G.R. No. 149734 November 19, 2004

DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners, vs.AYALA CORPORATION, respondent.

Mere reminder to perform is not equivalent to a demand to perform must be categorical. Option Contract v. right of first refusal.

D E C I S I O N

TINGA, J.:

The rise in value of four lots in one of the country's prime residential developments, Ayala Alabang Village in Muntinlupa City, over a period of six (6) years only, represents big money. The huge price difference lies at the heart of the present controversy. Petitioners insist that the lots should be sold to them at 1984 prices while respondent maintains that the prevailing market price in 1990 should be the selling price.

Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this Petition for Review on Certiorari2 dated October 11, 2001 assailing the Decision3 of the Court of Appeals dated September 6, 2001 which reversed the Decision4 of the Regional Trial Court (RTC) and dismissed their complaint for specific performance and damages against Ayala Corporation.

Despite their disparate rulings, the RTC and the appellate court agree on the following antecedents:5

On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez spouses) entered into a Memorandum of Agreement (MOA) with Ayala Corporation (hereafter, AYALA) with AYALA buying from the Vazquez spouses, all of the latter's shares of stock in Conduit Development, Inc. (hereafter, Conduit). The main asset of Conduit was a 49.9 hectare property in Ayala Alabang, Muntinlupa, which was then being developed by Conduit under a development plan where the land was divided into Villages 1, 2 and 3 of the "Don Vicente Village." The development was then being undertaken for Conduit by G.P. Construction and Development Corp. (hereafter, GP Construction).

Under the MOA, Ayala was to develop the entire property, less what was defined as the "Retained Area" consisting of 18,736 square meters. This "Retained Area" was to be retained by the Vazquez spouses. The area to be developed by Ayala was called the "Remaining Area". In this "Remaining Area" were 4 lots adjacent to the "Retained Area" and Ayala agreed to offer these lots for sale to the Vazquez spouses at the prevailing price at the time of purchase. The relevant provisions of the MOA on this point are:

"5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class residential subdivision of the same class as its New Alabang Subdivision, and that it intends to complete the first phase under its amended development plan within three (3) years from the date of this Agreement. x x x"

5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots next to the "Retained Area" at the prevailing market price at the time of the purchase."

The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduit's development plan, but Ayala's amended development plan which was still to be formulated as of the time of the MOA. While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez Spouses were in the first phase thereof or Village 1, in the Ayala plan which was formulated a year later, it was in the third phase, or Phase II-c.

Under the MOA, the Vasquez spouses made several express warranties, as follows:

"3.1. The SELLERS shall deliver to the BUYER:

xxx

3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company showing:

xxx

D. A list of all persons and/or entities with whom the Company has pending contracts, if any.

xxx

3.1.5. Audited financial statements of the Company as at Closing date.

4. Conditions Precedent

All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the Closing, of the following conditions:

4.1. The representations and warranties by the SELLERS contained in this Agreement shall be true and correct at the time of Closing as though such representations and warranties were made at such time; and

xxx

6. Representation and Warranties by the SELLERS

The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the execution of this Agreement and at the Closing:

xxx

6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS, threatened against or affecting the SELLERS with respect to the Shares or the Property; and

7. Additional Warranties by the SELLERS

7.1. With respect to the Audited Financial Statements required to be submitted at Closing in accordance with Par. 3.1.5 above, the SELLER jointly and severally warrant to the BUYER that:

7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the "Remaining Property", free from all liens and encumbrances and that the Company shall have no obligation to any party except for billings payable to GP Construction & Development Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with Par. 2 of this Agreement.

7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of Closing, and those disclosed to BUYER, the Company as of the date thereof, has no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become due and whether incurred in respect of or measured in respect of the Company's income prior to Closing or arising out of transactions or state of facts existing prior thereto.

7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the Company as at closing or any liability of any nature and in any amount not fully reflected or reserved against such Audited Financial Statements referred to above, and those disclosed to BUYER.

xxx xxx xxx

7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal action or other proceedings before any court or administrative body, nor do the SELLERS know or have reasonable grounds to know of any basis for any such action or proceeding or of any governmental investigation relative to the Company.

7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by the Company of any term, covenant or condition of any instrument or agreement to which the company is a party or by which it is bound, and no condition exists which, with notice or lapse of time or both, will constitute such default or breach."

After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don Vicente Project. Ayala then received a letter from one Maximo Del Rosario of Lancer General Builder Corporation informing Ayala that he was claiming the amount of P1,509,558.80 as the subcontractor of G.P. Construction...

G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982, Lancer sued G.P. Construction, Conduit and Ayala in the then Court of First Instance of Manila in Civil Case No. 82-8598. G.P. Construction in turn filed a cross-claim against Ayala. G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of the property. The suit was terminated only on February 19, 1987, when it was dismissed with prejudice after Ayala paid both Lancer and GP Construction the total of P4,686,113.39.

Taking the position that Ayala was obligated to sell the 4 lots adjacent to the "Retained Area" within 3 years from the date of the MOA, the Vasquez spouses sent several "reminder" letters of the approaching so-called deadline. However, no demand after April 23, 1984, was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed by their authorized agent, Engr. Eduardo Turla, categorically stated that they expected "development of Phase 1 to be completed by February 19, 1990, three years from the settlement of the legal problems with the previous contractor."

By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The four lots were then offered to be sold to the Vasquez spouses at the prevailing price in 1990. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the suit below.

After trial, the court a quo rendered its decision, the dispositive portion of which states:

"THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering defendant to sell to plaintiffs the relevant lots described in the Complaint in the Ayala Alabang Village at the price of P460.00 per square meter amounting to P1,349,540.00; ordering defendant to reimburse to plaintiffs attorney's fees in the sum of P200,000.00 and to pay the cost of the suit."

In its decision, the court a quo concluded that the Vasquez spouses were not obligated to disclose the potential claims of GP Construction, Lancer and Del Rosario; Ayala's accountants should have opened the records of Conduit to find out all claims; the warranty against suit is with respect to "the shares of the Property" and the Lancer suit does not affect the shares of stock sold to Ayala; Ayala was obligated to develop within 3 years; to say that Ayala was under no obligation to follow a time frame was to put the Vasquezes at Ayala's mercy; Ayala did not develop because of a slump in the real estate market; the MOA was drafted and prepared by the AYALA who should suffer its ambiguities; the option to purchase the 4 lots is valid because it was supported by consideration as the option is incorporated in the MOA where the parties had prestations to each other. [Emphasis supplied]

Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners did not breach their warranties under the MOA6 dated April 23, 1981; that it was obliged to develop the land where the four (4) lots subject of the option to purchase are located within three (3) years from the date of the MOA; that it was in delay; and that the option to purchase was valid because it was incorporated in the MOA and the consideration therefor was the commitment by Ayala Corporation to petitioners embodied in the MOA.

As previously mentioned, the Court of Appeals reversed the RTC Decision. According to the appellate court, Ayala Corporation was never informed beforehand of the existence of the Lancer claim. In fact, Ayala Corporation got a copy of the Lancer subcontract only on May 29, 1981 from G.P. Construction's lawyers. The Court of Appeals thus held that petitioners violated their warranties under the MOA when they failed to disclose Lancer's claims. Hence, even conceding that Ayala Corporation was obliged to develop and sell the four (4) lots in question within three (3) years from the date of the MOA, the obligation was suspended during the pendency of the case filed by Lancer.

Interpreting the MOA's paragraph 5.7 above-quoted, the appellate court held that Ayala Corporation committed to develop the first phase of its own amended development plan and not Conduit's development plan. Nowhere does the MOA provide that Ayala Corporation shall follow Conduit's development plan nor is Ayala Corporation prohibited from changing the sequence of the phases of the property it will develop.

Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners never made a demand for Ayala Corporation to sell the subject lots to them. According to the appellate court, what petitioners sent were mere reminder letters the last of which was dated prior to April 23, 1984 when the obligation was not yet demandable. At any rate, the Court of Appeals found that petitioners in fact waived the three (3)-year period when they sent a letter through their agent, Engr. Eduardo Turla, stating that they "expect that the development of Phase I will be completed by 19 February 1990, three years from the settlement of the legal problems with the previous contractor."7

The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract but a right of first refusal there being no separate consideration therefor. Since petitioners refused Ayala Corporation's offer to sell the subject lots at the reduced 1990 price of P5,000.00 per square meter, they have effectively waived their right to buy the same.

In the instant Petition, petitioners allege that the appellate court erred in ruling that they violated their warranties under the MOA; that Ayala Corporation was not obliged to develop the "Remaining Property" within three (3) years from the execution of the MOA; that Ayala was not in delay; and that paragraph 5.15 of the MOA is a mere right of first refusal. Additionally, petitioners insist that the Court should review the factual findings of the Court of Appeals as they are in conflict with those of the trial court.

Ayala Corporation filed a Comment on the Petition8 dated March 26, 2002, contending that the petition raises questions of fact and seeks a review of evidence which is within the domain of the Court of Appeals. Ayala Corporation maintains that the subcontract between GP Construction, with whom Conduit contracted for the development of the property under a Construction Contract dated October 10, 1980, and Lancer was not disclosed by petitioners during the negotiations. Neither was the liability for Lancer's claim included in the Audited Financial Statements submitted by petitioners after the signing of the MOA. These justify the conclusion that petitioners breached their warranties under the afore-quoted paragraphs of the MOA. Since the Lancer suit ended only in February 1989, the three (3)-year period within which Ayala Corporation committed to develop the property should only be counted thence. Thus, when it offered the subject lots to petitioners in 1990, Ayala Corporation was not yet in delay.

In response to petitioners' contention that there was no action or proceeding against them at the time of the execution of the MOA on April 23, 1981, Ayala Corporation avers that the facts and circumstances which gave rise to the Lancer claim were already extant then. Petitioners warranted that their representations under the MOA shall be true and correct at the time of "Closing" which shall take place within four (4) weeks from the signing of the MOA.9 Since the MOA was signed on April 23, 1981, "Closing" was approximately the third week of May 1981. Hence, Lancer's claims, articulated in a letter which Ayala Corporation received on May 4, 1981, are among the liabilities warranted against under paragraph 7.1.2 of the MOA.

Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against suits but against all kinds of liabilities not reflected in the Audited Financial Statements. It cannot be faulted for relying on the express warranty that except for billings payable to GP Construction and advances made by petitioner Daniel Vazquez in the amount of P38,766.04, Conduit has no other liabilities. Hence, petitioners cannot claim that Ayala Corporation should have examined and investigated the Audited Financial Statements of Conduit and should now assume all its obligations and liabilities including the Lancer suit and the cross-claim of GP Construction.

Furthermore, Ayala Corporation did not make a commitment to complete the development of the first phase of the property within three (3) years from the execution of the MOA. The provision refers to a mere declaration of intent to develop the first phase of its (Ayala Corporation's) own development plan and not Conduit's. True to its intention, Ayala Corporation did complete the development of the first phase (Phase II-A) of its amended development plan within three (3) years from the execution of the MOA. However, it is not obliged to develop the third phase (Phase II-C) where the subject lots are located within the same time frame because there is no contractual stipulation in the MOA therefor. It is free to decide on its own the period for the development of Phase II-C. If petitioners wanted to impose the same three (3)-year timetable upon the third phase of the amended development plan, they should have filed a suit to fix the time table in accordance with Article 119710 of the Civil Code. Having failed to do so, Ayala Corporation cannot be declared to have been in delay.

Ayala Corporation further contends that no demand was made on it for the performance of its alleged obligation. The letter dated October 4, 1983 sent when petitioners were already aware of the Lancer suit did not demand the delivery of the subject lots by April 23, 1984. Instead, it requested Ayala Corporation to keep petitioners posted on the status of the case. Likewise, the letter dated March 4, 1984 was merely an inquiry as to the date when the development of Phase 1 will be completed. More importantly, their letter dated June 27, 1988 through Engr. Eduardo Turla expressed petitioners' expectation that Phase 1 will be completed by February 19, 1990.

Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal and not an option contract.

Petitioners filed their Reply11 dated August 15, 2002 reiterating the arguments in their Petition and contending further that they did not violate their warranties under the MOA because the case was filed by Lancer only on April 1, 1982, eleven (11) months and eight (8) days after the signing of the MOA on April 23, 1981. Ayala Corporation admitted that it received Lancer's claim before the "Closing" date. It therefore had all the time to rescind the MOA. Not having done so, it can be concluded that Ayala Corporation itself did not consider the matter a violation of petitioners' warranty.

Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed an acquisition audit to be conducted by Ayala Corporation. Thus, the latter bought Conduit with "open eyes."

Petitioners also maintain that they had no knowledge of the impending case against Conduit at the time of the execution of the MOA. Further, the MOA makes Ayala Corporation liable for the payment of all billings of GP Construction. Since Lancer's claim was actually a claim against GP Construction being its sub-contractor, it is Ayala Corporation and not petitioners which is liable.

Likewise, petitioners aver that although Ayala Corporation may change the sequence of its development plan, it is obliged under the MOA to develop the entire area where the subject lots are located in three (3) years.

They also assert that demand was made on Ayala Corporation to comply with their obligation under the MOA. Apart from their reminder letters dated January 24, February 18 and March 5, 1984, they also sent a letter dated March 4, 1984 which they claim is a categorical demand for Ayala Corporation to comply with the provisions of the MOA.

The parties were required to submit their respective memoranda in the Resolution12 dated November 18, 2002. In compliance with this directive, petitioners submitted their Memorandum13 dated February 14, 2003 on even date, while Ayala Corporation filed its Memorandum14 dated February 14, 2003 on February 17, 2003.

We shall first dispose of the procedural question raised by the instant petition.

It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals by way of petition for review under Rule 45 is limited to reviewing or revising errors of law imputed to it, its findings of fact being conclusive on this Court as a matter of general principle. However, since in the instant case there is a conflict between the factual findings of the trial court and the appellate court, particularly as regards the issues of breach of warranty, obligation to develop and incurrence of delay, we have to consider the evidence on record and resolve such factual issues as an exception to the general rule.15 In any event, the submitted issue relating to the categorization of the right to purchase granted to petitioners under the MOA is legal in character.

