ,petitioner,vs.COURT OF APPEALS, and HADJI ESMAYATEN LUCMAN,respondents.

Facts of the Case:

The antecedent facts of the case are as follows:

Petitioner RodriguezaliasUy Tian Kiu is a businessman from Cebu City whose business, includes the importation of various commodities from Hongkong which he occasionally ordered from Allied Overseas Commercial Co., Ltd., a Hongkong corporation. The Managing Director of Allied Overseas Commercial Co., Ltd. is Lin Ping Huang, a close friend of private respondent Lucman.

Petitioner Rodriguez, as a result of business transactions with the Hongkong Corporation, accumulated an indebtedness owed to Allied Overseas in the amount of HK $418,729.60 which had at that time in 1968 an exchange value of P540,553.00.

Upon demand for payment by the Hongkong Corporation, the petitioner issued a pay-to-cash check dated September 11, 1970 covering the indebtedness. The check was, however, dishonored for lack of funds, the account having been closed two months earlier.

Subsequently, the Allied Overseas Commercial Co., Ltd., through its Managing Director, Lin Ping Huang, assigned its credit to the private respondent. We, as creditors assignors of the aforesaid debt, have on this date notified formally the debtor named herein of this full assignment of the aforesaid credit. (Orig. record, p. 11)

The assignee filed an action to collect the indebtedness. On March 4, 1985, the trial court rendered a decision in favor of the private respondent. The dispositive portion of the Decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendant, sentencing the latter to pay the former the following sums:

(a) P450,553.00 representing defendant's outstanding account to plaintiff's assignor, with interest thereon at twelve per cent (12%)per annumfrom the time of the filing of the complaint on February 4, 1971 until fully paid:

(b) P500,000.00 as actual damages;

(c) P100,000.00 as moral damages;

(d) The further sum equivalent to ten (10%) per cent of all the foregoing sums as attorney's fees and costs of litigation.

Costs against the defendant.

SO ORDERED. (pp. 142-143, Orig. Rec.)

Benjamin Rodriguez appealed the decision to the Court of Appeals and assigned the following as errors committed by the trial court:

1 Plaintiff is not the real party-in-interest and is therefore, without legal capacity to sue;

2 The obligation does not exist or has not been sufficiently proven to exist;

3 Venue is improperly laid.

After carefully evaluating the evidence presented by the parties, the Court of Appeals rendered the questioned decision dismissing the appeal for lack of merit. Benjamin Rodriguez filed a motion for reconsideration which was denied by the appellate court which stated that the arguments submitted in support of the motion were a mere rehash of the arguments in the Appellant's Brief.

The petitioner is now before us questioning the decision of the Court of Appeals.

Issue: W/N there was subrogation instead of assignment of credit.

Held:

Anent petitioner's second point, we find no merit in his contention that there was subrogation instead of an assignment of credit.

The basis of the complaint is not a deed of subrogation but an assignment of credit whereby the private respondent became the owner, not the subrogee of the credit since the assignment was supported by HK$ 1.00 andother valuable considerations.The case is one of the assignment of credit and not subrogation. In subrogation, the third party pays the obligation of the debtor to the creditor with the latter's consent. As a consequence, the paying third party steps into the shoes of the original creditor as subrogee of the latter.

An assignment of credit,on the other hand, is the process of transferring the right of the assignor to the assignee who would then have the right to proceed against the debtor. The assignment may be done either gratuitously or onerously, in which case, the assignment has an effect similar to that of a sale (p. 235, Civil Code of the Philippines, Annotated, Vol. V, Paras, 1982 ed.; Nyco Sales Corp. vs. BA Finance Corp., G.R. No. 71694, August 16, 1991).

The petitioner further contends that the consent of the debtor is essential to the subrogation. Since there was no consent on his part, then he allegedly is not bound.

Again, we find for the respondent. The questioned deed of assignment is neither one of the subrogation nor a power of attorney as the petitioner alleges. The deed of assignment clearly states that the private respondent became an assignee and, therefore, he became the only party entitled to collect the indebtedness. As a result of the Deed of Assignment, the plaintiff acquired all rights of the assignor including the right to sue in his own name as the legal assignee. Moreover, in assignment, the debtor's consent is not essential for the validity of the assignment (Art. 1624 in relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make (Article 1626, Civil Code).

Article 1626 also shows that payment of an obligation which is already existing does not depend on the consent of the debtor. It, in effect, mandates that such payment of the existing obligation shall already be made to the new creditor from the time the debtor acquires knowledge of the assignment of the obligation.

The law is clear that the debtor had the obligation to pay and should have paid from the date of notice whether or not he consented.

We have ruled inSison & Sison v. Yap Tico and Avancea,37 Phil. 587 [1918] that definitely, consent is not necessary in order that assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors' refusal to give consent.

What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may, therefore, validly assign his credit and its accessories without the debtor's consent (National Investment and Development Co. v. De los Angeles, 40 SCRA 489 [1971]). The purpose of the notice is only to inform the debtor that from the date of the assignment, payment should be made to the assignee and not to the original creditor.

The fact that the deed of assignment empowered the assignee to collect the credit originally owing to the foreign corporation does not make the assignee a mere attorney-in-fact.

The case ofNgo Tian Tian Tek and Ngo Hay v. Philippine Education Co., 78 Phil. 271 [1947] is in point:

When a chose, capable of legal assignment is assigned absolutely to one, but the assignment is made for purpose of collection, the legal title thereto vests, in the assignee, and it is no concern of the debtor that the equitable title is in another and payment to the assignee discharges the debtor.

4. MALAYAN INSURANCE CO., INC.,petitioner,vs.THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO CHOY, SAN LEON RICE MILL, INC. and PANGASINAN TRANSPORTATION CO., INC.,respondents.

Facts of the Case:

The antecedent facts of the case are as follows:

On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in favor of private respondent Sio Choy Private Car Comprehensive Policy No. MRO/PV-15753, effective from 18 April 1967 to 18 April 1968, covering a Willys jeep with Motor No. ET-03023 Serial No. 351672, and Plate No. J-21536, Quezon City, 1967. The insurance coverage was for "own damage" not to exceed P600.00 and "third-party liability" in the amount of P20,000.00.

