[G.R.

No. L-13246. March 30, 1960.]

FEDERICO CALERO, plaintiff and appellant, v. EMILIA CARION Y SANTA MARINA, ET AL., defendants
and appellees.


D E C I S I O N


BARRERA, J.:


From the order of the Court of First Instance of Manila (in Civil Case No. 31409) dismissing his complaint, on the
ground of prescription, plaintiff Federico Calero interposed this appeal directly to this Court on questions purely
of law.

On December 20, 1956, plaintiff filed with the abovementioned court a complaint which, in part,
reads:chanrob1es virtual 1aw library

x x x


"3. Que a principios de año de 1937, el demandante propuso a don Enrique Carrion, padre de las demandadas, el
siguiente negocio: adquirir entre los dos una finca en la Plaza Santa Cruz, por al precio de P250,000.00, de los
cuales se pagarian P25,000.00 al contado y el resto a plazos, en diez años; en el bien entendido de que para pagar
la suma de P25,000.00, don Enrique Carrion aportaria P15,000.00 y el demandante aportaria los P10,000.00
restantes.

"4. Que despues de examinar la finca, don Enrique Carrion aceptó la proposición del demandante, y le autoriza
cerrar la transacción, a nombre de sus hijas, es decir, de las dos (2) demandadas principales en este asunto.

"5. Que en el entretanto, don Enrique Carrion se ausentó de Filipinas, continuando las negociaciones su
apoderado y administrador, don Santiago Carrion quien tambien era el apoderado Y administrador de las
demandadas.

"6. Que cuando se fué a preparar la escritura de compra, don Santiago Carrion, como apoderado de las
demandadas, explicó al demandante que era muy complicado constituir una communidad de bienes en esa finca,
pues habria necesidad de rendir cuentas mensuales, y consultarse en caso de reparaciones, mejoras, etc.

"7. Que para evitar estas dificultades, don Santiago Carrion propuso comprar la finca a nombre exclusivo de las
demandadas, con la obligación de pagar al demandante el veinte por ciento (20%) de los beneficios, cuando se
vendiera la finca.

"8. Que el demandante aceptó esa proposición, en el bien entendido de que la finca seria vendida tan pronto
como se encontrara un comprador por una cantidad no menor de P300,000.00.

"9. Que debido a la confianza que existia entre las partes, el demandante aceptó esa proposición, como ya se ha
dicho, y las partes otorgaron el dia 28 de mayo de 1937, un contrato formal, en el cual se hizo constar el último
convenio celebrado por las partes, es decir, que a la venta de la finca situada en la Plaza Santa Cruz, las
demandadas pagarian al demandante,

‘una cantidad equivalente un VEINTE POR CIENTO (20%) de cualquier cantidad que se obtenga de la venta de
los mencionados edificios y terrenos, despues de descontar el importe total pagado por dichas demandadas.’

"12. Que la verdadera intencion de las partes al otorgar el contrato exhibito ‘A’ era dar al demandante una
participación del veinte por ciento (20%), en todos los beneficios, rentas y utilidades de la finca descrita en ese
contrato.

"13. Que desde el año 1937 el demandante ha hecho varias ofertas a las demandadas CARRION, para vender esa
finca al precio ofrecido por los compradores.

"14. Que ahora el demandante tiene un comprador de dicha finca por la suma de P1,455,900.00, pero las
demandadas CARRION continuan negandose a vender dicha finca por ese precio, a pesar de la enorme ganancia
que representa esa transacción.

"15. Que durante todo el tiempo transcurrido desde el año 1937 hasta la fecha, las demandadas CARRION se han
lucrado con las rentas de esa finca, sin dar ninguna participación al demandante, quien hasta la fecha no ha
recibido un centimo de dicha finca por ningun concepto.

"16. Que debido a los actos de las demandadas CARRION, el demandante ha sufrido y sigue sufriendo daños y
perjuicios en una cantidad inestimable con certeza, pero que por lo menos, debe ser el veinte por ciento (20%) de
los beneficios liquidos obtenidos de es finca por las demandadas CARRION.

"17. Que el demandante ha requerido a las demandadas CARRION a rendir cuentas de la Administración de esa
finca, a lo cual tambien se han negado.

"18. Que si vende esa finca ahora en la cantidad de P1,455,900.00, las demandadas CARRION tendrian un
beneficio liquido de P1,205,900.00, o sea, la diferencia entre el precio de venta antes mencionado y los
P250,000.00 pagados por dicha finca; y por consiguiente, el demandante tendria derecho a percibir la suma de
P241,180.00, o formalidad con el contrato exhibito ‘A’ de esa demanda.