The next issue that presents itself is whether petitioners breached their warranties under the MOA when they failed to disclose the Lancer claim. The trial court declared they did not; the appellate court found otherwise.

Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly breached when they failed to disclose the Lancer claim:

a) Clause 7.1.1. – that Conduit shall not be obligated to anyone except to GP Construction for P38,766.04, and for advances made by Daniel Vazquez;

b) Clause 7.1.2. – that except as reflected in the audited financial statements Conduit had no other liabilities whether accrued, absolute, contingent or otherwise;

c) Clause 7.2. – that there is no basis for any assertion against Conduit of any liability of any value not reflected or reserved in the financial statements, and those disclosed to Ayala;

d) Clause 7.6.3. – that Conduit is not threatened with any legal action or other proceedings; and

e) Clause 7.6.4. – that Conduit had not breached any term, condition, or covenant of any instrument or agreement to which it is a party or by which it is bound.16

The Court is convinced that petitioners did not violate the foregoing warranties.

The exchanges of communication between the parties indicate that petitioners substantially apprised Ayala Corporation of the Lancer claim or the possibility thereof during the period of negotiations for the sale of Conduit.

In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala Corporation's Mr. Adolfo Duarte (Mr. Duarte) that prior to the completion of the sale of Conduit, Ayala Corporation asked for and was given information that GP Construction sub-contracted, presumably to Lancer, a greater percentage of the project than it was allowed. Petitioners gave this information to Ayala Corporation because the latter intimated a desire to "break the contract of Conduit with GP." Ayala Corporation did not deny this. In fact, Mr. Duarte's letter18 dated March 6, 1984 indicates that Ayala Corporation had knowledge of the Lancer subcontract prior to its acquisition of Conduit. Ayala Corporation even admitted that it "tried to explore…legal basis to discontinue the contract of Conduit with GP" but found this "not feasible when information surfaced about the tacit consent of Conduit to the sub-contracts of GP with Lancer."

At the latest, Ayala Corporation came to know of the Lancer claim before the date of Closing of the MOA. Lancer's letter19 dated April 30, 1981 informing Ayala Corporation of its unsettled claim with GP Construction was received by Ayala Corporation on May 4, 1981, well before the "Closing"20 which occurred four (4) weeks after the date of signing of the MOA on April 23, 1981, or on May 23, 1981.

The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that certain matters pertaining to the liabilities of Conduit were disclosed by petitioners to Ayala Corporation although the specifics thereof were no longer included in the MOA:

7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the "Remaining Property", free from all liens and encumbrances and that the Company shall have no obligation to any party except for billings payable to GP Construction & Development Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with Paragraph 2 of this Agreement.

7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of Closing, and those disclosed to BUYER, the Company as of the date hereof, has no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become due and whether incurred in respect of or measured in respect of the Company's income prior to Closing or arising out of transactions or state of facts existing prior thereto.

7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the Company as at Closing of any liability of any nature and in any amount not fully reflected or reserved against such Audited Financial Statements referred to above, and those disclosed to BUYER.

xxx xxx xxx

7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal action or other proceedings before any court or administrative body,

nor do the SELLERS know or have reasonable grounds to know of any basis for any such action or proceeding or of any governmental investigation relative to the Company.

7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by the Company of any term, covenant or condition of any instrument or agreement to which the Company is a party or by which it is bound, and no condition exists which, with notice or lapse of time or both, will constitute such default or breach."21 [Emphasis supplied]

Hence, petitioners' warranty that Conduit is not engaged in, a party to, or threatened with any legal action or proceeding is qualified by Ayala Corporation's actual knowledge of the Lancer claim which was disclosed to Ayala Corporation before the "Closing."

At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction and the advances made by petitioner Daniel Vazquez. Specifically, under paragraph 2 of the MOA referred to in paragraph 7.1.1, Ayala Corporation undertook responsibility "for the payment of all billings of the contractor GP Construction & Development Corporation after the first billing and any payments made by the company and/or SELLERS shall be reimbursed by BUYER on closing which advances to date is P1,159,012.87."22

The billings knowingly assumed by Ayala Corporation necessarily include the Lancer claim for which GP Construction is liable. Proof of this is Ayala Corporation's letter23 to GP Construction dated before "Closing" on May 4, 1981, informing the latter of Ayala Corporation's receipt of the Lancer claim embodied in the letter dated April 30, 1981, acknowledging that it is taking over the contractual responsibilities of Conduit, and requesting copies of all sub-contracts affecting the Conduit property. The pertinent excerpts of the letter read:

…

In this connection, we wish to inform you that this morning we received a letter from Mr. Maximo D. Del Rosario, President of Lancer General Builders Corporation apprising us of the existence of subcontracts that they have with your corporation. They have also furnished us with a copy of their letter to you dated 30 April 1981.

Since we are taking over the contractual responsibilities of Conduit Development, Inc., we believe that it is necessary, at this point in time, that you furnish us with copies of all your subcontracts affecting the property of Conduit, not only with Lancer General Builders Corporation, but all subcontracts with other parties as well…24

Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief25 dated July 9, 1992 a copy of the letter26 dated May 28, 1981 of GP Construction's counsel addressed to Conduit furnishing the latter with copies of all sub-contract agreements entered into by GP Construction. Since it was addressed to Conduit, it can be presumed that it was the latter which gave Ayala Corporation a copy of the letter thereby disclosing to the latter the existence of the Lancer sub-contract.

The ineluctable conclusion is that petitioners did not violate their warranties under the MOA. The Lancer sub-contract and claim were substantially disclosed to Ayala Corporation before the "Closing" date of the MOA. Ayala Corporation cannot disavow knowledge of the claim.

Moreover, while in its correspondence with petitioners, Ayala Corporation did mention the filing of the Lancer suit as an obstacle to its development of the property, it never actually brought up nor sought redress for petitioners' alleged breach of warranty for failure to disclose the Lancer claim until it filed its Answer27 dated February 17, 1992.

We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this paragraph express a commitment or a mere intent on the part of Ayala Corporation to develop the property within three (3) years from date thereof? Paragraph 5.7 provides:

5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class residential subdivision of the same class as its New Alabang Subdivision, and that it intends to complete the first phase under its amended development plan within three (3) years from the date of this Agreement….28

Notably, while the first phrase of the paragraph uses the word "commits" in reference to the development of the "Remaining Property" into a first class residential subdivision, the second phrase uses the word "intends" in relation to the development of the first phase of the property within three (3) years from the date of the MOA. The variance in wording is significant. While "commit"29 connotes a pledge to do something, "intend"30 merely signifies a design or proposition.

Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's legal division who assisted in drafting the MOA, testified:

COURT

You only ask what do you mean by that intent. Just answer on that point.

ATTY. BLANCO

Don't talk about standard.

WITNESS

A Well, the word intent here, your Honor, was used to emphasize the tentative character of the period of development because it will be noted that the sentence refers to and I quote "to complete the first phase under its amended development plan within three (3) years from the date of this agreement, at the time of the execution of this agreement, your Honor." That amended development plan was not yet in existence because the buyer had manifested to the seller that the buyer could amend the subdivision plan originally belonging to the seller to conform with its own standard of development and second, your Honor, (interrupted)31

It is thus unmistakable that this paragraph merely expresses an intention on Ayala Corporation's part to complete the first phase under its amended development plan within three (3) years from the execution of the MOA. Indeed, this paragraph is so plainly worded that to misunderstand its import is deplorable.

More focal to the resolution of the instant case is paragraph 5.7's clear reference to the first phase of Ayala Corporation's amended development plan as the subject of the three (3)-year intended timeframe

for development. Even petitioner Daniel Vazquez admitted on cross-examination that the paragraph refers not to Conduit's but to Ayala Corporation's development plan which was yet to be formulated when the MOA was executed:

Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows: "The Buyer hereby commits that to develop the remaining property into a first class residential subdivision of the same class as New Alabang Subdivision, and that they intend to complete the first phase under its amended development plan within three years from the date of this agreement."

Now, my question to you, Dr. Vasquez is that there is no dispute that the amended development plan here is the amended development plan of Ayala?

A: Yes, sir.

Q: In other words, it is not Exhibit "D-5" which is the original plan of Conduit?

A: No, it is not.

Q: This Exhibit "D-5" was the plan that was being followed by GP Construction in 1981?

A: Yes, sir.

Q: And point of fact during your direct examination as of the date of the agreement, this amended development plan was still to be formulated by Ayala?

A: Yes, sir.32

As correctly held by the appellate court, this admission is crucial because while the subject lots to be sold to petitioners were in the first phase of the Conduit development plan, they were in the third or last phase of the Ayala Corporation development plan. Hence, even assuming that paragraph 5.7 expresses a commitment on the part of Ayala Corporation to develop the first phase of its amended development plan within three (3) years from the execution of the MOA, there was no parallel commitment made as to the timeframe for the development of the third phase where the subject lots are located.

Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to offer the subject lots for sale to petitioners within three (3) years from the execution of the MOA. It is not that Ayala Corporation committed or intended to develop the first phase of its amended development plan within three (3) years. Whether it did or did not is actually beside the point since the subject lots are not located in the first phase anyway.

We now come to the issue of default or delay in the fulfillment of the obligation.

Article 1169 of the Civil Code provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

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

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

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

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

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

In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.33

Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be demandable only when that day comes. However, no such day certain was fixed in the MOA. Petitioners, therefore, cannot demand performance after the three (3) year period fixed by the MOA for the development of the first phase of the property since this is not the same period contemplated for the development of the subject lots. Since the MOA does not specify a period for the development of the subject lots, petitioners should have petitioned the court to fix the period in accordance with Article 119734 of the Civil Code. As no such action was filed by petitioners, their complaint for specific performance was premature, the obligation not being demandable at that point. Accordingly, Ayala Corporation cannot likewise be said to have delayed performance of the obligation.

Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the subject lots within three (3) years from date thereof, Ayala Corporation could still not be held to have been in delay since no demand was made by petitioners for the performance of its obligation.

As found by the appellate court, petitioners' letters which dealt with the three (3)-year timetable were all dated prior to April 23, 1984, the date when the period was supposed to expire. In other words, the letters were sent before the obligation could become legally demandable. Moreover, the letters were mere reminders and not categorical demands to perform. More importantly, petitioners waived the three (3)-year period as evidenced by their agent, Engr. Eduardo Turla's letter to the effect that petitioners agreed that the three (3)-year period should be counted from the termination of the case filed by Lancer. The letter reads in part:

I. Completion of Phase I

As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your goodselves to complete the development of Phase I within three (3) years. Dr. & Mrs. Vazquez were made to understand that you were unable to accomplish this because of legal problems with the previous contractor. These legal problems were resolved as of February 19, 1987, and

Dr. & Mrs. Vazquez therefore expect that the development of Phase I will be completed by February 19, 1990, three years from the settlement of the legal problems with the previous contractor. The reason for this is, as you know, that security-wise, Dr. & Mrs. Vazquez have been advised not to construct their residence till the surrounding area (which is Phase I) is developed and occupied. They have been anxious to build their residence for quite some time now, and would like to receive assurance from your goodselves regarding this, in compliance with the agreement.

II. Option on the adjoining lots

We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to exercise their option to purchase the two lots on each side (a total of 4 lots) adjacent to their "Retained Area". They are concerned that although over a year has elapsed since the settlement of the legal problems, you have not presented them with the size, configuration, etc. of these lots. They would appreciate being provided with these at your earliest convenience.35

Manifestly, this letter expresses not only petitioners' acknowledgement that the delay in the development of Phase I was due to the legal problems with GP Construction, but also their acquiescence to the completion of the development of Phase I at the much later date of February 19, 1990. More importantly, by no stretch of semantic interpretation can it be construed as a categorical demand on Ayala Corporation to offer the subject lots for sale to petitioners as the letter merely articulates petitioners' desire to exercise their option to purchase the subject lots and concern over the fact that they have not been provided with the specifications of these lots.

The letters of petitioners' children, Juan Miguel and Victoria Vazquez, dated January 23, 198436 and February 18, 198437 can also not be considered categorical demands on Ayala Corporation to develop the first phase of the property within the three (3)-year period much less to offer the subject lots for sale to petitioners. The letter dated January 23, 1984 reads in part:

You will understand our interest in the completion of the roads to our property, since we cannot develop it till you have constructed the same. Allow us to remind you of our Memorandum of Agreement, as per which you committed to develop the roads to our property "as per the original plans of the company", and that

1. The back portion should have been developed before the front portion – which has not been the case.

2. The whole project – front and back portions be completed by 1984.38

The letter dated February 18, 1984 is similarly worded. It states:

In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of Agreement which states respectively:…39

Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not make out a categorical demand for Ayala Corporation to offer the subject lots for sale on or before April 23, 1984. The letter reads in part:

…and that we expect from your goodselves compliance with our Memorandum of Agreement, and a definite date as to when the road to our property and the development of Phase I will be completed.41

At best, petitioners' letters can only be construed as mere reminders which cannot be considered demands for performance because it must appear that the tolerance or benevolence of the creditor must have ended.42

The petition finally asks us to determine whether paragraph 5.15 of the MOA can properly be construed as an option contract or a right of first refusal. Paragraph 5.15 states:

5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next to the "Retained Area" at the prevailing market price at the time of the purchase.43

The Court has clearly distinguished between an option contract and a right of first refusal. An option is a preparatory contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the party who has given the option not to enter into the principal contract with any other person during the period designated, and within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration.44

In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up.45

Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and not an option contract. Although the paragraph has a definite object, i.e., the sale of subject lots, the period within which they will be offered for sale to petitioners and, necessarily, the price for which the subject lots will be sold are not specified. The phrase "at the prevailing market price at the time of the purchase" connotes that there is no definite period within which Ayala Corporation is bound to reserve the subject lots for petitioners to exercise their privilege to purchase. Neither is there a fixed or determinable price at which the subject lots will be offered for sale. The price is considered certain if it may be determined with reference to another thing certain or if the determination thereof is left to the judgment of a specified person or persons.46

Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the subject lots at the price which Ayala Corporation would be willing to accept when it offers the subject lots for sale. It is not supported by an independent consideration. As such it is not governed by Articles 1324 and 1479 of the Civil Code, viz:

Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised.