During the effectivity of said insurance policy, and more particularly on 19 December 1967, at about 3:30 o'clock in the afternoon, the insured jeep, while being driven by one Juan P. Campollo an employee of the respondent San Leon Rice Mill, Inc., collided with a passenger bus belonging to the respondent Pangasinan Transportation Co., Inc. (PANTRANCO, for short) at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to the driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who was riding in the ill-fated jeep.

As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co., Inc. and the PANTRANCO before the Court of First Instance of Pangasinan, which was docketed as Civil Case No. U-2021. He prayed therein that the defendants be ordered to pay him, jointly and severally, the amount of P15,000.00, as reimbursement for medical and hospital expenses; P6,000.00, for lost income; P51,000.00 as actual, moral and compensatory damages; and P5,000.00, for attorney's fees.

Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an excessive speed and bumped the PANTRANCO bus which had moved to, and stopped at, the shoulder of the highway in order to avoid the jeep; and that it had observed the diligence of a good father of a family to prevent damage, especially in the selection and supervision of its employees and in the maintenance of its motor vehicles. It prayed that it be absolved from any and all liability.

Defendant Sio Choy and the petitioner insurance company, in their answer, also denied liability to the plaintiff, claiming that the fault in the accident was solely imputable to the PANTRANCO.

Sio Choy, however, later filed a separate answer with a cross-claim against the herein petitioner wherein he alleged that he had actually paid the plaintiff, Martin C. Vallejos, the amount of P5,000.00 for hospitalization and other expenses, and, in his cross-claim against the herein petitioner, he alleged that the petitioner had issued in his favor a private car comprehensive policy wherein the insurance company obligated itself to indemnify Sio Choy, as insured, for the damage to his motor vehicle, as well as for any liability to third persons arising out of any accident during the effectivity of such insurance contract, which policy was in full force and effect when the vehicular accident complained of occurred. He prayed that he be reimbursed by the insurance company for the amount that he may be ordered to pay.

Also later, the herein petitioner sought, and was granted, leave to file a third-party complaint against the San Leon Rice Mill, Inc. for the reason that the person driving the jeep of Sio Choy, at the time of the accident, was an employee of the San Leon Rice Mill, Inc. performing his duties within the scope of his assigned task, and not an employee of Sio Choy; and that, as the San Leon Rice Mill, Inc. is the employer of the deceased driver, Juan P. Campollo, it should be liable for the acts of its employee, pursuant to Art. 2180 of the Civil Code. The herein petitioner prayed that judgment be rendered against the San Leon Rice Mill, Inc., making it liable for the amounts claimed by the plaintiff and/or ordering said San Leon Rice Mill, Inc. to reimburse and indemnify the petitioner for any sum that it may be ordered to pay the plaintiff.

After trial, judgment was rendered as follows:

WHEREFORE, in view of the foregoing findings of this Court judgment is hereby rendered in favor of the plaintiff and against Sio Choy and Malayan Insurance Co., Inc., and third-party defendant San Leon Rice Mill, Inc., as follows:

(a) P4,103 as actual damages;

(b) P18,000.00 representing the unearned income of plaintiff Martin C. Vallejos for the period of three (3) years;

(c) P5,000.00 as moral damages;

(d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs.

The above-named parties against whom this judgment is rendered are hereby held jointly and severally liable. With respect, however, to Malayan Insurance Co., Inc., its liability will be up to only P20,000.00.

As no satisfactory proof of cost of damage to its bus was presented by defendant Pantranco, no award should be made in its favor. Its counter-claim for attorney's fees is also dismissed for not being proved.1On appeal, the respondent Court of Appeals affirmed the judgment of the trial court that Sio Choy, the San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and severally liable for the damages awarded to the plaintiff Martin C. Vallejos. It ruled, however, that the San Leon Rice Mill, Inc. has no obligation to indemnify or reimburse the petitioner insurance company for whatever amount it has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of insurance between Sio Choy and the insurance company.2Hence, the present recourse by petitioner insurance company.

The petitioner prays for the reversal of the appellate court's judgment, or, in the alternative, to order the San Leon Rice Mill, Inc. to reimburse petitioner any amount, in excess of one-half (1/2) of the entire amount of damages, petitioner may be ordered to pay jointly and severally with Sio Choy.

The Court, acting upon the petition, gave due course to the same, but "only insofar as it concerns the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it being understood that no other aspect of the decision of the Court of Appeals shall be reviewed, hence, execution may already issue in favor of respondent Martin C. Vallejos against the respondents, without prejudice to the determination of whether or not petitioner shall be entitled to reimbursement by respondent San Leon Rice Mill, Inc. for the whole or part of whatever the former may pay on the P20,000.00 it has been adjudged to pay respondent Vallejos."3However, in order to determine the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it is important to determine first the nature or basis of the liability of petitioner to respondent Vallejos, as compared to that of respondents Sio Choy and San Leon Rice Mill, Inc.

Issue: W/N petitioner is entitled to be reimbursed by respondent San Leon Rice Mill, Inc. for whatever amount petitioner has been adjudged to pay respondent Vallejos on its insurance policy following the principle of subrogation.

Held:

As to the second issue, the Court of Appeals, in affirming the decision of the trial court, ruled that petitioner is not entitled to be reimbursed by respondent San Leon Rice Mill, Inc. on the ground that said respondent is not privy to the contract of insurance existing between petitioner and respondent Sio Choy. We disagree.

The appellate court overlooked the principle of subrogation in insurance contracts. Thus

... Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer is entitled to be subrogatedpro tantoto any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037).

The right of subrogation is of the highest equity. The loss in the first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer (44 Am. Jur. 2d, 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382).