"19. Que las demandadas CARRION se han negado a rendir cuentas de los beneficios obtenidos de dicha finca y a
pagar la participación del demandante, a pesar de los repetidos requerimientos de dicho demandante.

x x x


"POR TANTO, el demandante ruega al Hon. Juzgado se sirva dictar sentencia:
"(A) Ordenando a las demandadas CARRION uqe rindan cuenta completa y detallada de los ingresos y gastos de
la finca mencionada en el exhibit ‘A’ desde el dia 28 de mayo de 1937 hasta fecha de la venta, entregando al
demandante un veinte por ciento (20%) del producto liquido de dichas cuentas, en pago de los daños y perjuicios
ya sufridos hasta la fecha;

"(B) Ordenando a las demandadas que vendan esa finca descrita en el exhibito ‘A’, por un precio no menor de
P1,455,900.00 en el plazo de tres (3) meses, o de lo contrario paguen al demandante la cantidad de P241,180.00,
que representa el veinte por ciento (20%) de los beneficios obtenidos, con sus intereses legales desde esta fecha
hasta su completo pago."cralaw virtua1aw library

On February 2, 1957, defendants Emilia Carrion, Maria Carrion, Jose Falco, and Manuel Perez Guzman (the last
two as husbands, respectively, of the first two), filed a motion to dismiss, on the grounds that (1) the complaint
states no cause of action, and (2) the plaintiff’s cause of action, if any, is barred by the Statute of Limitations (Sec.
1[e], Rule 8, Rules of Court). To this motion, plaintiff filed an opposition on March 16, 1957. On June 1, 1957, the
court required plaintiff to amend his complaint, in an order which, in part, reads:jgc:chanrobles.com.ph

". . . inasmuch as plaintiff concedes in his answer (opposition) to the motion to dismiss that ‘. . . por tratarse de
una obligaicón sin plazo fijo, éste debe ser determinado por el Hon. Juzgado’, it is plaintiff’s duty to amend his
complaint to this effect, because there is nothing either in its allegations or in its prayer asking that this Court fix
a reasonable period for the sale of the said property with a view to having defendants comply with their
obligations under the parties’ aforesaid agreement.

". . . defendants’ obligation has not even become demandable in view of the suspensive condition found in the
parties’ agreement.

"WHEREFORE, it is ordered that plaintiff amend his complaint within twenty (20) days from notice hereof,
failing which the same will be dismissed."cralaw virtua1aw library

Complying with the above order of the court, plaintiff, on June 15, 1957, filed an amended complaint which is
identical to the original complaint, except that it contained the following new Paragraph 15 and a new prayer, to
wit:jgc:chanrobles.com.ph

"15. Que el ontrato exhibito ‘A’ no establece un plazo determinado para la venta de la finca descrita en elmismo
contrato, aunque la intención de que hubiera un plazo es evidente de la naturaleza, circunstanias y condiciones
del mismo contrato; y el Hon Juzgado debe señalar dicho plazo, de acuerdo con el articulo 1197 del nuevo Codigo
Civil."cralaw virtua1aw library

"POR TANTO, el demandante ruega al Hon. Juzgado se sirva dictar sentencia:jgc:chanrobles.com.ph

"(A) Señalando un plazo de tres (3) meses para que las demandadas CARRION vendan la finca descrita en el
exhibito ‘A’ al precio mas alto en el mercado, pero no menos de la oferta actual de P1,455,900.00;

"(B) Ordenando a las demandadas CARRION que paguen al demandante el veinte por ciento (20%) de los
beneficios obtenidos en la venta de dicha finca; . . . ."cralaw virtua1aw library

On July 18, 1957, defendants renewed their motion to dismiss, on the grounds that (1) the amended complaint
states no cause of action, (2) the plaintiff’s cause of action, if any, is barred by the Statute of Limitations (Se. 1[e],
Rule 8, Rules of Court), and (3) the plaintiff’s original complaint being without cause of action, it cannot be
amended and/or cured by said amended complaint which changes plaintiff’s theory of the case. In connection
with the second ground mentioned, defendants stated:jgc:chanrobles.com.ph

"Plaintiff’s right of action accrued in the year 1937 when the first of plaintiffs alleged various offers to defendants
to sell the property at the price offered by buyers was refused by defendants (Pars. 13 and 14 of Complaint). It is
patent, therefore, that plaintiff’s cause of action, if any, prescribed in the year 1947, that is, ten (10) years from the
year 1937. Considering that plaintiff’s complaint was filed on December 21, 1956, plaintiff’s cause of action if any,
is obviously unenforceable and barred by the Statute of Limitations."cralaw virtua1aw library

To this motion, plaintiff filed his opposition on August 2, 1957, to to this motion, plaintiff filed his opposition on
August 2, 1957, to which defendants filed a rejoinder on August 8, 1957. To this rejoinder, plaintiff filed a counter-
reply on August 12, 1957.