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

Consequently, the "offer" may be withdrawn anytime by communicating the withdrawal to the other party.47

In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square meter, the prevailing market price for the property when the offer was made on June 18, 1990.48 Insisting on paying for the lots at the prevailing market price in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation reduced the price to P5,000.00/square meter but again, petitioners rejected the offer and instead made a counter-offer in the amount of P2,000.00/square meter.49 Ayala Corporation rejected petitioners' counter-offer. With this rejection, petitioners lost their right to purchase the subject lots.

It cannot, therefore, be said that Ayala Corporation breached petitioners' right of first refusal and should be compelled by an action for specific performance to sell the subject lots to petitioners at the prevailing market price in 1984.

WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 145483 November 19, 2004

LORENZO SHIPPING CORP., petitioner, vs.BJ MARTHEL INTERNATIONAL, INC., respondent.

When time is not of the essence in a contract, notice must be given and delivery must be made within a reasonable time.

CHICO-NAZARIO, J.:

This is a petition for review seeking to set aside the Decision1 of the Court of Appeals in CA-G.R. CV No. 54334 and its Resolution denying petitioner's motion for reconsideration.

The factual antecedents of this case are as follows:

Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own the cargo vessel M/V Dadiangas Express.

Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing, and selling of various industrial commodities. It is also an importer and distributor of different brands of engines and spare parts.

From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter's marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Acceding to this request, respondent furnished petitioner with a formal quotation,2 thus:

May 31, 1989

MINQ-6093LORENZO SHIPPING LINESPier 8, North HarborManila

SUBJECT: PARTS FOR ENGINE MODELMITSUBISHI 6UET 52/60

Dear Mr. Go:

We are pleased to submit our offer for your above subject requirements.

Description Qty. Unit Price Total Price

Nozzle Tip 6 pcs. P 5,520.00 33,120.00

Plunger & Barrel 6 pcs. 27,630.00 165,780.00

Cylinder Head 2 pcs. 1,035,000.00 2,070,000.00

Cylinder Liner 1 set 477,000.00

TOTAL PRICE FOB

MANILA ___________

P2,745,900.00

DELIVERY: Within 2 months after receipt of firm order.

TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal

Installment[s] not to exceed 90 days.

We trust you find our above offer acceptable and look forward to your most valued order.

Very truly yours,

(SGD) HENRY PAJARILLO

Sales Manager

Petitioner thereafter issued to respondent Purchase Order No. 13839,3 dated 02 November 1989, for the procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. The purchase order was co-signed by Jose Go, Jr., petitioner's vice-president, and Henry Pajarillo. Quoted hereunder is the pertinent portion of the purchase order:

Name of Description Qty. Amount

CYL. LINER M/E 1 SET P477,000.00

NOTHING FOLLOW

INV. #

TERM OF PAYMENT: 25% DOWN PAYMENT

5 BI-MONTHLY INSTALLMENT[S]

Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten postdated checks4 to be drawn against the former's account with Allied Banking Corporation. The checks were supposed to represent the full payment of the aforementioned cylinder liner.

Subsequently, petitioner issued Purchase Order No. 14011,5 dated 15 January 1990, for yet another unit of cylinder liner. This purchase order stated the term of payment to be "25% upon delivery, balance payable in 5 bi-monthly equal installment[s]."6 Like the purchase order of 02 November 1989, the second purchase order did not state the date of the cylinder liner's delivery.

On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the same was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were eventually returned by respondent to petitioner.

The parties presented disparate accounts of what happened to the check which was previously dishonored. Petitioner claimed that it replaced said check with a good one, the proceeds of which were applied to its other obligation to respondent. For its part, respondent insisted that it returned said postdated check to petitioner.

Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of Tokyo.

On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The sales invoices7 evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under which the signature of Eric Go, petitioner's warehouseman, appeared.

Respondent thereafter sent a Statement of Account dated 15 November 19908 to petitioner. While the other items listed in said statement of account were fully paid by petitioner, the two cylinder liners delivered to petitioner on 20 April 1990 remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a demand letter dated 02 January 19919 to petitioner requiring the latter to pay the value of the cylinder liners subjects of this case. Instead of heeding the demand of respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter dated 12 March 199110 offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the proceeds of said sale.

Shortly thereafter, another demand letter dated 27 March 199111 was furnished petitioner by respondent's counsel requiring the former to settle its obligation to respondent together with accrued interest and attorney's fees.

Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and damages before the Regional Trial Court (RTC) of Makati City. In its complaint,12 respondent (plaintiff below) alleged that despite its repeated oral and written demands, petitioner obstinately refused to settle its obligations. Respondent prayed that petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of P111,300 as of May 1991 and additional interest of 14% per annum to be reckoned from June 1991 until the full payment of the principal; attorney's fees; costs of suits; exemplary damages; actual damages; and compensatory damages.

On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an amended complaint with preliminary attachment pursuant to Sections 2 and 3, Rule 57 of the then Rules of Court.13 Aside

from the prayer for the issuance of writ of preliminary attachment, the amendments also pertained to the issuance by petitioner of the postdated checks and the amounts of damages claimed.

In an Order dated 25 July 1991,14 the court a quo granted respondent's prayer for the issuance of a preliminary attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of Attachment15 attaching thereto a counter-bond as required by the Rules of Court. On even date, the trial court issued an Order16 lifting the levy on petitioner's properties and the garnishment of its bank accounts.

Petitioner afterwards filed its Answer17 alleging therein that time was of the essence in the delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said items "within two (2) months after receipt of firm order"18 from petitioner. Petitioner likewise sought counterclaims for moral damages, exemplary damages, attorney's fees plus appearance fees, and expenses of litigation.

Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25 October 1991.19 The amendment introduced dealt solely with the number of postdated checks issued by petitioner as full payment for the first cylinder liner it ordered from respondent. Whereas in the first amended complaint, only nine postdated checks were involved, in its second amended complaint, respondent claimed that petitioner actually issued ten postdated checks. Despite the opposition by petitioner, the trial court admitted respondent's Second Amended Complaint with Preliminary Attachment.20

Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder Liners)21 alleging therein that "[w]ith the passage of time and with no definite end in sight to the present litigation, the cylinder liners run the risk of obsolescence and deterioration"22 to the prejudice of the parties to this case. Thus, petitioner prayed that it be allowed to sell the cylinder liners at the best possible price and to place the proceeds of said sale in escrow. This motion, unopposed by respondent, was granted by the trial court through the Order of 17 March 1991.23

After trial, the court a quo dismissed the action, the decretal portion of the Decision stating:

WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is ordered to pay P50,000.00 to the defendant as and by way of attorney's fees.24

The trial court held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of payment and delivery of the cylinder liners. It also declared that respondent had agreed to the cancellation of the contract of sale when it returned the postdated checks issued by petitioner. Respondent's counterclaims for moral, exemplary, and compensatory damages were dismissed for insufficiency of evidence.

Respondent moved for the reconsideration of the trial court's Decision but the motion was denied for lack of merit.25

Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of Appeals26 which reversed and set aside the Decision of the court a quo. The appellate court brushed aside petitioner's claim that time was of the essence in the contract of sale between the parties herein considering the

fact that a significant period of time had lapsed between respondent's offer and the issuance by petitioner of its purchase orders. The dispositive portion of the Decision of the appellate court states:

WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The appellee is hereby ORDERED to pay the appellant the amount of P954,000.00, and accrued interest computed at 14% per annum reckoned from May, 1991.27

The Court of Appeals also held that respondent could not have incurred delay in the delivery of cylinder liners as no demand, judicial or extrajudicial, was made by respondent upon petitioner in contravention of the express provision of Article 1169 of the Civil Code which provides:

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

Likewise, the appellate court concluded that there was no evidence of the alleged cancellation of orders by petitioner and that the delivery of the cylinder liners on 20 April 1990 was reasonable under the circumstances.

On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of Appeals but this was denied through the resolution of 06 October 2000.28 Hence, this petition for review which basically raises the issues of whether or not respondent incurred delay in performing its obligation under the contract of sale and whether or not said contract was validly rescinded by petitioner.

That a contract of sale was entered into by the parties is not disputed. Petitioner, however, maintains that its obligation to pay fully the purchase price was extinguished because the adverted contract was validly terminated due to respondent's failure to deliver the cylinder liners within the two-month period stated in the formal quotation dated 31 May 1989.

The threshold question, then, is: Was there late delivery of the subjects of the contract of sale to justify petitioner to disregard the terms of the contract considering that time was of the essence thereof?

In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent intention of the parties and before time may be so regarded by a court, there must be a sufficient manifestation, either in the contract itself or the surrounding circumstances of that intention.29

Petitioner insists that although its purchase orders did not specify the dates when the cylinder liners were supposed to be delivered, nevertheless, respondent should abide by the term of delivery appearing on the quotation it submitted to petitioner.30 Petitioner theorizes that the quotation embodied the offer from respondent while the purchase order represented its (petitioner's) acceptance of the proposed terms of the contract of sale.31 Thus, petitioner is of the view that these two documents "cannot be taken separately as if there were two distinct contracts."32 We do not agree.

It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning shall control.33 However, in order to ascertain the intention of the parties, their contemporaneous and subsequent acts should be considered.34 While this Court recognizes the principle that contracts are respected as the law between the contracting parties, this principle is tempered by the rule that the intention of the parties is

primordial35 and "once the intention of the parties has been ascertained, that element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms."36

In the present case, we cannot subscribe to the position of petitioner that the documents, by themselves, embody the terms of the sale of the cylinder liners. One can easily glean the significant differences in the terms as stated in the formal quotation and Purchase Order No. 13839 with regard to the due date of the down payment for the first cylinder liner and the date of its delivery as well as Purchase Order No. 14011 with respect to the date of delivery of the second cylinder liner. While the quotation provided by respondent evidently stated that the cylinder liners were supposed to be delivered within two months from receipt of the firm order of petitioner and that the 25% down payment was due upon the cylinder liners' delivery, the purchase orders prepared by petitioner clearly omitted these significant items. The petitioner's Purchase Order No. 13839 made no mention at all of the due dates of delivery of the first cylinder liner and of the payment of 25% down payment. Its Purchase Order No. 14011 likewise did not indicate the due date of delivery of the second cylinder liner.

In the case of Bugatti v. Court of Appeals,37 we reiterated the principle that "[a] contract undergoes three distinct stages – preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof."

In the instant case, the formal quotation provided by respondent represented the negotiation phase of the subject contract of sale between the parties. As of that time, the parties had not yet reached an agreement as regards the terms and conditions of the contract of sale of the cylinder liners. Petitioner could very well have ignored the offer or tendered a counter-offer to respondent while the latter could have, under the pertinent provision of the Civil Code,38 withdrawn or modified the same. The parties were at liberty to discuss the provisions of the contract of sale prior to its perfection. In this connection, we turn to the testimonies of Pajarillo and Kanaan, Jr., that the terms of the offer were, indeed, renegotiated prior to the issuance of Purchase Order No. 13839.

During the hearing of the case on 28 January 1993, Pajarillo testified as follows:

Q: You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping Corporation dated rather marked as Exhibit A stating the terms of payment and delivery of the cylinder liner, did you not?

A: Yes sir.

Q: I am showing to you the quotation which is marked as Exhibit A there appears in the quotation that the delivery of the cylinder liner will be made in two months' time from the time you received the confirmation of the order. Is that correct?

A: Yes sir.

Q: Now, after you made the formal quotation which is Exhibit A how long a time did the defendant make a confirmation of the order?

A: After six months.

Q: And this is contained in the purchase order given to you by Lorenzo Shipping Corporation?

A: Yes sir.

Q: Now, in the purchase order dated November 2, 1989 there appears only the date the terms of payment which you required of them of 25% down payment, now, it is stated in the purchase order the date of delivery, will you explain to the court why the date of delivery of the cylinder liner was not mentioned in the purchase order which is the contract between you and Lorenzo Shipping Corporation?

A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have inquired [with] our supplier in Japan to give us the price and delivery of that item. When we received that quotation from our supplier it is stated there that they can deliver within two months but we have to get our confirmed order within June.

Q: But were you able to confirm the order from your Japanese supplier on June of that year?

A: No sir.

Q: Why? Will you tell the court why you were not able to confirm your order with your Japanese supplier?

A: Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder liner.

Q: And it was only on November 2, 1989 when they gave you the purchase order?

A: Yes sir.

Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm the order with your Japanese supplier after receiving the purchase order dated November 2, 1989?

A: Only when Lorenzo Shipping Corporation will give us the down payment of 25%.39

For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr., testified in the following manner:

WITNESS: This term said 25% upon delivery. Subsequently, in the final contract, what was agreed upon by both parties was 25% down payment.

Q: When?

A: Upon confirmation of the order.

. . .

Q: And when was the down payment supposed to be paid?

A: It was not stated when we were supposed to receive that. Normally, we expect to receive at the earliest possible time. Again, that would depend on the customers. Even after receipt of the purchase order which was what happened here, they re-negotiated the terms and sometimes we do accept that.

Q: Was there a re-negotiation of this term?

A: This offer, yes. We offered a final requirement of 25% down payment upon delivery.

Q: What was the re-negotiated term?

A: 25% down payment

Q: To be paid when?

A: Supposed to be paid upon order.40

The above declarations remain unassailed. Other than its bare assertion that the subject contracts of sale did not undergo further renegotiation, petitioner failed to proffer sufficient evidence to refute the above testimonies of Pajarillo and Kanaan, Jr.

Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and No. 14011 yet it utterly failed to adduce any justification as to why said documents contained terms which are at variance with those stated in the quotation provided by respondent. The only plausible reason for such failure on the part of petitioner is that the parties had, in fact, renegotiated the proposed terms of the contract of sale. Moreover, as the obscurity in the terms of the contract between respondent and petitioner was caused by the latter when it omitted the date of delivery of the cylinder liners in the purchase orders and varied the term with respect to the due date of the down payment,41 said obscurity must be resolved against it.42

Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v. Matti,43 instructive. There, we held that –

When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the essence of the contract. . . .

In such cases, the delivery must be made within a reasonable time.

The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in the absence of anything to show that an immediate delivery intended. . . .

We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for dry dock repair and maintenance of its M/V Dadiangas Express between the later part of December 1989 to early January 1990, the record is bereft of any indication that respondent was aware of such fact. The failure of petitioner to notify respondent of said date is fatal to its claim that time was of the essence in the subject contracts of sale.

In addition, we quote, with approval, the keen observation of the Court of Appeals:

. . . It must be noted that in the purchase orders issued by the appellee, dated November 2, 1989 and January 15, 1990, no specific date of delivery was indicated therein. If time was really of the essence as claimed by the appellee, they should have stated the same in the said purchase orders, and not merely relied on the quotation issued by the appellant considering the lapse of time between the quotation issued by the appellant and the purchase orders of the appellee.

In the instant case, the appellee should have provided for an allowance of time and made the purchase order earlier if indeed the said cylinder liner was necessary for the repair of the vessel scheduled on the first week of January, 1990. In fact, the appellee should have cancelled the first purchase order when the cylinder liner was not delivered on the date it now says was necessary. Instead it issued another purchase order for the second set of cylinder liner. This fact negates appellee's claim that time was indeed of the essence in the consummation of the contract of sale between the parties.44

Finally, the ten postdated checks issued in November 1989 by petitioner and received by the respondent as full payment of the purchase price of the first cylinder liner supposed to be delivered on 02 January 1990 fail to impress. It is not an indication of failure to honor a commitment on the part of the respondent. The earliest maturity date of the checks was 18 January 1990. As delivery of said checks could produce the effect of payment only when they have been cashed,45 respondent's obligation to deliver the first cylinder liner could not have arisen as early as 02 January 1990 as claimed by petitioner since by that time, petitioner had yet to fulfill its undertaking to fully pay for the value of the first cylinder liner. As explained by respondent, it proceeded with the placement of the order for the cylinder liners with its principal in Japan solely on the basis of its previously harmonious business relationship with petitioner.

As an aside, let it be underscored that "[e]ven where time is of the essence, a breach of the contract in that respect by one of the parties may be waived by the other party's subsequently treating the contract as still in force."46 Petitioner's receipt of the cylinder liners when they were delivered to its warehouse on 20 April 1990 clearly indicates that it considered the contract of sale to be still subsisting up to that time. Indeed, had the contract of sale been cancelled already as claimed by petitioner, it no longer had any business receiving the cylinder liners even if said receipt was "subject to verification." By accepting the cylinder liners when these were delivered to its warehouse, petitioner indisputably waived the claimed delay in the delivery of said items.

We, therefore, hold that in the subject contracts, time was not of the essence. The delivery of the cylinder liners on 20 April 1990 was made within a reasonable period of time considering that respondent had to place the order for the cylinder liners with its principal in Japan and that the latter was, at that time, beset by heavy volume of work.47

There having been no failure on the part of the respondent to perform its obligation, the power to rescind the contract is unavailing to the petitioner. Article 1191 of the New Civil Code runs as follows:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The law explicitly gives either party the right to rescind the contract only upon the failure of the other to perform the obligation assumed thereunder.48 The right, however, is not an unbridled one. This Court in the case of University of the Philippines v. De los Angeles,49 speaking through the eminent civilist Justice J.B.L. Reyes, exhorts:

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denied that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. (Emphasis supplied)

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages.50

Here, there is no showing that petitioner notified respondent of its intention to rescind the contract of sale between them. Quite the contrary, respondent's act of proceeding with the opening of an irrevocable letter of credit on 23 February 1990 belies petitioner's claim that it notified respondent of the cancellation of the contract of sale. Truly, no prudent businessman would pursue such action knowing that the contract of sale, for which the letter of credit was opened, was already rescinded by the other party.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals, dated 28 April 2000, and its Resolution, dated 06 October 2000, are hereby AFFIRMED. No costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

G.R. No. 125944 June 29, 2001

SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners, vs.JOSE AVELINO SALAZAR, respondents.

Lifting of Usury Law ceiling does not grant lenders carte blanche authority to raise interest to uncontrollable levels.

SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of the decision of the Court of Appeals in CA-G.R. CV No. 37899, affirming the decision of the Regional Trial Court, Branch 16, Malolos, Bulacan, in Civil Case No. 375-M-91, "Spouses Danilo and Ursula Solangon vs. Jose Avelino Salazar" for annulment of mortgage. The dispositive portion of the RTC decision reads:

"WHEREFORE, judgment is hereby rendered against the plaintiffs in favor of the defendant Salazar, as follows:

1. Ordering the dismissal of the complaint;

2. Ordering the dissolution of the preliminary injunction issued on July 8, 1991;

3. Ordering the plaintiffs to pay the defendant the amount of P10,000.00 by way of attorney’s fees; and

4. To pay the costs.

SO ORDERED."1

The facts as summarized by the Court of Appeals in its decision being challenged are:

"On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage in which they mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor of the defendant-appellee, to secure payment of a loan of P60,000.00 payable within a period of four (4) months, with interest thereon at the rate of 6% per month (Exh. "B").

On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcel of land to the defendant-appellee, to secure payment of a loan of P136,512.00, payable within a period of one (1) year, with interest thereon at the legal rate (Exh. "1").

On December 29, 1990, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcel of land in favor of defendant-appellee, to secure

payment of a loan in the amount of P230,000.00 payable within a period of four (4) months, with interest thereon at the legal rate (Exh. "2", Exh. "C").

This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the mortgaged property. They alleged that they obtained only one loan form the defendant-appellee, and that was for the amount of P60,000.00, the payment of which was secured by the first of the above-mentioned mortgages. The subsequent mortgages were merely continuations of the first one, which is null and void because it provided for unconscionable rate of interest. Moreover, the defendant-appellee assured them that he will not foreclose the mortgage as long as they pay the stipulated interest upon maturity or within a reasonable time thereafter. They have already paid the defendant-appellee P78,000.00 and tendered P47,000.00 more, but the latter has initiated foreclosure proceedings for their alleged failure to pay the loan P230,000.00 plus interest.1âwphi1.nêt

On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-described mortgages were executed to secure three separate loans of P60,000.00 P136,512.00 and P230,000.00, and that the first two loans were paid, but the last one was not. He denied having represented that he will not foreclose the mortgage as long as the plaintiffs-appellants pay interest."

In their petition, spouses Danilo and Ursula Solangon ascribe to the Court of Appeals the following errors:

1. The Court of Appeals erred in holding that three (3) mortgage contracts were executed by the parties instead of one (1);

2. The Court of Appeals erred in ruling that a loan obligation secured by a real estate mortgage with an interest of 72% per cent per annum or 6% per month is not unconscionable;

4. The Court of Appeals erred in holding that the loan of P136,512.00 HAS NOT BEEN PAID when the mortgagee himself states in his ANSWER that the same was already paid; and

5. The Court of Appeals erred in not resolving the SPECIFIC ISSUES raised by the appellants.

In his comment, respondent Jose Avelino Salazar avers that the petition should not be given due course as it raises questions of facts which are not allowed in a petition for review on certiorari.

We find no merit in the instant petition.

The core of the present controversy is the validity of the third contract of mortgage which was foreclosed.

Petitioners contend that they obtained from respondent Avelino Salazar only one (1) loan in the amount of P60,000.00 secured by the first mortgage of August 1986. According to them, they signed the third mortgage contract in view of respondent’s assurance that the same will not be foreclosed. The trial court, which is in the best position to evaluate the evidence presented before it, did not give credence to petitioners’ corroborated testimony and ruled:

"The testimony is improbable. The real estate mortgage was signed not only by Ursula Solangon but also by her husband including the Promissory Note appended to it. Signing a document without knowing its contents is contrary to common experience. The uncorroborated testimony of Ursula Solangon cannot be given weight."2

Petitioners likewise insist that, contrary to the finding of the Court of appeals, they had paid the amount of P136,512.00, or the second loan. In fact, such payment was confirmed by respondent Salazar in his answer to their complaint.

It is readily apparent that petitioners are raising issues of fact in this petition. In a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, only questions of law may be raised and they must be distinctly set forth. The settled rule is that findings of fact of the lower courts (including the Court of Appeals) are final and conclusive and will not be reviewed on appeal except: (1) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and such findings are contrary to the admission of both appellant and appellee; (6) when the findings of the Court of Appeals are contrary to those of the trial court; and (7) when the findings of fact are conclusions without citation of specific evidence on which they are based.3

None of these instances are extant in the present case.

Parenthetically, petitioners are questioning the rate of interest involved here. They maintain that the Court of Appeals erred in decreeing that the stipulated interest rate of 72% per annum or 6% per month is not unconscionable.

The Court of Appeals, in sustaining the stipulated interest rate, ratiocinated that since the Usury Law had been repealed by Central Bank Circular No. 905 there is no more maximum rate of interest and the rate will just depend on the mutual agreement of the parties. Obviously, this was in consonance with our ruling in Liam Law v. Olympic Sawmill Co.4

The factual circumstances of the present case require the application of a different jurisprudential instruction. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.5 In Medel v. Court of Appeals,6 this court had the occasion to rule on this question - whether or not the stipulated rate of interest at 5.5% per month on a loan amounting to P500,000.00 is usurious. While decreeing that the aforementioned interest was not usurious, this Court held that the same must be equitably reduced for being iniquitous, unconscionable and exorbitant, thus:

"We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate ‘usurious’ because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now ‘legally inexistent.’

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter’s effectivity. Indeed, we have held that ‘a Central Bank Circular can not repeal a law. Only a law can repeal another law. In the recent case of Florendo v. Court of Appeals, the Court reiterated the ruling that ‘by virtue of CB Circular 905, the Usury Law has been rendered ineffective.’ ‘Usury Law has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.’

Nevertheless, we find the interest at 5.5 % per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and hence, contrary to morals (‘contra bonos mores’), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable." (Emphasis supplied)

In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulated interest rate of 6% per month or 72% per annum which is definitely outrageous and inordinate. Surely, it is more consonant with justice that the said interest rate be reduced equitably. An interest of 12% per annum is deemed fair and reasonable.

WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to the MODIFICATION that the interest rate of 72% per annum is ordered reduced to 12 % per annum.

SO ORDERED.

Melo, Vitug, Panganiban, Gonzaga-Reyes, JJ., concur.

G.R. No. 141634 February 5, 2001

Heirs of Spouses REMEDIOS R. SANDEJAS and ELIODORO P. SANDEJAS SR. -- ROBERTO R. SANDEJAS, ANTONIO R. SANDEJAS, CRISTINA SANDEJAS MORELAND, BENJAMIN R. SANDEJAS, REMEDIOS R. SANDEJAS, and heirs of SIXTO S. SANDEJAS II, RAMON R. SANDEJAS, TERESITA R. SANDEJAS, and ELIODORO R. SANDEJAS JR., all represented by ROBERTO R. SANDEJAS, petitioners, vs.ALEX A. LINA, respondent.

Obligation- Condition.

PANGANIBAN, J.:

A contract of sale is not invalidated by the fact that it is subject to probate court approval. The transaction remains binding on the seller-heir, but not on the other heirs who have not given their consent to it. In settling the estate of the deceased, a probate court has jurisdiction over matters incidental and collateral to the exercise of its recognized powers. Such matters include selling, mortgaging or otherwise encumbering realty belonging to the estate. Rule 89, Section 8 of the Rules of Court, deals with the conveyance of real property contracted by the decedent while still alive. In contrast with Sections 2 and 4 of the same Rule, the said provision does not limit to the executor or administrator the right to file the application for authority to sell, mortgage or otherwise encumber realty under administration. The standing to pursue such course of action before the probate court inures to any person who stands to be benefited or injured by the judgment or to be entitled to the avails of the suit.1âwphi1.nêt

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to reverse and set aside the Decision1 dated April 16, 1999 and the Resolution2 dated January 12, 2000, both promulgated by the Court of Appeals in CA-GR CV No. 49491. The dispositive portion of the assailed Decision reads as follows:3

"WHEREFORE, for all the foregoing, [w]e hereby MODIFY the [O]rder of the lower court dated January 13, 1995, approving the Receipt of Earnest Money With Promise to Buy and Sell dated June 7, 1982, only to the three-fifth (3/5) portion of the disputed lots covering the share of [A]dministrator Eliodoro Sandejas, Sr. [in] the property. The intervenor is hereby directed to pay appellant the balance of the purchase price of the three-fifth (3/5) portion of the property within thirty (30) days from receipt of this [O]rder and x x x the administrator [is directed] to execute the necessary and proper deeds of conveyance in favor of appellee within thirty (30) days thereafter."

The assailed Resolution denied reconsideration of the foregoing disposition.

The Facts

The facts of the case, as narrated by the Court of Appeals (CA), are as follows:4

"On February 17, 1981, Eliodoro Sandejas, Sr. filed a petition (Record, SP. Proc. No. R-83-15601, pp. 8-10) in the lower court praying that letters of administration be issued in his favor for the settlement of the estate of his wife, REMEDIOS R. SANDEJAS, who died on April 17, 1955. On July 1, 1981, Letters of Administration [were issued by the lower court appointing Eliodoro Sandejas, Sr. as administrator of the estate of the late Remedios Sandejas (Record, SP. Proc. No. R-83-15601, p. 16). Likewise on the same date, Eliodoro Sandejas, Sr. took his oath as administrator (Record, SP. Proc. No. R-83-15601, p. 17). x x x.