Although many policies including policies in the standard form, now provide for subrogation, and thus determine the rights of the insurer in this respect, the equitable right of subrogation as the legal effect of payment inures to the insurer without any formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the insurance company pays for the loss, such payment operates as an equitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof.That right is not dependent upon , nor does it grow out of any privity of contract(emphasis supplied) or upon written assignment of claim, and payment to the insured makes the insurer assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N.C. 456, 142 SE 2d 18).9It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of riot exceeding P20,000.00, shall become the subrogee of the insured, the respondent Sio Choy; as such, it is subrogated to whatever rights the latter has against respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code gives to a solidary debtor who has paid the entire obligation the right to be reimbursed by his co-debtors for the share which corresponds to each.

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded.

xxx xxx xxx

In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and thereby becoming the subrogee of solidary debtor Sio Choy, is entitled to reimbursement from respondent San Leon Rice Mill, Inc.

To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill, Inc. are solidarily liable to the respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may enforce the entire obligation on only one of said solidary debtors. If Sio Choy as solidary debtor is made to pay for the entire obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is compelled to pay P20,000.00 of said entire obligation, petitioner would be entitled, as subrogee of Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed by the latter in the amount of P14,551.50 (which is 1/2 of P29,103.00 )

WHEREFORE, the petition is GRANTED. The decision of the trial court, as affirmed by the Court of Appeals, is hereby AFFIRMED, with the modification above-mentioned. Without pronouncement as to costs.

5. PILIPINAS SHELL PETROLEUM CORPORATION,Petitioner,vs.JOHN BORDMAN LTD. OF ILOILO, INC.,Respondent.

Facts of the Case:

Petitioner Pilipinas Shell Petroleum Corporation ("Pilipinas Shell") is a corporation engaged in the business of refining and processing petroleum products.5The invoicing of the products was made by Pilipinas Shell, but delivery was effected through Arabay, Inc., its sole distributor at the time material to the present case.6From 1955 to 1975, Respondent John Bordman Ltd. of Iloilo, Inc. ("John Bordman") purchased bunker oil in drums from Arabay.7When Arabay ceased its operations in 1975, Pilipinas Shell took over and directly marketed its products to John Bordman.8On August 20, 1980, John Bordman filed against Pilipinas Shell a civil case for specific performance. The former demanded the latters short deliveries of fuel oil since 1955; as well as the payment of exemplary damages, attorneys fees and costs of suit.9John Bordman alleged that Pilipinas Shell and Arabay had billed it at 210 liters per drum, while other oil companies operating in Bacolod hadbilled their customers at 200 liters per drum. On July 24, 1974, when representatives from John Bordman and Arabay conducted a volumetric test to determine the quantity of fuel oil actually delivered, the drum used could only fill up to 190 liters, instead of 210 liters, or a short delivery rate of 9.5%.10After this volumetric test, Arabay reduced its billing rate to 200 (instead of 210) liters per drum, except for 4 deliveries between August 1 and September 9, 1974, when the billing was at 190 liters per drum.11On January 23, 1975, another volumetric test allegedly showed that the drum could contain only 187.5 liters.12On February 1, 1975, John Bordman requested from Pilipinas Shell that 640,000 liters of fuel oil, representing the latters alleged deficient deliveries, be credited to the formers account.13The volume demanded was adjusted to 780,000 liters, upon a realization that the billing rate of 210 liters per drum had been effective since 1966.

On October 24, 1977 and November 9, 1977, representatives from John Bordman, the auditor of the Iloilo City Commission on Audit, pump boat carriers, and truck drivers conducted actual measurements of fuel loaded on tanker trucks as transferred to dented drums at mouth full. They found that the drums could contain 180 liters only.14In its Complaint, John Bordman prayed for the appointment of commissioners to ascertain the volume of short deliveries.15On October 21, 1980, Pilipinas Shell and Arabay filed their Answer with Counterclaim.16They specifically denied that fuel oil deliveries had been less than those billed.17Moreover, the drums used in the volumetric tests were allegedly not representative of the ones used in the actual deliveries.18By way of affirmative defense, Pilipinas Shell and Arabay countered that John Bordman had no cause of action against them.19If any existed, it had been waived or extinguished; or otherwise barred by prescription, laches, and estoppel.20During the pretrial, the parties agreed to limit the issues to the following: (1) whether the action had prescribed, and (2) whether there had been short deliveries in the quantities of fuel oil.21John Bordmans Motion for Trial by Commissioner was granted by the RTC,22and the court-appointed commissioner submitted her Report on April 20, 1988.23On April 3, 1989, Pilipinas Shell and Arabay filed a Motion for Resolution of their affirmative defense of prescription.24Because prescription had not been established with certainty, the RTC ordered them on November 6, 1989, to present evidence in support of their defense.25On August 30, 1991, the RTC issued a Decision in favor of respondent.26Pilipinas Shell and Arabay were required to deliver to John Bordman 916,487.62 liters of bunker fuel oil, to pay actual damages ofP1,000,000; exemplary damages ofP500,000; attorneys fees ofP500,000; and the costs of suit.27The basis of the trial courts decision was predicated on the following pronouncement:

"Since [respondent] had fully paid their contract price at 210 liters per drum, then the [petitioner] should deliver to the [respondent] the undelivered volume of fuel oil from 1955 to 1974, which is 20 liters per drum; and 10 liters per drum from 1974 to 1977. Per the invoice receipts submitted, the total volume of fuel oil which [petitioner] have failed to deliver to [respondent] is 916,487.62 liters."28Pilipinas Shell appealed to the CA, alleging that John Bordman had failed to prove the short deliveries; and that the suit had been barred by estoppel, laches, and prescription.29Ruling of the Court of AppealsUpholding the trial court, the CA overruled petitioners objections to the evidence of respondent in relation to the testimonies of the latters witnesses and the results of the volumetric tests.30The CA noted that deliveries from 1955 to 1977 had been admitted by petitioner; and the fact of deficiency, established by respondent.31The appellate court also debunked petitioners claims of estoppel and laches. It held that the stipulation in the product invoices stating that respondent had received the products in good order was not controlling.32On the issue of prescription, the CA ruled that the action had been filed within the period required by law.33Hence, this Petition.34Issue: W/N the Pilipinas Shell breached the contract by delivering short deliveries of fuel