On August 21, 1957, the court issued an order denying defendants’ motion to dismiss. From this order, defendants
filed a motion for reconsideration on August 27, 1957, which was duly opposed by plaintiff on September 7, 1957.
On September 16, 1957, defendants filed a rejoinder to said opposition.

On October 1, 1957, the court issued an order dismissing plaintiff’s complaint on the ground of prescription, as
follows:jgc:chanrobles.com.ph

"ORDER

"This Court has before it (1) defendants’ MOTION FOR RECONSIDERATION of the order of this Court dated
August 21, 1957, (2) CONTESTACION DEL DEMANDANTE A LA MOCION DE RECONSIDERACION, and (3)
defendants’ REJOINDER TO CONTESTACION DEL DEMANDANTE A LA MOCION DE RECONSIDERACION.’

"It is true that heretofore this Court did not entertain defendants’ motion to dismiss plaintiff’s original
complaint; that on June 1, 1957, plaintiff was given twenty (20) days to amend his compliant; that on June 15, 1957,
the amended complaint was filed; that on July 22, 1957, defendants again put in a motion to dismiss the said
amended complaint, and that on August 21, 1957, this Court also denied this latter motion to dismiss.
Defendants, however, have filed a motion for reconsideration of the order just mentioned on the ground that
plaintiff’s action under his amended complaint has already prescribed, and this Court has to pass upon the said
motion for reconsideration.

"Concretely, defendants now contend that plaintiff’s action asking this Court to fix the period for the fulfillment
of defendants’ obligation, which is the subject matter of his amended complaint, has already prescribed under
the law and the applicable authorities. While this Court in conscience believes that defendants have such
obligation to plaintiff under the express terms and conditions of the parties’ agreement Exhibit A, nevertheless it
cannot ignore defendants’ aforesaid contention that plaintiff’s action asking this Court to fix a period for the
fulfillment of the said obligation has in fact already prescribed. For one thing, this action which may be brought
under Article 1197 of the New Civil Code cannot be said to be imprescriptible. For another, as pointed out by
defendants, in the case of Gonzales v. Jose, 66 Phil., 369, among others, it was pertinently held that "The action
to ask the court to fix the period has already prescribed in accordance with section 43(1) of the Code of Civil
Procedure. This period of prescription is ten years, which has already elapsed from the execution of the
promissory notes until the filing of the action on June 1, 1934.’ Inasmuch as in the instant case, the parties’
agreement Exhibit A was executed on May 28, 1937, plaintiff’s action to fix the period for the fulfillment of
defendants’ obligation thereunder should have been filed within ten (10) years from the date just mentioned,
following the said decision based on Section 43(1) of the Code of Civil Procedure, in relation to Article 1116 of the
New Civil Code. It is plain to see therefore that plaintiff’s present action commenced only on December 21, 1956,
is already long barred by prescription.

"At page 2 of plaintiff’s CONTESTACION DEL DEMANDANTE A LA MOCION DE RECONSIDERACION, the
position is taken that ‘En este asunto el plazo de presripción comienza cuando nace el derecho de acción.
Plaintiff’s cause of action in the present case is to have this Court fix the period which the parties had left to
conjecture in their agreement Exhibit A, and the said cause of action arose right after the execution of said
agreement on May 28, 1937, and lapsed ten (10) years after said date. Plaintiff further state that ‘ademas, en
nuestro asunto actual este Hon. Juzgado ya ha resuelto que el derecho de acción ni siquiera habia comenzado’.
What this Court really said on this point in its order of June 1, 1957 is the following: ‘As just intimated,
defendants’ obligation has not even become demandable in view of the suspensive condition found in the parties’
agreement’. Reference therefore is clearly made to defendants’ obligation to plaintiff under Exhibit A, and not to
plaintiff’s right to ask for the fixing of the period contemplated by the parties in the said agreement. Plaintiff
finally submits that ‘para que se acepte una moción de sobreseimiento, el fundamento debe ser indubitable,
(Seccion 3, Regla 8 del Reglamento de los Tribunales.) ‘ and that ‘El hecho de que este Hon. Juzgado haya
denegado ya dos mociones de sobreseimientos, es la mejor prueba de que su fundamento es - por lo menos muy
dudoso’. It may be gathered from the record of this case that this Court has all along been inclined to try it on
the merits with a view to getting at the truth and rendering judgment accordingly. However, it now finds itself
faced with a defense, namely, prescription, so clear and unanswerable that, to overlook the same, would be to
disregard legal as well as judicial precepts.

"Finding defendants’ MOTION FOR RECONSIDERATION of the order of this Court dated August 21, 1957 to be
meritorious, the said reconsideration is hereby granted, and plaintiff’s amended complaint is hereby dismissed,
with costs against him.

"SO ORDERED."cralaw virtua1aw library

From the above-quoted order, plaintiff filed a motion for reconsideration on October 3, 1957, which was duly
opposed by defendants on October 18, 1957. On October 23, 1957, the court denied said motion. Hence, this
appeal.