"On November 19, 1981, the 4th floor of Manila City Hall was burned and among the records burned were the records of Branch XI of the Court of First Instance of Manila. As a result, [A]dministrator Eliodoro Sandejas, Sr. filed a [M]otion for [R]econstitution of the records of the case on February 9, 1983 (Record, SP. Proc. No. R-83-15601, pp. 1-5). On February 16, 1983, the lower court in its [O]rder granted the said motion (Record, SP. Proc. No. R-83-15601, pp. 28-29).

"On April 19, 1983, an Omnibus Pleading for motion to intervene and petition-in-intervention was filed by [M]ovant Alex A. Lina alleging among others that on June 7, 1982, movant and [A]dministrator Eliodoro P. Sandejas, in his capacity as seller, bound and obligated himself, his heirs, administrators, and assigns, to sell forever and absolutely and in their entirety the following parcels of land which formed part of the estate of the late Remedios R. Sandejas, to wit:

1. 'A parcel of land (Lot No.22 Block No. 45 of the subdivision plan Psd-21121, being a portion of Block 45 described on plan Psd-19508, G.L.R.O. Rec. No. 2029), situated in the "Municipality of Makati, province of Rizal, containing an area of TWO HUNDRED SEVENTY (270) SQUARE METERS, more or less, with TCT No. 13465;

2. 'A parcel of land (Lot No. 21 Block No. 45 of the subdivision plan Psd-21141, being a portion of Block 45 described on plan Psd-19508 G.L.R.O. Rec. No. 2029), situated in the Municipality of Makati, Province of Rizal, containing an area of TWO HUNDRED SEVENTY (270) SQUARE METERS, more or less, with TCT No. 13464;'

3. 'A parcel of land (Lot No. 5 Block No. 45 of the subdivision plan Psd-21141, being a portion of Block 45 described on plan Psd-19508 G.L.R.O. Rec. No. 2029), situated in the Municipality of Makati, Province of Rizal, containing an area of TWO HUNDRED EIGHT (208) SQUARE METERS, more or less, with TCT No. 13468;'

4. 'A parcel of land (Lot No. 6, Block No. 45 of the subdivision plan Psd-21141, being a portion of Block 45 described on plan Psd-19508 G.L.R.O. Rec. No. 2029), situated in the Municipality of Makati, Province of Rizal, containing an area of TWO HUNDRED EIGHT (208) SQUARE METERS, more or less, with TCT No. 13468;'

"The [R]eceipt of the [E]arnest [M]oney with [P]romise to [S]ell and to [B]uy is hereunder quoted, to wit:

'Received today from MR. ALEX A. LINA the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS, Philippine Currency, per Metropolitan Bank & Trust Company

Chec[k] No. 319913 dated today for P100,000.00, x x x as additional earnest money for the following:

xxx xxx xxx

all registered with the Registry of Deeds of the [P]rovince of Rizal (Makati Branch Office) in the name of SELLER 'EL!ODORO SANDEJAS, Filipino Citizen, of legal age, married to Remedios Reyes de Sandejas;' and which undersigned, as SELLER, binds and obligates himself, his heirs, administrators and assigns, to sell forever and absolutely in their entirety (all of the four (4) parcels of land above described, which are contiguous to each other as to form one big lot) to said Mr. Alex A. Lina, who has agreed to buy all of them, also binding on his heirs, administrators and assigns, for the consideration of ONE MILLION (P1,000,000.00) PESOS, Philippine Currency, upon such reasonable terms of payment as may be agreed upon by them. The parties have, however, agreed on the following terms and conditions:

'1. The P100,000.00 herein received is in addition to the P70,000.00 earnest money already received by SELLER from BUYER, all of which shall form part of, and shall be deducted from, the purchase price of P1,000,000.00, once the deed of absolute [sale] shall be executed;

'2. As a consideration separate and distinct from the price, undersigned SELLER also acknowledges receipt from Mr. Alex A. Lina of the sum of ONE THOUSAND (P1,000.00) PESOS, Philippine Currency, per Metropolitan Bank & Trust Company Check No. 319912 dated today and payable to SELLER for P1,000.00;

'3. Considering that Mrs. Remedios Reyes de Sandejas is already deceased and as there is a pending intestate proceedings for the settlement of her estate (Spec. Proc. No.138393, Manila CFI, Branch XI), wherein SELLER was appointed as administrator of said Estate, and as SELLER, in his capacity as administrator of said Estate, has informed BUYER that he (SELLER) already filed a [M]otion with the Court for authority to sell the above parcels of land to herein BUYER, but which has been delayed due to the burning of the records of said Spec. Pro. No. 138398, which records are presently under reconstitution, the parties shall have at least ninety (90) days from receipt of the Order authorizing SELLER, in his capacity as administrator, to sell all THE ABOVE DESCRIBED PARCELS OF LAND TO HEREIN BUYER (but extendible for another period of ninety (90) days upon the request of either of the parties upon the other), within which to execute the deed of absolute sale covering all above parcels of land;

'4. In the event the deed of absolute sale shall not proceed or not be executed for causes either due to SELLER'S fault, or for causes of which the BUYER is innocent, SELLER binds himself to personally return to Mr. Alex A. Lina the entire ONE HUNDRED SEVENTY THOUSAND ([P]170,000.00) PESOS In earnest money received from said Mr. Lina by SELLER, plus fourteen (14%) percentum interest per annum, all of which shall be considered as liens of said parcels of land, or at least on the share therein of herein SELLER;

'5. Whether indicated or not, all of above terms and conditions shall be binding on the heirs, administrators, and assigns of both the SELLER (undersigned MR. ELIODORO P. SANDEJAS, SR.) and BUYER (MR. ALEX A. LINA).' (Record, SP. Proc. No. R-83-15601, pp. 52-54)

"On July 17, 1984, the lower court issued an [O]rder granting the intervention of Alex A. Lina (Record, SP. Proc. No. R-83-15601, p. 167).

"On January 7, 1985, the counsel for [A]dministrator Eliodoro P. Sandejas filed a [M]anifestation alleging among others that the administrator, Mr. Eliodoro P. Sandejas, died sometime in November 1984 in Canada and said counsel is still waiting for official word on the fact of the death of the administrator. He also alleged, among others that the matter of the claim of Intervenor Alex A. Lina becomes a money claim to be filed in the estate of the late Mr. Eliodoro P. Sandejas (Record, SP. Proc. No. R-83-15601, p. 220). On February 15, 1985, the, lower court issued an [O]rder directing, among others, that the counsel for the four (4) heirs and other heirs of Teresita R. Sandejas to move for the appointment of [a] new administrator within fifteen (15) days from receipt of this [O]rder (Record, SP. Proc. No. R-83-15601, p. 227). In the same manner, on November 4, 1985, the lower court again issued an order, the content of which reads:

'On October 2, 1985, all the heirs, Sixto, Roberto, Antonio, Benjamin all surnamed Sandejas were ordered to move for the appointment of [a] new administrator. On October 16, 1985, the same heirs were given a period of fifteen (15) days from said date within which to move for the appointment of the new administrator. Compliance was set for October 30, 1985, no appearance for the aforenamed heirs. The aforenamed heirs are hereby ordered to show cause within fifteen (15) days from receipt of this Order why this Petition for Settlement of Estate should not be dismissed for lack of interest and failure to comply with a lawful order of this Court.

'SO ORDERED.' (Record, SP. Proc. No. R-83-15601, p. 273).

"On November 22, 1985, Alex A. Lina as petitioner filed with the Regional Trial Court of Manila an Omnibus Pleading for (1) petition for letters of administration [and] (2) to consolidate instant case with SP. Proc. No. R-83-15601 RTC-Branch XI-Manila, docketed therein as SP. Proc. No. 85- 33707 entitled 'IN RE: INTESTATE ESTATE OF ELIODORO P. SANDEJAS, SR., ALEX A. LINA PETITIONER", [for letters of administration] (Record, SP. Proc. No.85-33707, pp. 1-7). On November 29, 1985, Branch XXXVI of the Regional Trial Court of Manila issued an [O]rder consolidating SP. Proc. No. 85-33707, with SP. Proc. No. R-83-15601 (Record, SP. Proc. No. 85-33707, p. 13). Likewise, on December 13, 1985, the Regional Trial Court of Manila, Branch XI, issued an [O]rder stating that 'this Court has no objection to the consolidation of Special proceedings No. 85-331707, now pending before Branch XXXVI of this Court, with the present proceedings now pending before this Branch' (Record, SP. Proc. No. R-83- 15601, p. 279).

"On January 15, 1986, Intervenor Alex A. Lina filed [a] Motion for his appointment as a new administrator of the Intestate Estate of Remedios R. Sandejas on the following reasons:

'5.01. FIRST, as of this date, [i]ntervenor has not received any motion on the part of the heirs Sixto, Antonio, Roberto and Benjamin, all surnamed Sandejas, for the appointment of anew [a]dministrator in place of their father, Mr. Eliodoro P. Sandejas, Sr.;

'5.02. SECOND, since Sp. Proc. 85-33707, wherein the [p]etitioner is herein Intervenor Alex A. Lina and the instant Sp. PROC. R-83-15601, in effect are already consolidated, then the appointment of Mr. Alex Lina as [a]dministrator of the Intestate Estate of Remedios R. Sandejas in instant Sp. Proc. R-83-15601, would be beneficial to the heirs and also to the Intervenor;

'5.03. THIRD, of course, Mr. Alex A. Lina would be willing to give way at anytime to any [a]dministrator who may be proposed by the heirs of the deceased Remedios R. Sandejas, so long as such [a]dministrator is qualified.' (Record, SP. Proc. No. R-83-15601, pp. 281-283)

"On May 15, 1986, the lower court issued an order granting the [M]otion of Alex A. Lina as the new [a]dministrator of the Intestate Estate of Remedios R. Sandejas in this proceedings. (Record, SP. Proc. No. R-83-15601, pp. 288- 290)

"On August 281 1986, heirs Sixto, Roberto, Antonio and Benjamin, all surnamed Sandejas, and heirs [sic] filed a [M]otion for [R]econsideration and the appointment of another administrator Mr. Sixto Sandejasl in lieu of [I]ntervenor Alex A. Lina stating among others that it [was] only lately that Mr. Sixto Sandejas, a son and heir, expressed his willingness to act as a new administrator of the intestate estate of his mother, Remedios R. Sandejas (Record, SP. Proc. No. 85-33707, pp. 29-31). On October 2, 1986, Intervenor Alex A. Lina filed his [M]anifestation and [C]ounter [M]otion alleging that he ha[d] no objection to the appointment of Sixto Sandejas as [a]dministrator of the [i]ntestate [e]state of his mother Remedios R. Sandejas (Sp. Proc. No.85-15601), provided that Sixto Sandejas be also appointed as administrator of the [i]ntestate [e]state of his father, Eliodoro P . Sandejas, Sr. (Spec. Proc. No. 85-33707), which two (2) cases have been consolidated (Record, SP. Proc. No. 85-33707, pp. 34-36). On March 30, 1987, the lower court granted the said [M]otion and substituted Alex Lina with Sixto Sandejas as petitioner in the said [P]etitions (Record, SP. Proc. No. 85-33707, p. 52). After the payment of the administrator's bond (Record, SP. Proc. No. 83-15601, pp. 348-349) and approval thereof by the court (Record, SP. Proc. No. 83-15601, p. 361), Administrator Sixto Sandejas on January 16, 1989 took his oath as administrator of the estate of the deceased Remedios R. Sandejas and Eliodoro P. Sandejas (Record, SP. Proc. No. 83-15601, p. 367) and was likewise issued Letters of Administration on the same day (Record, SP. Proc. No. 83-15601, p. 366).

"On November 29, 1993, Intervenor filed [an] Omnibus Motion (a) to approve the deed of conditional sale executed between Plaintiff-in-lntervention Alex A. Lina and Elidioro [sic] Sandejas, Sr. on June 7, 1982; (b) to compel the heirs of Remedios Sandejas and Eliodoro Sandejas, Sr. thru their administrator, to execute a deed of absolute sale in favor of [I]ntervenor Alex A. Lina pursuant to said conditional deed of sale (Record, SP. Proc. No. 83-15601, pp. 554-561) to which the administrator filed a [M]otion to [D]ismiss and/or [O]pposition to said omnibus motion on December 13, 1993 (Record, SP. Proc. No.83-15601, pp. 591-603).

"On January 13, 1995, the lower court rendered the questioned order granting intervenor's [M]otion for the [A]pproval of the Receipt of Earnest Money with promise to buy between Plaintiff-in-lntervention Alex A. Lina and Eliodoro Sandejas, Sr. dated June 7, 1982 (Record, SP. Proc. No. 83-15601, pp. 652-654 ). x x x."

The Order of the intestate courts disposed as follows:

"WHEREFORE, [i]ntervenor's motion for the approval of the Receipt Of Earnest Money With Promise To Sell And To Buy dated June 7, 1982, is granted. The [i]ntervenor is directed to pay the balance of the purchase price amounting to P729,000.00 within thirty (30) days from receipt of this Order and the Administrator is directed to execute within thirty (30) days thereafter the necessary and proper deeds of conveyancing."6

Ruling of the Court of Appeals

Overturning the RTC ruling, the CA held that the contract between Eliodoro Sandejas Sr. and respondent was merely a contract to sell, not a perfected contract of sale. It ruled that the ownership of the four lots was to remain in the intestate estate of Remedios Sandejas until the approval of the sale was obtained from the settlement court. That approval was a positive suspensive condition, the nonfulfillment of which was not tantamount to a breach. It was simply an event that prevented the obligation from maturing or becoming effective. If the condition did not happen, the obligation would not arise or come into existence.

The CA held that Section 1, Rule 897 of the Rules of Court was inapplicable, because the lack of written notice to the other heirs showed the lack of consent of those heirs other than Eliodoro Sandejas Sr. For this reason, bad faith was imputed to him, for no one is allowed to enjoyed a claim arising from one’s own wrongdoing. Thus, Eliodoro Sr. was bound, as a matter of justice and good faith, to comply with his contractual commitments as an owner and heir. When he entered into the agreement with respondent, he bound his conjugal and successional shares in the property.