Held:

Challenge to Volumetric TestsPetitioner disputes the CAs finding that it had failed to disprove the results of the volumetric tests conducted by respondent. The former claims that it was able to controvert the latters evidence.52During the July 24, 1974 volumetric test, representatives of both petitioner and respondent allegedly agreed to conduct two tests using drums independently chosen by each.53Respondent allegedly chose the worst-dented drum that could fill only up to 190 liters. The second drum, which was chosen by petitioner, was not tested in the presence of Macarubbo because of heavy rain.54It supposedly filled up to 210 liters, however.55The issue, therefore, relates not to the submission of evidence, but to its weight and credibility. While petitioner may have submitted evidence, it failed to disprove the short deliveries. The lower courts obviously gave credence to the volumetric tests witnessed by both parties as opposed to those done solely by petitioner.

Petitioner also challenges the reliability of the volumetric tests on the grounds of failure to simulate the position of the drums during filling56and the fact that those tested were not representative of the ones used from 1955 to 1974.57These contentions fail to overturn the short deliveries established by respondent.

The evidence of petitioner challenging the volumetric tests was wanting. It did not present any as regards the correct position of the drums during loading. Notably, its representative had witnessed the two tests showing the short deliveries.58He therefore had the opportunity to correct the position of the drums, if indeed they had been incorrectly positioned. Further, there was no proof that those used in previous years were all good drums with no defects. Neither was there evidence that its deliveries from 1955 had been properly measured.

From the foregoing observations, it is apparent that the evidence presented by both parties preponderates in favor of respondent. The Court agrees with the following observations of the CA:

"[Petitioner] posits that its fuel deliveries were properly measured and/or calibrated. To the mind of this Court, regardless of what method or manner the deliveries were made, whether pre-packed drums, by the dip stick method or through ex-jetty, the fact remains that [petitioner] failed to overcome the burden of proving that indeed the drums used during the deliveries contain 210 liters. The [petitioner], to support its claim, adduced no evidence. Moreover, it failed to disprove the results of the volumetric tests."59Having sustained the finding of short deliveries, the Court finds it no longer necessary to address the contention of petitioner that its subsequent reduction of billings constituted merely a business accommodation.606. ANG YU ASUNCION, ARTHUR GO AND KEH TIONG,petitioners,vs.THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION,respondents.

Facts of the Case:

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

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

After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision states:

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

SO ORDERED.

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

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

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation.As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990.

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

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

Issue: W/N a contract existed between petitioners and private respondents. Held:We affirm the decision of the appellate court.

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

The trial court found that defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal.In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the courta quois legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The courta quoin the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is sold for a purchase price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos. 7. JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION,respondents.[G.R. No. 128069 June 19, 2000]PURE FOODS CORPORATION, petitioner, vs.COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION,respondents.Facts of the Case:

The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy and curtail further losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to install two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City.

Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and dealers were invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that would best suit the needs of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding conference, only three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as required.

Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the award of the contract to FEMSCO -

Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions.

Immediately, FEMSCO submitted the required performance bond in the amount ofP1,841,187.90 and contractors all-risk insurance policy in the amount ofP6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a letter dated 18 December 1992. FEMSCO also made arrangements with its principal and started the PUREFOODS project by purchasing the necessary materials. PUREFOODS on the other hand returned FEMSCOs Bidders Bond in the amount ofP1,000,000.00, as requested.

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga unilaterally canceled the award as "significant factors were uncovered and brought to (their) attention which dictate (the) cancellation and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the award and sought a meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already awarded the project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which incidentally was not one of the bidders.

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from delivering and installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and inducement. Trial ensued. After FEMSCO presented its evidence, JARDINE filed aDemurrer to Evidence.

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68,[1]granted JARDINEsDemurrer to Evidence. The trial court concluded that "[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something underhanded going on, this is all a matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not stand up very well in a court of law."[2]Meanwhile trial proceeded as regards the case against PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum ofP2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent, andP900,000.00 representing contractor's mark-up on installation work, considering that it would be impossible to compel PUREFOODS to honor, perform and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting that construction had already started thereon; (c) to pay attorneys fees in an amount equivalent to 20% of the total amount due; and, (d) to pay the costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the trial court which granted theDemurrer to Evidencefiled by JARDINE resulting in the dismissal of the complaint against it, while PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.

On 14 August 1996 the Court of Appeals affirmedin totothe 28 July 1994 Decision of the trial court.[3]It also reversed the 27 June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the latters contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCOP2,000,000.00 for moral damages. In addition, PUREFOODS was also directed to pay FEMSCOP2,000,000.00 as moral damages andP1,000,000.00 as exemplary damages as well as 20% of the total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and award of the project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's expressconforme.Since PUREFOODS never received FEMSCOsconforme,PUREFOODS was very well within reason to revoke its qualified acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt with FEMSCO. Hence moral and exemplary damages should not have been awarded.

Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latters alleged contract with FEMSCO. Moreover, JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages. But grantingarguendothat the award of moral damages is proper,P2,000,000.00 is extremely excessive.

Issue: W/N there existed a perfected contract between PUREFOODS and FEMSCO.Held: A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do."[4]There can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; and, (c) cause of the obligation which is established.[5]A contract binds both contracting parties and has the force of law between them.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[6]To produce a contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be express or implied.[7]For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The controversy lies in the consent - whether there was an acceptance of the offer, and if so, if it was communicated, thereby perfecting the contract.

To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner PUREFOODS started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that "[a]dvertisements for bidders are simply invitations to make proposals," applies. Accordingly, theTerms and Conditions of the Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the reply of petitioner PUREFOODS, the acceptance or rejection of the respective offers.