Hence, this Petition.8

Issues

In their Memorandum, petitioners submit the following issues for our resolution:

"a) Whether or not Eliodoro P. Sandejas Sr. is legally obligated to convey title to the property referred to in the subject document which was found to be in the nature of a contract to sell - where the suspensive condition set forth therein [i.e.] court approval, was not complied with;

"b) Whether or not Eliodoro P. Sandejas Sr. was guilty of bad faith despite the conclusion of the Court of Appeals that the respondent [bore] the burden of proving that a motion for authority to sell ha[d] been filed in court;

"c) Whether or not the undivided shares of Eliodoro P. Sandejas Sr. in the subject property is three-fifth (3/5) and the administrator of the latter should execute deeds of conveyance

therefor within thirty days from receipt of the balance of the purchase price from the respondent; and

"d) Whether or not the respondent's petition-in-intervention was converted to a money claim and whether the [trial court] acting as a probate court could approve the sale and compel the petitioners to execute [a] deed of conveyance even for the share alone of Eliodoro P. Sandejas Sr."9

In brief, the Petition poses the main issue of whether the CA erred in modifying the trial court's Decision and in obligating petitioners to sell 3/5 of the disputed properties to respondent, even if the suspensive condition had not been fulfilled. It also raises the following collateral issues: (1) the settlement court's jurisdiction; (2) respondent-intervenor's standing to file an application for the approval of the sale of realty in the settlement case, (3) the decedent's bad faith, and (4) the computation of the decedent's share in the realty under administration.

This Court’s Ruling

The Petition is partially meritorious.

Main Issue:

Obligation With a Suspensive Condition

Petitioners argue that the CA erred in ordering the conveyance of the disputed 3/5 of the parcels of land, despite the nonfulfillment of the suspensive condition -- court approval of the sale -- as contained in the "Receipt of Earnest Money with Promise to Sell and to Buy" (also referred to as the "Receipt"). Instead, they assert that because this condition had not been satisfied, their obligation to deliver the disputed parcels of land was converted into a money claim.

We disagree. Petitioners admit that the agreement between the deceased Eliodoro Sandejas Sr. and respondent was a contract to sell. Not exactly. In a contract to sell, the payment of the purchase price is a positive suspensive condition. The vendor's obligation to convey the title does not become effective in case of failure to pay.10

On the other hand, the agreement between Eliodoro Sr. and respondent is subject to a suspensive condition -- the procurement of a court approval, not full payment. There was no reservation of ownership in the agreement. In accordance with paragraph 1 of the Receipt, petitioners were supposed to deed the disputed lots over to respondent. This they could do upon the court's approval, even before full payment. Hence, their contract was a conditional sale, rather than a contract to sell as determined by the CA.

When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the condition happens or is fulfilled.11 Thus, the intestate court's grant of the Motion for Approval of the sale filed by respondent resulted in petitioners' obligation to execute the Deed of Sale of the disputed lots in his favor. The condition having been satisfied, the contract was perfected. Henceforth, the parties were bound to fulfil what they had expressly agreed upon.

Court approval is required in any disposition of the decedent's estate per Rule 89 of the Rules of Court. Reference to judicial approval, however, cannot adversely affect the substantive rights of heirs to dispose of their own pro indiviso shares in the co-heirship or co-ownership.12 In other words, they can sell their rights, interests or participation in the property under administration. A stipulation requiring court approval does not affect the validity and the effectivity of the sale as regards the selling heirs. It merely implies that the property may be taken out of custodia legis, but only with the court's permission.13 It would seem that the suspensive condition in the present conditional sale was imposed only for this reason.

Thus, we are not persuaded by petitioners' argument that the obligation was converted into a mere monetary claim. Paragraph 4 of the Receipt, which petitioners rely on, refers to a situation wherein the sale has not materialized. In such a case," the seller is bound to return to the buyer the earnest money paid plus interest at fourteen percent per annum. But the sale was approved by the intestate court; hence, the proviso does not apply.

Because petitioners did not consent to the sale of their ideal shares in the disputed lots, the CA correctly limited the scope of the Receipt to the pro-indiviso share of Eliodoro Sr. Thus, it correctly modified the intestate court's ruling by excluding their shares from the ambit of the transaction.

First Collateral Issue:

Jurisdiction of Settlement Court

Petitioners also fault the CA Decision by arguing, inter alia, (a) jurisdiction over ordinary civil action seeking not merely to enforce a sale but to compel performance of a contract falls upon a civil court, not upon an intestate court; and (b) that Section 8 of Rule 89 allows the executor or administrator, and no one else, to file an application for approval of a sale of the property under administration.

Citing Gil v. Cancio14 and Acebedo v. Abesamis,15 petitioners contend that the CA erred in clothing the settlement court with the jurisdiction to approve the sale and to compel petitioners to execute the Deed of Sale. They allege factual differences between these cases and the instant case, as follows: in Gil, the sale of the realty in administration was a clear and an unequivocal agreement for the support of the widow and the adopted child of the decedent; and in Acebedo, a clear sale had been made, and all the heirs consented to the disposition of their shares in the realty in administration.

We are not persuaded. We hold that Section 8 of Rule 89 allows this action to proceed. The factual differences alleged by petitioners have no bearing on the intestate court's jurisdiction over the approval of the subject conditional sale. Probate jurisdiction covers all matters relating to the settlement of estates (Rules 74 & 86-91) and the probate of wills (Rules 75-77) of deceased persons, including the appointment and the removal of administrators and executors (Rules 78-85). It also extends to matters incidental and collateral to the exercise of a probate court's recognized powers such as selling, mortgaging or otherwise encumbering realty belonging to the estate. Indeed, the rules on this point are intended to settle the estate in a speedy manner, so that the benefits that may flow from such settlement may be immediately enjoyed by the heirs and the beneficiaries.16

In the present case, the Motion for Approval was meant to settle the decedent's obligation to respondent; hence, that obligation clearly falls under the jurisdiction of the settlement court. To require

respondent to file a separate action -- on whether petitioners should convey the title to Eliodoro Sr.'s share of the disputed realty -- will unnecessarily prolong the settlement of the intestate estates of the deceased spouses.

The suspensive condition did not reduce the conditional sale between Eliodoro Sr. and respondent to one that was "not a definite, clear and absolute document of sale," as contended by petitioners. Upon the occurrence of the condition, the conditional sale became a reciprocally demandable obligation that is binding upon the parties.17 That Acebedo also involved a conditional sale of real property18 proves that the existence of the suspensive condition did not remove that property from the jurisdiction of the intestate court.

Second Collateral Issue:

Intervenor's Standing

Petitioners contend that under said Rule 89, only the executor or administrator is authorized to apply for the approval of a sale of realty under administration. Hence, the settlement court allegedly erred in entertaining and granting respondent's Motion for Approval.1âwphi1.nêt

We read no such limitation. Section 8, Rule 89 of the Rules of Court, provides:

"SEC. 8. When court may authorize conveyance of realty which deceased contracted to convey. Notice. Effect of deed. -- Where the deceased was in his lifetime under contract, binding in law, to deed real property, or an interest therein, the court having jurisdiction of the estate may, on application for that purpose, authorize the executor or administrator to convey such property according to such contract, or with such modifications as are agreed upon by the parties and approved by the court; and if the contract is to convey real property to the executor or administrator, the clerk of the court shall execute the deed. x x x."

This provision should be differentiated from Sections 2 and 4 of the same Rule, specifically requiring only the executor or administrator to file the application for authority to sell, mortgage or otherwise encumber real estate for the purpose of paying debts, expenses and legacies (Section 2);19 or for authority to sell real or personal estate beneficial to the heirs, devisees or legatees and other interested persons, although such authority is not necessary to pay debts, legacies or expenses of administration (Section 4).20 Section 8 mentions only an application to authorize the conveyance of realty under a contract that the deceased entered into while still alive. While this Rule does not specify who should file the application, it stands to reason that the proper party must be one .who is to be benefited or injured by the judgment, or one who is to be entitled to the avails of the suit.21

Third Collateral Issue:

Bad Faith

Petitioners assert that Eliodoro Sr. was not in bad faith, because (a) he informed respondent of the need to secure court approval prior to the sale of the lots, and (2) he did not promise that he could obtain the approval.

We agree. Eliodoro Sr. did not misrepresent these lots to respondent as his own properties to which he alone had a title in fee simple. The fact that he failed to obtain the approval of the conditional sale did not automatically imply bad faith on his part. The CA held him in bad faith only for the purpose of binding him to the conditional sale. This was unnecessary because his being bound to it is, as already shown, beyond cavil.

Fourth Collateral Issue:

Computation of Eliodoro's Share

Petitioners aver that the CA's computation of Eliodoro Sr.'s share in the disputed parcels of land was erroneous because, as the conjugal partner of Remedios, he owned one half of these lots plus a further one tenth of the remaining half, in his capacity as a one of her legal heirs. Hence, Eliodoro's share should be 11/20 of the entire property. Respondent poses no objection to this computation.22

On the other hand, the CA held that, at the very least, the conditional sale should cover the one half (1/2) pro indiviso conjugal share of Eliodoro plus his one tenth (1/10) hereditary share as one of the ten legal heirs of the decedent, or a total of three fifths (3/5) of the lots in administration.23

Petitioners' correct. The CA computed Eliodoro's share as an heir based on one tenth of the entire disputed property. It should be based only on the remaining half, after deducting the conjugal share.24

The proper determination of the seller-heir's shares requires further explanation. Succession laws and jurisprudence require that when a marriage is dissolved by the death of the husband or the wife, the decedent's entire estate - under the concept of conjugal properties of gains -- must be divided equally, with one half going to the surviving spouse and the other half to the heirs of the deceased.25 After the settlement of the debts and obligations, the remaining half of the estate is then distributed to the legal heirs, legatees and devices. We assume, however, that this preliminary determination of the decedent's estate has already been taken into account by the parties, since the only issue raised in this case is whether Eliodoro's share is 11/20 or 3/5 of the disputed lots.

WHEREFORE, The Petition is hereby PARTIALLY GRANTED. The appealed Decision and Resolution are AFFIRMED with the MODIFICATION that respondent is entitled to only a pro-indiviso share equivalent to 11/20 of the disputed lots.

SO ORDERED.

Melo, Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.

G.R. No. 127167 November 18, 1999

REPUBLIC OF THE PHILIPPINES, represented by ASSET PRIVATIZATION TRUST (APT), petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER PABLO C. ESPIRITU, JR., ATTY. GUERRERO CAMPOS, in his official capacity as the Register of Deeds in the Province of Tarlac and DOMINGO P. UY, respondents.

A Year is Longer than Twelve Months.

PARDO, J.:

The case before the Court is a special civil action for certiorari seeking to nullify and set aside the following:

a. Order dated February 23, 1996 issued by Labor Arbiter Pablo C. Espiritu, Jr. (Arbiter Espiritu, for brevity) in NLRC NCR-00-05-02570-90; and

b. Decision promulgated on October 16, 1996 by the National Labor Relations Commission (NLRC for brevity) in NLRC NCR CA No. 002427-91 [NLRC CASE NO. 00-05-02570-90].

which declared void and ineffectual the redemption by APT of the parcel of land covered by Transfer Certificate of Title No. 101055 of the Register of Deeds of Tarlac in the name of Pantranco North Express, Inc. (hereafter PNEI for brevity), sold on execution at public auction in favor of Domingo P. Uy.

On December 27, 1974, PNEI obtained a loan in the amount of US$500,000.00 from the National Investment and Development Corporation (hereafter NIDC), a subsidiary of the Philippine National Bank (PNB). As security for the loan, PNEI mortgaged certain parcels of real property listed in the Deed of Supplemental Mortgage executed in favor of NIDC on August 28, 1978. One of the property mortgaged was the Pantranco bus terminal in Tarlac, Tarlac, covered by TCT No. 101055 of the Register of Deeds of Tarlac.

The Deed of Supplemental Mortgage was registered with the Registry of Deeds of Tarlac and annotated in the original TCT No. 101055 as follows: "No. 15-3709. KIND: MORTGAGE in favor of National Investment and Development Corporation . . . .

On November 28, 1986, NIDC transferred all the rights and interests over the mortgaged property PNEI to PNB, by virtue of the Deed of Transfer executed by NIDC in favor of PNB.

On December 8, 1986, pursuant to Presidential Proclamation No. 50, PNB transferred certain non-performing assets to the Asset Privatization Trust. Among them were the rights and interests of PNB over the mortgaged assets of PNEI.

On June 5, 1987, PNB executed a Deed of Transfer over certain assets of PNB in favor of the National Government, through the APT, including all the mortgaged property of PNEI.

In 1991, the Department of Transportation and Communication (DOTC) took over the management of PNEI with a promise to infuse additional capital therein and expand its operation. However, the promised infusion of additional capital did not materialize and because of the persistent demands of the two labor unions in PNEI, the latter was unable to continue its operations. As a result, the two labor unions of the company (PACE and PEA) instituted with the Labor Arbiter cases against PNEI for the collection of their claims. In virtue of final judgments therein, practically all the assets of the company were levied upon and sold on execution at public auction sales. Included among the property levied upon and sold at public auction was the parcel of land covered by TCT No. 101055 to satisfy the judgment debt of PNEI under the final and executory decision in the case. 1 In the auction sale of the subject land on September 23, 1994, respondent Domingo P. Uy offered the highest bid in the amount of P4,868,100.00 and consequently, the sheriffs conducting the auction awarded the subject land in his favor. On October 24, 1994, the sheriffs issued a certificate of sale which was duly registered with the Register of Deeds for the Province of Tarlac and annotated in the original copy of the title on file with the Register of Deeds.