Quite obviously, the 12 December 1992 letter of petitioner PUREFOODS to FEMSCO constituted acceptance of respondent FEMSCOs offer as contemplated by law. The tenor of the letter,i.e.,"This will confirm that Pure Foods has awarded to your firm (FEMSCO) the project," could not be more categorical. While the same letter enumerated certain "basic terms and conditions," these conditions were imposed on the performance of the obligation rather than on the perfection of the contract. Thus, the first "condition" was merely a reiteration of the contract price and billing scheme based on theTerms and Conditions of Biddingand the bid or previous offer of respondent FEMSCO. The second and third "conditions" were nothing more than general statements that all items and materials including those excluded in the list but necessary to complete the project shall be deemed included and should be brand new. The fourth "condition" concerned the completion of the work to be done,i.e., within twenty (20) days from the delivery of the generator set, the purchase of which was part of the contract. The fifth "condition" had to do with the putting up of a performance bond and an all-risk insurance, both of which should be given upon commencement of the project. The sixth "condition" related to the standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions" were prescriptions on how the obligation was to be performed and implemented. They were far from being conditions imposed on the perfection of the contract.

In Babasa v. Court of Appeals[8]we distinguished between a condition imposed on the perfection of a contract and a condition imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a contract, failure to comply with the second merely gives the other party options and/or remedies to protect his interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial court -

As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract has already been made. The letter only serves as a confirmation of such decision. Hence, to the Courts mind, there is already an acceptance made of the offer received by Purefoods. Notwithstanding the terms and conditions enumerated therein, the offer has been accepted and/or amplified the details of the terms and conditions contained in the Terms and Conditions of Bidding given out by Purefoods to prospective bidders.[9]But even grantingarguendothat the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-offer," respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance, if not a clear indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond and the contractor's all-risk insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment thereof by petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that respondent FEMSCO indeed consented to the "conditional counter-offer." After all, as earlier adverted to, an acceptance may either be express or implied,[10]and this can be inferred from the contemporaneous and subsequent acts of the contracting parties.

Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent FEMSCO'sconformewould only be a mere surplusage. The discussion of the price of the project two (2) months after the 12 December 1992 letter can be deemed as nothing more than a pressure being exerted by petitioner PUREFOODS on respondent FEMSCO to lower the price even after the contract had been perfected. Indeed from the facts, it can easily be surmised that petitioner PUREFOODS was haggling for a lower price even after agreeing to the earlier quotation, and was threatening to unilaterally cancel the contract, which it eventually did. Petitioner PUREFOODS also makes an issue out of the absence of a purchase order (PO). Suffice it to say that purchase orders or POs do not make or break a contract. Thus, even the tenor of the subsequent letter of petitioner PUREFOODS,i.e.,"Pure Foods Corporation is hereby canceling the award to your company of the project," presupposes that the contract has been perfected. For, there can be no cancellation if the contract was not perfected in the first place.

8. BF CORPORATION,petitioner,vs.COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO B. COLAYCO, ALFREDO C. RAMOS, MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS,respondents.

Facts of the Case:

Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the latter engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping mall complex in the City of Mandaluyong. The construction work was in progress when SPI decided to expand the project by engaging the services of petitioner again. Thus, the parties entered into an agreement for the main contract works after which construction work began.

However, petitioner incurred delay in the construction work that SPI considered as "serious and substantial."1On the other hand, according to petitioner, the construction works "progressed in faithful compliance with the First Agreement until a fire broke out on November 30, 1990 damaging Phase I" of the Project.2Hence, SPI proposed the re-negotiation of the agreement between them.

Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement denominated as "Agreement for the Execution of Builder's Work for the EDSA Plaza Project." Said agreement would cover the construction work on said project as of May 1, 1991 until its eventual completion.

According to SPI, petitioner "failed to complete the construction works and abandoned the project."3This resulted in disagreements between the parties as regards their respective liabilities under the contract. On July 12, 1993, upon SPI's initiative, the parties' respective representatives met in conference but they failed to come to an agreement.4Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig a complaint for collection of the balance due under the construction agreement. Named defendants therein were SPI and members of its board of directors namely, Alfredo C. Ramos, Rufo B. Calayco, Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos.

On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of filing an answer. The motion was anchored on defendants' allegation that the formal trade contract for the construction of the project provided for a clause requiring prior resort to arbitration before judicial intervention could be invoked in any dispute arising from the contract. The following day, SPI submitted a copy of the conditions of the contract containing the arbitration clause that it failed to append to its motion to suspend proceedings.

Petitioner opposed said motion claiming that there was no formal contract between the parties although they entered into an agreement defining their rights and obligations in undertaking the project. It emphasized that the agreement did not provide for arbitration and therefore the court could not be deprived of jurisdiction conferred by law by the mere allegation of the existence of an arbitration clause in the agreement between the parties.

In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing contract between petitioner and SPI. It alleged that suspension of proceedings would not necessarily deprive the court of its jurisdiction over the case and that arbitration would expedite rather than delay the settlement of the parties' respective claims against each other.

In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the contract between the parties. It averred that granting that such a clause indeed formed part of the contract, suspension of the proceedings was no longer proper. It added that defendants should be declared in default for failure to file their answer within the reglementary period.

In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due execution of the "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI president, and Bayani Fernando, president of petitioner appear, while page D/7 shows that the agreement is a public document duly notarized on November 15, 1991 by Notary Public Nilberto R. Briones as document No. 345, page 70, book No. LXX, Series of 1991 of his notarial register.5Thereafter, upon a finding that an arbitration clause indeed exists, the lower court6denied the motion to suspend proceedings, thus:

It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex C, Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed upon the terms and conditions of the Builders Work for the EDSA Plaza Project (Phases I, II and Carpark), subject to the execution by the parties of a formal trade contract. Defendants have submitted a copy of the alleged trade contract, which is entitled "Contract Documents For Builder's Work Trade Contractor" dated 01 May 1991, page 2 of which is entitled "Contents of Contract Documents" with a list of the documents therein contained, and Section A thereof consists of the abovementioned Letter-Agreement dated May 30, 1991. Section C of the said Contract Documents is entitled "Articles of Agreement and Conditions of Contract" which, per its Index, consists of Part A (Articles of Agreement) and B (Conditions of Contract). The said Articles of Agreement appears to have been duly signed by President Rufo B. Colayco of Shangri-La Properties, Inc. and President Bayani F. Fernando of BF and their witnesses, and was thereafter acknowledged before Notary Public Nilberto R. Briones of Makati, Metro Manila on November 15, 1991.The said Articles of Agreement also provides that the "Contract Documents" therein listed "shall be deemed an integral part of this Agreement", and one of the said documents is the "Conditions of Contract" which contains the Arbitration Clause relied upon by the defendants in their Motion to Suspend Proceedings.

This Court notes, however, that the 'Conditions of Contract' referred to, contains the following provisions:

3. Contract Document.

Three copies of the Contract Documents referred to in the Articles of Agreementshall be signed by the parties to the contractand distributed to the Owner and the Contractor for their safe keeping." (emphasis supplied).

And it is significant to note further that the said "Conditions of Contract" is not duly signed by the parties on any page thereof although it bears the initials of BF's representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) without the initials thereon of any representative of Shangri-La Properties, Inc.

Considering the insistence of the plaintiff that the said Conditions of Contract was not duly executed or signed by the parties, and the failure of the defendants to submit any signed copy of the said document, this Court entertains serious doubt whether or not the arbitration clause found in the said Conditions of Contract is binding upon the parties to the Articles of Agreement." (Emphasis supplied.)

The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it was "too late in the day for defendants to invoke arbitration." It quoted the following provision of the arbitration clause:

Notice of the demand for arbitration of a dispute shall be filed in writing with the other party to the contract and a copy filed with the Project Manager. The demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably have failed; in no case, however, shall the demand he made be later than the time of final payment except as otherwise expressly stipulated in the contract.

Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project was to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000 for each day of delay counted from November 1, 1991 with "liquified (sic) damages up to a maximum of 5% of the total contract price."

The lower court also found that after the project was completed in accordance with the agreement that contained a provision on "progress payment billing," SPI "took possession and started operations thereof by opening the same to the public in November, 1991." SPI, having failed to pay for the works, petitioner billed SPI in the total amount of P110,883,101.52, contained in a demand letter sent by it to SPI on February 17, 1993. Instead of paying the amount demanded, SPI set up its own claim of P220,000,000.00 and scheduled a conference on that claim for July 12, 1993. The conference took place but it proved futile.

Upon the above facts, the lower court concluded:

Considering the fact that under the supposed Arbitration Clause invoked by defendants, it is required that "Notice of the demand for arbitration of a dispute shall be filed in writing with the other party . . . . in no case . . . . later than the time of final payment . . . "which apparently, had elapsed, not only because defendants had taken possession of the finished works and the plaintiff's billings for the payment thereof had remained pending since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason that defendants have failed to file any written notice of any demand for arbitration during the said long period of one year and eight months, this Court finds that it cannot stay the proceedings in this case as required by Sec. 7 of Republic Act No. 876, because defendants are in default in proceeding with such arbitration.

The lower court denied SPI's motion for reconsideration for lack of merit and directed it and the other defendants to file their responsive pleading or answer within fifteen (15) days from notice.

Instead of filing an answer to the complaint, SPI filed a petition forcertiorariunder Rule 65 of the Rules of Court before the Court of Appeals. Said appellate court granted the petition, annulled and set aside the orders and stayed the proceedings in the lower court. In so ruling, the Court of Appeals held:

The reasons given by the respondent Court in denying petitioners' motion to suspend proceedings are untenable.

Issue: The basic issue in this petition for review oncertiorariis whether or not the contract for the construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la Properties, Inc. embodies an arbitration clause in case of disagreement between the parties in the implementation of contractual provisions.

Held:

In the same vein, this Court holds that the question of the existence of the arbitration clause in the contract between petitioner and private respondents is a legal issue that must be determined in this petition for review oncertiorari.

Petitioner, while not denying that there exists an arbitration clause in the contract in question, asserts thatin contemplation of lawthere could not have been one considering the following points.First, the trial court found that the "conditions of contract" embodying the arbitration clause is not duly signed by the parties.Second, private respondents misrepresented before the Court of Appeals that they produced in the trial court a notarized duplicate original copy of the construction agreement because what were submitted were mere photocopies thereof. The contract(s) introduced in court by private respondents were therefore "of dubious authenticity" because: (a) the Agreement for the Execution of Builder's Work for the EDSA Plaza Project does not contain an arbitration clause, (b) private respondents "surreptitiously attached as Annexes "G-3" to "G-5" to their petition before the Court of Appeals but these documents are not parts of the Agreement of the parties as "there was no formal trade contract executed," (c) if the entire compilation of documents "is indeed a formal trade contract," then it should have been duly notarized, (d) the certification from the Records Management and Archives Office dated August 26, 1993 merely states that "the notarial record of Nilberto Briones . . . is available in the files of (said) office asNotarial Registry Entry only," (e) the same certification attests that the document entered in the notarial registry pertains to the Articles of Agreement only without any other accompanying documents, and therefore, it is not a formal trade contract, and (f) the compilation submitted by respondents are a "mere hodge-podge of documents and do not constitute a single intelligible agreement."

In other words, petitioner denies the existence of the arbitration clause primarily on the ground that the representatives of the contracting corporations did not sign the "Conditions of Contract" that contained the said clause. Its other contentions, specifically that insinuating fraud as regards the alleged insertion of the arbitration clause, are questions of fact that should have been threshed out below.

This Court may as well proceed to determine whether the arbitration clause does exist in the parties' contract. Republic Act No. 876 provides for the formal requisites of an arbitration agreement as follows:

Sec. 4. Form of arbitration agreement. A contract to arbitrate a controversy thereafter arising between the parties, as well as a submission to arbitrate an existing controversy,shall be in writing and subscribed by the party sought to be charged, or by his lawful agent.