On October 23, 1995, APT tendered to the NLRC cashier in redemption of the subject property the amount of P5,454,272.00. The amount paid by APT represents the bid price of respondent Domingo P. Uy plus accrued interests and deposit fee. The taxes were not included in the payment. Other expenses incurred in connection with the auction sale of the said PNEI property were to be paid later as soon as they were known and billed by Sheriffs Masilungan and Gaddi.

After payment of the purported redemption price, APT requested the sheriffs for a certificate of redemption but Sheriffs Masilungan and Gaddi told him that the certificate would be issued the following day. No such certificate was ever issued.

On the following day, October 24, 1995, Sheriffs Masilungan and Gaddi executed a Sheriff's Final Deed transferring all the rights, title and interests of PNEI over the subject property in favor of respondent Domingo P. Uy.

On October 24, 1995, the sheriffs submitted the Final Deed of Sale in favor of Domingo P. Uy to the Register of Deeds of Tarlac for registration. However, the Register of Deeds held registration in abeyance because of APT's claim that the latter had redeemed the subject property within the redemption period.

The parties raised the validity of APT's redemption as an incident in the case, and submitted their respective position papers.

On February 23, 1996, Labor Arbiter Espiritu issued an order declaring the redemption made by APT to be void and ineffectual, the decretal portion of which reads:

WHEREFORE, the redemption made by APT on October 23, 1995 is hereby declared void and ineffectual and the Sheriff's Final Deed dated October 24, 1995 in favor of Domingo P. Uy is confirmed. The Register of Deeds of Tarlac is hereby ordered to cancel TCT No. 101055 in the name of Pantranco North Express, Inc. and to issue a new title in the name of Domingo P. Uy.

SO ORDERED.

Quezon City, Philippines, February 23, 1996.

(s/t) PABLO C. ESPIRITU, JR.

Labor Arbiter 2

On March 7, 1996, petitioner appealed the order of the Labor Arbiter to the National Labor Relations Commission.

On October 16, 1996, the NLRC promulgated its decision dismissing petitioner's appeal.

Hence, this petition. 3

The issue raised is whether the period of redemption in auction sale on execution under Section 30, Rule 39 of the 1964 Revised Rules of Court is twelve (12) months or one year from the date of registration of the sale with the register of deeds.

We rule that the period of redemption of real property sold on execution under Section 30, Rule 39, 1964 Revised Rules of Court 4 is twelve (12) months, not one year, from the date of the sale. 5 "Of course, it is already settled that the phrase "after the sale" really means after the date of registration of the certificate of sale. 6 What is here in question, instead, is the computation of the redemption period of "twelve (12) months." 7 Applying Article 13 of the Civil Code, the redemption period in this case under Section 30, Rule 39 of the 1964 Revised Rules of Court 8 consists of three hundred sixty (360), and not three hundred sixty five (365) days. Section 30 provided only twelve (12) months, which under the rules of computation in Article 13, Civil Code, is not necessarily equivalent to one year. 9 With this ruling, we regret that petitioner failed to redeem the subject property within the twelve-month redemption period prescribed under the rule then in force.

WHEREFORE, the Court hereby DISMISSES the petition and AFFIRMS the order dated February 23, 1996 of Labor Arbiter Pablo C. Espiritu, Jr. and the decision dated October 16, 1996 in Case No. 00-05-02570-90 of the National Labor Relations Commission.

No costs.

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.

G.R. No. 148541 November 11, 2004

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.BONITA O. PEREZ and ALFREDO PEREZ, respondents.

Usurious interest does not make the debt void; stipulation as to usurious interest void.

CALLEJO, SR., J.:

This is a petition for review on certiorari seeking to reverse and set aside the Decision1 of the Court of Appeals (CA) dated February 28, 2001, and to reinstate the Decision of the Regional Trial Court (RTC), Makati City, Branch 145, in Civil Case No. 12057, as modified by trial court’s Order dated June 11, 1993.

The Antecedents

On April 28, 1978, petitioner Development Bank of the Philippines (DBP) sent a letter to respondent Bonita Perez, informing the latter of the approval of an industrial loan amounting to P214,000.00 for the acquisition of machinery and equipment and for working capital, and an additional industrial loan amounting to P21,000.00 to cover unforeseen price escalation.2

On May 18, 1978, the respondents were made to sign four promissory notes covering the total amount of the loan, P235,000.00. Three promissory notes for P24,000.00, P48,000.00, and P142,000.00, respectively, were executed, totaling P214,000.00. These promissory notes were all due on August 31, 1988.3 A fourth promissory note due on September 19, 1988 was, likewise, executed to cover the additional loan of P21,000.00.4 The promissory notes were to be paid in equal quarterly amortizations and were secured by a mortgage contract covering real and personal properties.5

On September 6, 1978, the petitioner sent a letter6 to the respondents informing them of the terms for the payment of the P214,000.00 industrial loan. On November 8, 1978, the petitioner sent another letter7 to the respondents informing them about the terms and conditions of their additional P21,000.00 industrial loan.

Due to the respondents' failure to comply with their amortization payments, the petitioner decided to foreclose the mortgages that secured the obligation. However, in a Letter8 dated October 7, 1981, Mrs. Perez requested for a restructuring of their account due to difficulties they were encountering in collecting receivables.

On April 1, 1982, the petitioner informed the respondents that it had approved the restructuring of their accounts.9 The loan was restructured, and on May 6, 1982, the respondents signed another promissory note in the amount of P231,000.00 at eighteen percent (18%) interest per annum, payable quarterly at P12,553.27, over a period of ten years. The promissory note stated in part:

PROMISSORY NOTE

P231,000.00 Makati, Metro Manila, May 6, 1982

On or before May 7, 1992, for value received, I/we, jointly and severally, promise to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or order at its office at Makati, Metro Manila, Philippines, the sum of TWO HUNDRED THIRTY-ONE THOUSAND PESOS (P231,000.00), Philippine Currency, with interest at the rate of EIGHTEEN per centum (18%) per annum. Before the date of maturity, we hereby bind ourselves to make partial payments, the first payment to be made on August 7, 1982 and the subsequent payments on the 7th day of every three (3) months thereafter, and each of all such payments shall be TWELVE THOUSAND FIVE HUNDRED FIFTY-THREE and 27/100 PESOS (P12,553.27) which shall cover amortizations on the principal and interest at the above-mentioned rate.

This loan shall be subject to penalty charges and additional interest as follows:

On loan with amortizations or portions thereof in arrears irrespective of age.

Additional interest at the basic loan interest rate per annum computed on total amortizations past due irrespective of age.

P L U S

Penalty charge of 8% per annum computed on total amortizations in arrears irrespective of age.

The DBP further reserves the right to increase, with notice to the mortgagor, the rate of interest on the loan as well as all other fees and charges on loans and advances pursuant to such policy as it may adopt from time to time during the period of the loan; Provided that the rate of interest on the loan shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board; Provided, further, that the adjustment in the rate of interest shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest.

In case of non-payment of the amount of this note or any portion of it on demand, when due, or any other amount or amounts due on account of this note, the entire obligation shall become due and demandable, and if, for the enforcement of the payment thereof, the DEVELOPMENT BANK OF THE PHILIPPINES, is constrained to entrust the case to its attorneys, I/we, jointly and severally, bind myself/ourselves to pay for attorney's fees, as provided for in the mortgage contract, in addition to the legal fees and other incidental expenses. In the event of foreclosure of the mortgage securing this note, I/we further bind myself/ourselves, jointly and severally, to pay the deficiency , if any.

SIGNED IN THE PRESENCE OF:

illegible SGD. SGD.

illegible BONITA ANG ORDIALES ALFREDO PEREZ

(Bonita O. Perez)

This Promissory Note supersedes the Promissory Note dated May 18, 1978 and stands secured by a mortgage contract executed by the above parties on the same date, subject to the following terms and conditions.10

As stated in the promissory note, the first amortization was due on August 7, 1982, and the succeeding amortizations, every quarter thereafter. However, the respondents made their first payment amounting to P15,000.0011 only on April 20, 1983 or after the lapse of three quarters.12 Their second payment, which should have been paid on November 7, 1982, was made on December 2, 1983 and only in the amount of P5,000.00. The third payment was then made at the time when the ninth quarterly amortization should have been paid. After this, the respondents completely stopped paying.13 The total payments they made after the restructure of the loan amounted to P35,000.00 only.14

This failure to meet the quarterly amortization of the loan prompted the petitioner to institute foreclosure proceedings on the mortgages. The sale of the properties covered by the mortgage contract was scheduled on October 30, 1985.15

On October 24, 1985, the respondents filed a Complaint16 for the nullification of the new promissory note with damages and preliminary prohibitory injunction. The complaint alleged that the petitioner restructured the respondents’ obligation in bad faith by requiring them to sign another promissory note for P231,000.00 without considering the total payments made on the loan amounting to P224,383.43. The respondents claimed that the petitioner failed to explain to them how it had arrived at the amount of the restructured loan. The respondents also alleged that the petitioner failed to furnish them with a disclosure statement as required by Rep. Act No. 3765, also known as the Truth in Lending Act, prior to the consummation of the transaction. They averred that the interest imposed on the said transaction was usurious. They, likewise, alleged that the new promissory note constituted a novation of the previous obligations.

In its answer, the petitioner denied the allegations and averred that the claim for violation of the disclosure requirement under Rep. Act No. 3765 was not within the jurisdiction of the RTC and was barred by prescription. By way of compulsory counterclaim, the petitioner prayed that the respondents be ordered to pay their obligation, plus exemplary damages and costs.17 During trial, the petitioner presented a Statement of Account dated September 14, 1990, showing that the total amount of the obligation as of September 15, 1990 was P1,384,465.71.18

On October 25, 1985, the trial court ordered the petitioner to desist from holding the public auction of the respondents’ properties. The trial court issued an Order on April 25, 1986 to maintain the status quo.

In its Decision dated May 10, 1993, the court a quo upheld the validity of the new promissory note and ordered the respondents to pay their obligation. The dispositive portion reads:

WHEREFORE, judgment is rendered dismissing the complaint for failure of plaintiffs to prove their causes of action by clear preponderance of evidence, with costs against them.

The order issued on April 25, 1986, ordering the defendant Bank to maintain the status quo and suspending the auction sale, is hereby set aside.

Defendant Bank's counterclaim is hereby granted, and plaintiffs are hereby ordered to pay the former the sum of One Million Three Hundred Eighty-four Thousand Four Hundred Sixty-five Pesos and Seventy-one Centavos (P1,384,465.71), representing the latter's obligation as of September 15, 1990, with interest thereon at the legal rate of twelve (12%) percent per annum pursuant to Sec. 2 of CB Circular No. 905; (Sagrador vs. Valderrama, supra), from September 15, 1990 up to full payment of said sum. The other counterclaim for exemplary damages is hereby dismissed.

SO ORDERED.19

Upon the petitioner’s motion for reconsideration, the trial court issued an order20 amending the dispositive portion of its decision by changing the rate of interest to eighteen percent (18%) per annum.

Dissatisfied, the respondents appealed to the CA. On February 28, 2001, the CA rendered a decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the Decision dated May 10, 1993, docketed as Civil Case No. 12057 by the Regional Trial Court of Makati, Branch 145, is hereby MODIFIED in the sense that the amount of P1,384,465.71 as of September 1990 is SET ASIDE and the formula mandated by Central Bank Circular No. 158 should be applied by the trial court in computing the total obligation and liability of appellants. All the other parts of the assailed decision are AFFIRMED in toto.

SO ORDERED.21

The CA found that the respondents did not voluntarily sign the restructured promissory note as they were only forced to sign it for fear of having their mortgaged property foreclosed by the bank. It ruled that the restructured promissory note which was prepared by the petitioner alone was a contract of adhesion which violates the rule on mutuality of contracts.

Nonetheless, the CA held that the trial court should have used the formula prescribed by paragraph 3,22 Sec. 2(i), Central Bank (CB) Circular No. 158, Rules and Regulations Implementing Rep. Act No. 3765, in computing the total obligation of the respondents considering that Sec. 3(a) thereof provides that it applies to any loans, mortgages, deeds of trust, advances and discounts.23 The CA also held that since the loan is secured by a mortgage contract, the eighteen percent (18%) interest rate was excessive and usurious under CB Circular No. 817. According to the appellate court, CB Circular No. 905, series of 1982, simply suspended the effectivity of the Usury Law; it did not authorize either party to unilaterally raise the interest without the other party's consent.24 Finally, the CA concluded that there was neither basis nor explanation as to how the measly amount of P214,000.00 in 1972, restructured to P231,000.00 in 1982, ballooned to P1,384,465.71 as of September 15, 1990.25

Both parties moved to reconsider the said decision. The CA denied the said motions in a Resolution dated May 31, 2001.

The Present Petition

The petitioner raises the following grounds in the instant petition:

1. Whether or not the Honorable Court of Appeals had decided this instant case in a way not in accord with the spirit and intent of Republic Act No. 3765, otherwise known as the Truth in Lending Act, when it declared that "the trial court should have applied the formula provided by Central Bank Circular No. 158, series of 1963, as provided above to arrive at the total obligations of appellants less the amounts paid by appellants as evidenced by the vouchers and receipts attached to the records;"

2. Whether or not the conclusion of the Honorable Court of Appeals stating that the private respondents did not voluntarily sign the restructured promissory note is entirely grounded on speculations and/or surmises or conjectures;

3. Whether or not the Honorable Court of Appeals failed to notice certain relevant facts which if it had been considered would change its finding that the restructured promissory note was prepared by the appellee Bank alone;

4. Whether or not the Honorable Court of Appeals failed to notice certain relevant facts which if it had been considered would change its finding that the amount of P1,384,465.71 as of September 15, 1990 has neither basis at all nor any explanation how this amount came to existence;

5. Whether or not the conclusion of the Honorable Court of Appeals stating that petitioner DBP failed to follow Central Bank Circular No. 158 is grounded entirely on speculation and surmises or conjecture. And whether or not this finding is contradicted by another finding of the same court; and

6. Whether or not this Honorable Court of Appeals committed grave abuse of discretion when it ruled that pursuant to Central Bank Circular No. 817 the 18% interest per annum agreed upon by the parties in the restructured promissory note is usurious, and that the same should be reduced to 12% being the legal rate of interest.26

In a nutshell, the issues in this case are as follows: (1) whether the new promissory note is voidable for not having been voluntarily signed by the respondents and for being a contract of adhesion; (2) whether the interest rate agreed upon by the parties in the new promissory note is usurious; (3) whether Central Bank Circular No. 158 should be applied in computing the total obligations of the respondents; and (4) the amount of the total obligation of the respondents.