The making of a contract or submission for arbitration described in section two hereof, providing for arbitration of any controversy, shall be deemed a consent of the parties of the province or city where any of the parties resides, to enforce such contract of submission. (Emphasis supplied.).

The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in writing and (b) it must be subscribed by the parties or their representatives. There is no denying that the parties entered into a written contract that was submitted in evidence before the lower court. To "subscribe" means to write underneath, as one's name; to sign at the end of a document.11That word may sometimes be construed to mean to give consent to or to attest.12The Court finds that, upon a scrutiny of the records of this case, these requisites were complied with in the contract in question. The Articles of Agreement, which incorporates all the other contracts and agreements between the parties, was signed by representatives of both parties and duly notarized. The failure of the private respondent's representative to initial the "Conditions of Contract" would therefor not affect compliance with the formal requirements for arbitration agreements because that particular portion of the covenants between the parties was included by reference in the Articles of Agreement.

Petitioner's contention that there was no arbitration clause because the contract incorporating said provision is part of a "hodge-podge" document, is therefore untenable. A contract need not be contained in a single writing. It may be collected from several different writings which do not conflict with each other and which, when connected, show the parties, subject matter, terms and consideration, as in contracts entered into by correspondence.13A contract may be encompassed in several instruments even though every instrument is not signed by the parties, since it is sufficient if the unsigned instruments are clearly identified or referred to and made part of the signed instrument or instruments. Similarly, a written agreement of which there are two copies, one signed by each of the parties, is binding on both to the same extent as though there had been only one copy of the agreement and both had signed it.14The flaw in petitioner's contentions therefore lies in its having segmented the various components of the whole contract between the parties into several parts. This notwithstanding, petitioner ironically admits the execution of the Articles of Agreement. Notably, too, the lower court found that the said Articles of Agreement "also provides that the 'Contract Documents' therein listed 'shall be deemed an integral part of this Agreement,' and one of the said documents is the 'Conditions of Contract' which contains the Arbitration Clause.'" It is this Articles of Agreement that was duly signed by Rufo B. Colayco, president of private respondent SPI, and Bayani F. Fernando, president of petitioner corporation. The same agreement was duly subscribed before notary public Nilberto R. Briones. In other words, the subscription of the principal agreement effectively covered the other documents incorporated by reference therein.

This Court likewise does not find that the Court of Appeals erred in ruling that private respondents were not in default in invoking the provisions of the arbitration clause which states that "(t)he demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably had failed." Under the factual milieu, private respondent SPI should have paid its liabilities tinder the contract in accordance with its terms. However, misunderstandings appeared to have cropped up between the parties ostensibly brought about by either delay in the completion of the construction work or by force majeure or the fire that partially gutted the project. The almost two-year delay in paying its liabilities may not therefore be wholly ascribed to private respondent SPI.

Besides, private respondent SPI's initiative in calling for a conference between the parties was a step towards the agreed resort to arbitration. However, petitioner posthaste filed the complaint before the lower court. Thus, while private respondent SPI's request for arbitration on August 13, 1993 might appear an afterthought as it was made after it had filed the motion to suspend proceedings, it was because petitioner also appeared to act hastily in order to resolve the controversy through the courts.

The arbitration clause provides for a "reasonable time" within which the parties may avail of the relief under that clause. "Reasonableness" is a relative term and the question of whether the time within which an act has to be done is reasonable depends on attendant circumstances.15This Court finds that under the circumstances obtaining in this case, a one-month period from the time the parties held a conference on July 12, 1993 until private respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it under the contract. However, we find its denial of the existence of the arbitration clause as an attempt to cover up its misstep in

WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the petition forcertiorari is DENIED. This Decision is immediately executory. Costs against petitioner.

9. ROLANDO LIMPO,Petitioner,vs.COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY,Respondents.

Facts:On November 11, 1980, plaintiffSecurity Bank & Trust Companyfiled acomplaint for a Sum of Moneywith the Regional Trial Court of Pasig, Branch 158 entitled "Security Bank & Trust Company, plaintiff, - versus Miguel F. Uy, Brigitte E. Uy and Rolando Limpo, defendants[.]" Plaintiff Bank sought to recover the outstanding balance of a promissory note executed by the defendants.

On February 1, 1983, defendants-spousesMiguel F. UyandBrigitte Uyentered into aCompromise Agreementwith plaintiff bank. On March 22, 1983, the trial court rendered decision, reproducing therein thepertinent provisionsof theCompromise Agreementas follows:

"1. Defendant spouses admit liability to the plaintiff the said amount ofP38,833.44 as of January 12, 1983;

2. Defendant spouses agree to pay the plaintiff the said amount ofP38,833.44 with interest at the rate of 20% per annum with aforesaid interest rate computed based on declining balance, from January 12, 1983 in the following manner:

a)P4,644.00 on or before March 14, 1983 of whichP500.00 shall be applied as attorneys fee;P144.00 the cost of suit, and the remaining balance to the outstanding loan obligation;

b)P4,000.00 each on or before the 15th day of each month commencing April 1983 until June 1, 1983;

c)P1,500.00 on or before the 15th day of each month commencing July 1983 until the balance and accruing interest thereon is fully paid.

3. In case of failure to pay any installment when due, the whole balance shall become due and payable, without necessity of demand and defendant spouses shall be assessed a default penalty of 3% per month until the obligation is fully paid. Moreover, plaintiff shall be entitled to a writ of execution upon ex-parte motion." (RTCDecision,p.1)

When defendants failed to comply with the terms and conditions of the compromise agreement, plaintiff bank, on November 27, 1984, filed anEx-Parte Motion for the Issuance of Writ of Execution. The motion not having been acted upon, plaintiff bank, on July 22, 1992, filed acomplaint for Revival of Judgment.

The defendant-spouses, in theirAnswer, alleged as their defense laches, for failure of plaintiff bank to enforce its rights for more than eight (8) years. Defendant Limpo, on the other hand, alleged that "he is not obligated to pay any amount to plaintiff under the said compromise agreement which was entered into only by and between plaintiff and defendant spouses Miguel F. Uy and Brigitte E. Uy without his knowledge and consent." (Records,p.31)

On February 5, 1993, plaintiff bank filed aMotion for Judgment on the Pleadingsalleging that defendants spouses Answer failed to tender genuine issues. On April 20, 1993, the trial court issued an order against defendants spouses ordering them to pay plaintiff bank the amount ofP38,833.44 with interest at the rate of 20% per annum computed from January 12, 1983 until the amount is fully paid. Defendant-spouses appealed this decision to the Court of Appeals, but said appeal was ordered dismissed by this Courts Special Fifth Division for defendants spouses abuse of the extensions of time granted them, pursuant toSection 1 (f) of Rule 50 of the Rules of Court (Rollo,p.84).

Meanwhile, on June 30, 1993, defendant Limpo filed a Manifestation and Motion praying for the dismissal of the complaint on the ground that the judgment sought to be revived did not include defendant Limpo. After responsive pleadings were filed by the parties, the trial court issued an Order dated November 3, 1993 dismissing the complaint against defendant Limpo. This Order was reiterated by the trial court in the Order dated April 19, 1994 which likewise dismissed defendant Limpos compulsory counterclaim.

Not satisfied with the Order of the trial court, plaintiff bank filed the appeal at bench.

Plaintiff-appellant Security Bank & Trust Company assails the Order of the trial court on the basis of thesole assigned error, to wit:

"THE LOWER COURT ERRED IN DISMISSING THE INSTANT COMPLAINT AGAINST DEFENDANT-APPELLANT ROLANDO LIMPO." (AppellantsBrief,p.3)

At first, the Court of Appeals dismissed the appeal holding that the Compromise Agreement had superseded the promissory note executed between the payee Security Bank & Trust Company (the Bank) and the makers spouses Miguel F. Uy and Brigitte E. Uy (spouses Uy) and Rolando Limpo (Limpo). Limpo, inasmuch as he was never a party to the new agreement, was held to be not bound by its terms and, therefore, was no longer obligated to the Bank. Upon the Banks motion for reconsideration, however, the Court of Appeals reversed itself and ordered the continuation of proceedings in Civil Case No. 62226 against Limpo.

Issue: In this petition, Limpo presents the following issues to be resolved:21. Whether Rolando Limpo is bound under the Compromise Agreement entered into by Security Bank Corporation and defendants Miguel Uy and Brigitte Uy.

2. Whether Rolando Limpo is liable to Security Bank Corporation under the trial courts judgment dated March 22, 1983 which was based on the Compromise Agreement entered into by Security Bank and the defendants Miguel Uy and Brigitte Uy.

Held:Anent the first two issues, Limpo takes for the negative. He maintains that the Compromise Agreement was executed without his participation and so the trial courts judgment based on compromise, by obvious consequence, did not and could not have included him as a judgment debtor. Under this circumstance, there would be no basis to include him as a defendant in a complaint for revival of judgment.

With respect to the second issue, Limpo answers in the affirmative. He avers that an action based on the promissory note, being a written contract, prescribes in ten years. Continuing from this premise, he computes that the right of action under the promissory note accrued when it became due and demandable on September 19, 1979 and was suspended upon institution of the action to collect on the note on November 11, 1980. By then, one year, one month and twenty-three days had elapsed. The period began to run again on March 22, 1983, when the judgment approving the Compromise Agreement was issued, and was tolled upon the filing of the complaint for revival of judgment on July 22, 1992. This next interval adds up to approximately nine years and four months. Add this to the first interval, the total period that had run would already be ten years and five months, making any suit on the promissory note barred by prescription.

The Court finds the petition meritorious.

It is settled that a compromise agreement cannot bind persons who are not parties to it.3This rule is based on Article 1311(1) of the Civil Code which provides that "contracts take effect only between the parties, their assigns and heirs x x x." The sound reason for the exclusion of non-parties to an agreement is the absence of avinculum or juridical tie which is the efficient cause for the establishment of an obligation. In the Compromise Agreement that was presented to the trial court, there is no question that only the spouses Uy and the Bank were parties. Limpo did not participate in its execution and there was no reference to him in any of its provisions. He cannot be bound by the Compromise Agreement.

What happens then if the court approves a compromise agreement that fails to include all of the defendants? In approving a compromise agreement, no court can impose upon the parties a judgment different from their real agreement or against the very terms and conditions of the amicable settlement entered into.4The principle of autonomy of contracts must be respected.5These being said, considering that the Compromise Agreement imposed no obligation upon Limpo, it follows that the judgment rendered by the Regional Trial Court (RTC) of Pasig, based on the Compromise Agreement, could likewise not impose any obligation upon him. The duty of the court is confined to the interpretation of the agreement that the contracting parties have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain.6Consequently, the contention of Limpo is correct. The terms and conditions set forth in the Compromise Agreement, as approved by the court, are controlling7and, therefore, there is no basis to include him in reviving the judgment.

However, there remains the question of whether the Bank may still continue the proceedings against Limpo in Civil Case No. 62226, as concluded by the Court of Appeals.

The Court of Appeals gives the following reason:

x x x If the spouses Uy would become insolvent and could not pay their obligation under the Compromise Agreement, the SBTC [the Bank] could collect the whole amount of the obligation from defendant Rolando Limpo. A judgment, therefore, against Rolando Limpo would not be incompatible with the existence of the Compromise Agreement for in such a situation SBTC could exercise its option to secure execution of judgment against either or both the Uys and Limpo. The only limitation is that SBTC could not collect more than the total amount of indebtedness.

The sound reasoning of the Court of Appeals as to the liabilities of a solidary debtor is correct. However, it failed to consider two important incidents that make this case distinct: 1) a judgment had been rendered excluding Limpo; and 2) such judgment had become final.

A compromise agreement once approved by order of the court becomes immediately final and executory with the force ofres judicata.8The courts sanction imbues it with the same effect as