The petition is partly meritorious.

Anent the first issue, the petitioner points out that the respondents admitted to having signed the new promissory note. It avers that there was no evidence on record showing that the signing of the new promissory note was attended by mistake, violence, intimidation, undue influence, or fraud. The petitioner posits that the respondents’ claim of having been forced to sign the restructured note for fear of having their mortgaged property foreclosed cannot serve as legal basis to conclude that the

respondents did not voluntarily sign the new promissory note.27 The petitioner maintains that a perusal of the evidence would reveal that the new promissory note was the result of the mutual agreement of the parties and, as such, is not a contract of adhesion.28

On the other hand, the respondents argue that this is a question of fact which is not subject to review by this Court. According to the respondents, the fact that the restructured loan proved disadvantageous to them belies the petitioner’s claim that they voluntarily signed the new promissory note.

We agree with the petitioner.

In petitions for review on certiorari as a mode of appeal under Rule 45 of the Rules of Court, the petitioner can raise only questions of law – the Supreme Court is not the proper venue to consider a factual issue as it is not a trier of facts.29 A departure from the general rule may be warranted where the findings of fact of the Court of Appeals are contrary to the findings and conclusions of the trial court, or when the same is unsupported by the evidence on record.30

In the instant case, there was no evidence showing that the respondents signed the new promissory note through mistake, violence, intimidation, undue influence, or fraud. The respondents merely alleged that they were forced to restructure their loan for fear of having their mortgaged properties foreclosed. However, it is axiomatic that this would not amount to vitiated consent. The last paragraph of Article 1335 of the New Civil Code specifically states that a threat to enforce one’s claim through competent authority, if the claim is just or legal, does not vitiate consent. Foreclosure of mortgaged properties in case of default in payment of a debtor is a legal remedy afforded by law to a creditor. Hence, a threat to foreclose the mortgage would not, per se, vitiate consent.

The CA noted that the petitioner prepared the new promissory note on its own and that the only participation of the respondents was to sign the same. The CA concluded, therefore, that the new promissory note was a contract of adhesion.

A contract of adhesion is so-called because its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto.31 While we accede to the appellate court’s conclusion that the new promissory note was in the nature of a contract of adhesion, we cannot fathom how this can further the respondents’ case. In discussing the consequences of a contract of adhesion, we held in Rizal Commercial Banking Corporation v. Court of Appeals:32

It bears stressing that a contract of adhesion is just as binding as ordinary contracts. It is true that we have, on occasion, struck down such contracts as void when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not invalid per se; they are not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.33

On the second issue, the CA held that under CB Circular No. 817, if the loan is secured by a registered real estate, the interest of eighteen percent (18%) is usurious. The petitioner, however, argues that usury has become legally inexistent with the promulgation of CB Circular No. 905.34 It contends that the

interest rate should be eighteen percent (18%), the interest rate they agreed upon.35 For their part, the respondents argue that the Central Bank engaged in self-legislation in enacting CB Circular No. 905.

We agree with the ruling of the CA. It is elementary that the laws in force at the time the contract was made generally govern the effectivity of its provision.36 We note that the new promissory note was executed on May 6, 1982, prior to the effectivity of CB Circular No. 905 on January 1, 1983. At that time, The Usury Law, Act No. 2655, as amended by Presidential Decree No. 116, was still in force and effect.

Under the Usury Law, no person shall receive a rate of interest, including commissions, premiums, fines and penalties, higher than twelve percent (12%) per annum or the maximum rate prescribed by the Monetary Board for a loan secured by a mortgage upon real estate the title to which is duly registered.37

In this case, by specific provision in the new promissory note, the restructured loan continued to be secured by the same mortgage contract executed on May 18, 1978 which covered real and personal properties of the respondents. We, therefore, find the eighteen percent (18%) interest rate plus the additional interest and penalty charges of eighteen percent (18%) and eight percent (8%), respectively, to be highly usurious.

In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid principal debt still stands and remains valid, but the stipulation as to the usurious interest is void. Consequently, the debt is to be considered without stipulation as to the interest.38 In the absence of an express stipulation as to the rate of interest, the legal rate at twelve percent (12%) per annum shall be imposed.39

Neither is the contention of the respondents that the Central Bank engaged in self-legislation correct. As we held in First Metro Investment Corporation v. Este Del Sol Mountain Reserve, Inc.: 40

… Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter's effectivity. The illegality of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another law. Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed.41

On the third issue, the petitioner argues that CB Circular No. 158 does not prescribe a formula in computing a debtor's monetary obligation, but merely provides for the formula in computing the simple annual rate. It contends that the amount of the debtor's obligation must be computed in accordance with the interest rate, charges, and manner of computation agreed upon by the parties.42

We agree. The total obligation of the respondents must be computed according to the terms and conditions agreed upon. The formula provided under paragraph 3, Sec. 2(i), CB Circular No. 158 cannot be used in computing the total obligation of the respondents because it merely applies to the computation of the simple annual rate. Simple annual rate is the uniform percentage which represents the ratio, on an annual basis, between the finance charges and the amount to be financed.43 It is one of the items required to be disclosed under the Truth in Lending Act pursuant to the State’s policy to protect its citizens from lack of awareness of the true cost of credit.44

Finally, we find that the records are insufficient to enable us to determine the total amount of the respondents’ obligation. It is not even clear how much the respondents have already paid on the

restructured loans and when such payments were made. The receipts presented in evidence by the respondents only showed that they paid P15,000.00 on April 20, 1983 and P5,000.00 on December 2, 1983.45 On the other hand, Mr. Roberto Balarao, who is assigned to the Traffic and Processing Department of the petitioner, testified that a third payment was made, but failed to state the amount.46 Another witness, Carmen Chamen, an account officer of the petitioner, testified that after the restructuring of the account, the total payment made was P35,000.00.47

Moreover, considering our previous conclusion that the interest rates prescribed under the new promissory note are usurious, the statement of account presented by the petitioner is no longer pertinent. It must be stressed that such statement of account was arrived at based on the usurious interest rates. Hence, the total amount of the obligation must necessarily be recomputed.

IN LIGHT OF ALL THE FOREGOING, the assailed Decision dated February 28, 2001 of the Court of Appeals and Order dated June 11, 1993 of the Regional Trial Court, Makati City, Branch 145, are AFFIRMED WITH MODIFICATION. The case is hereby REMANDED to the trial court for determination of the total amount of the respondents' obligation according to the reduced interest rate of twelve percent (12%) per annum.

SO ORDERED.

Austria-Martinez and Chico-Nazario, JJ., concurPuno, J., on official leaveTinga,J., on leave

G.R. No. 131013 December 14, 2001

BLADE INTERNATIONAL MARKETING CORPORATION, EVAN J. BORBON, EDGAR J. BORBON, and MARCIAL GERONIMO, petitioners, vs.COURT OF APPEALS and METROPOLITAN BANK & TRUST COMPANY, respondents.

Joint and Solidary Obligation.

BELLOSILLO, J.:

The Case

The case under consideration is a petition to annul the decision1 of the Court of Appeals that ordered petitioners Blade International Marketing Corporation, Evan J. Borbon, Edgar J. Borbon, and Marcial Geronimo to pay, jointly and severally, the total amount of their obligation to respondent Metropolitan Bank and Trust Company, including interest, penalty charge and attorney's fees.1âwphi1.nêt

The Facts

The facts, as state in the petition, are as follows:

"1. The instant complaint for a "Sum of Money" was instituted by the Metropolitan Bank & Trust Co. with an application for issuance of a Writ of Preliminary Attachment against the petitioners Blade International Marketing Corporation, Evan J. Borbon, Edgar J. Borbon, Marcial Geronimo and Elenito G. Santos. The complaint consisted of eight (8) causes of actions involving the delivery, shipment of merchandise, and tools. Private Respondent alleged, that it paid the suppliers thereof by way of letters of credit against bills of exchange and that said merchandise or shipment were delivered in trust and/or accepted by the petitioner/s under the conditions of the trust receipt which required the said petitioner/s as entrustee/s to hold the goods, merchandise, documents and/or instrument as well as the proceeds thereof, for the payment of petitioner/s obligations acceptances, indebtedness and liabilities and that without justifiable reason, they allegedly failed and refused to account for and turn over to the private respondent the proceeds of sale of the above mentioned goods or merchandise, documents and instruments subject matter of the trust, the details of which are as follows:

"x x x.

"2. On 20 November 1987, petitioners BLADE, Evan J. Borbon, Edgar J. Borbon and Marcial Geronimo filed a "Joint Answer with Counterclaim," and which answer was anchored on the following grounds:

"1. That defendant corporation thru its authorized officers applied for and in its own behalf for several commercial letters of credit with the plaintiff in blank form;

"2. That defendants further denied the material and ultimate facts of the eight (8) causes of actions in the complaint and interposed Special and Affirmative Defenses, to wit:

"x x x.

"3. By way of "Special and Affirmative Defenses," defendants also maintained, that individual defendants Evan J. Borbon, Marcial Geronimo and Edgar J. Borbon never signed the letters of credit and related documents in their personal capacities nor agreed to be bound thereon in anyway or as sureties or as entrustees to the plaintiff, since they merely acted for and in behalf of defendant corporation in the execution of the documents in question and therefore not liable thereon in their personal capacities; that defendants and/or individual defendants never received the subject merchandise/goods in concept of a trust or as entrustees to account or to hold and/or turn over the goods/merchandise, instruments or the proceeds of sale thereof to the plaintiff and that they have not misused or converted the merchandise or proceeds thereof and that plaintiff has not made any demand nor given any notice to defendants to account for or hold or turn over of the merchandise, instruments, documents, as well as the proceeds thereof to the plaintiff, and further the plaintiff has no causes of actions and that the trust receipts being simulated contracts are void and unenforceable;

"4. Defendant by way of counterclaim further maintained, that the suit was premature and filed maliciously and in bad faith by making it appear that the defendant corporation and individual defendants committed breaches of trust which are non-existent, since the documents supposedly the 'trust receipts' were prepared and executed for convenience purposes but not in concept of trust and therefore simulated contracts or void ab initio. However, the plaintiff with full knowledge thereof maliciously instituted this suit, as a consequence plaintiff unduly prejudiced and/or damaged defendants corporation as well as the individual defendants business reputation and/or credit standing and further caused the individual defendants to suffer unnecessary damages for which defendants are entitled moral damages in the sum of P100,000.00 and for having dragged the defendants before to court, who were compelled and to protect their rights and interest in the premises for which they agreed to pay counsel the sum of P25,000.00 as and for attorney's fees;

"5. After due hearing, the Trial Court rendered a decision on 10 February 1992 dismissing both the complaint and counterclaim, the dispositive portion of which provides, as follows:

"x x x

"WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff Metropolitan Bank and Trust Company against defendants Blade International Marketing Corporation, Evan J. Borbon, Edgar J. Borbon and Marcial Geronimo, as well as the counter claim of the latter against the former, without pronouncement as to costs."

"6. On 24 February 1992, the private respondent not satisfied with the said Decision filed a "Notice of Appeal" before the Honorable Court of Appeals, upon the 'ground that said decision is contrary to the evidence adduced by the parties and to the applicable laws and jurisprudence;

"7. On 13 June 1997, the Honorable Court of Appeals (Third Division) rendered a Decision, which reversed and set-aside the assailed decision and a new one was entered, copy of which was received by the petitioners thru counsel on 20 June 1997, the dispositive portion of which are as follows:

"WHEREFORE, finding reversible error in the assailed decision, the same is hereby REVERSED and SET ASIDE and a new one is ENTERED finding the appellees liable, jointly and severally, with each other and ordering them to pay the appellant the sum of P2,118,841.20 representing the total amount of the obligation as of May 31, 1997, inclusive of 18% interest and 2% penalty charge until their obligation is fully paid, and the payment of P50,000.00 as attorney's fees. No pronouncement as to costs.

"SO ORDERED.

"8. On 04 July 1997, petitioners filed a "Motion for Reconsideration" thereof, and the Honorable Court of Appeals DENIED the same in its Resolution dated 24 October 1997, copy of which was received on 30 October 1997, the dispositive portion of which reads as follows:

"WHEREFORE, the instant motion for reconsideration is hereby DENIED for lack of merit.

"SO ORDERED."2

Hence, this appeal.3

The Issue

The issue raised is whether the petitioners Evan J. Borbon, Edgar J. Borbon, and Marcial Geronimo are personally liable jointly and severally with Blade International for fulfillment of its obligations under the letters of credit opened with Metrobank.

Petitioners Evan J. Borbon, Edgar J. Borbon, and Marcial Geronimo disclaim liability because they never signed the letters of credit and related documents in their personal capacities.

The Court's Ruling

We hold petitioners liable solidarily.

In this case, petitioners admit that they signed the letters of credit and related documents pertaining to the transactions with Metrobank. However, petitioners claimed that they signed the forms in blank. The documents show that the petitioners agreed to jointly and severally undertake payment of the obligations and also consented to each and all of the stipulated conditions on the documents. "An experienced businessman who signs important legal papers cannot disclaim the consequent liabilities therefor after being a signatory thereon."4

Thus, the Court of Appeals was correct in finding that petitioners contractually agreed to hold themselves personally solidarily liable with the corporation in the fulfillment of its obligations to Metrobank.1âwphi1.nêt

The Fallo

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals in toto.5

No costs.

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan, Ynares-Santiago, JJ., concur.