Plaintiff claims that the lower court erred in dismissing his complaint, contending that (a) the agreement Exhibit
A attached to the amended complaint and made an integral part thereof, created "un fideicomiso implicito" or an
implied trust, which is not subject to prescription, and (b) that even admitting the obligation is subject to a
suspensive undetermined period (not condition), the action to have such period fixed by the court has not yet
prescribed. In support of his submission that the agreement created an implied trust, plaintiff- appellant cites the
provisions of Articles 1452 and 1453 of the new Civil Code which read as follows:jgc:chanrobles.com.ph

"ART. 1452. If two or more persons agree to purchase property and by common consent the legal title is taken in
the name of one of them for the benefit of all, a trust is created by fore of law in favor of the others in proportion
to the interest of each."cralaw virtua1aw library

"ART. 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or
transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is
contemplated."cralaw virtua1aw library

The contention is without merit, Article 1452 abovequoted is inapplicable to this case for the reason that there is
absolutely no stipulation in the contract, Exhibit A, that there would be a joint purchase of the property and that
the legal title thereto was to be placed in the name of the defendants for the benefit of themselves and herein
plaintiff. The recitals in the contracts preceding the paragraph containing the obligation assumed by the
defendants, merely refer to the services rendered by the plaintiff as broker who negotiated the sale of the
property to the defendants and which the defendants agreed to compensate. Nothing contained therein would
indicate that the property was being purchased for the benefit of the plaintiff and the defendants. The obligation
assumed by the defendants is clear and unequivocal in that:jgc:chanrobles.com.ph

"por y en consideracion, a los trabajos, sugestiones, concejos y ayuda hasta ahora prestados por Don Federico
Calero en relacion con la compra de los bienes vendidos a las Sras. EMILIA CARRION Y STA. MARINA Y MARIA
DE LAS MERCEDES CARRION Y SANTA MARINA y a los trabajos y concejos que dicho señor promete seguir
dando a los apoderados de las mismas en relacion con la venta, arriendo, administracion y mejoramiente de los
mencionados bienes, por la presente, libre y voluntariamente, Don Santiago Carrion, en su capacidad de
apoderado de las mencionadas Da. EMILIA CARRION Y STA. MARINA y Da. MARIA DE LAS MERCCEDES
CARRION Y SANTA MARINA y de la manera mas solemne como sea necessario y eficaz en derecho, promete
pagar a don Federico Calero sus sucesores y cesionarios, una cantidad equivalente a UN VEINTE POR CIENTO
(20%) de cualquier cantidad que se obtenga de la venta de los mencionados edificios y terrenos, despues de
descontar el importe total pagado por las Sras. EMILIA CARRION Y STA. MARINA Y MARIA DE LAS
MERCEDES CARRION Y SANTA MARINA a la dueña de los mismos El Hogar Filipino, entendiendose ademas
que este veinte por ciento sera tomado de la ganancia liquida que les represente a las nuevas dueñas la venta de
los bienes menionados ya sea por mediacion del Sr. Calero o sin ella." (par. 5 of Exh. A). (Italics supplied.)

The terms of the contract admit no doubt that the 20% to be paid the plaintiff is of any amount which may be
obtained by the sale of the property after deducting the purchase price thereof, which shall be taken from the
liquidated benefit obtained by the owners out of the sale of the said property.

Neither is Article 1453 applicable, because there is absolutely nothing in the agreement which even remotely
indicates that the property was conveyed to the defendants in reliance upon their declared intention to hold it
for, or transfer it to, another or the grantor.

Even the very allegations of plaintiff’s complaint clearly reflect the true nature of the agreement. It appears
therefrom that although the original proposal was for the parties to purchase the property jointly (plaintiff to
contribute P10,000.00 and the defendants to put up P15,000.00 on account of the down payment of P25,000.00),
the same was abandoned and the parties subsequently agreed that the defendants would buy the property
exclusively in their name and for their own account because "era muy complicado constituir una comunidad de
bienes en esa finca, pues habria necesidad de rendir cuentas mensuales, y consultares en caso de reparaciones,
mejoras, etc." and that the plaintiff "aceptó esa proposicion, en el bien entendido de que la finca seria vendida
tan pronto como se encontrara un comprador por una cantidad no menor de P300,000.00" "con la obligacion (on
the part of the defendants) de pagar al demandante el veinte por ciento (20%) de los beneficios, cuando se
vendiera la finca", and that, lastly, "el demandado aceptó esa proposición, como ya se ha dicho, y las partes
otorgaron el dia 28 de marzo de 1937, un contrato formal en el cual se hizo constar el ultimo convenio celebrado
por las partes, es decir, que a la venta de la finca situada en la Plaza Santa Cruz, las demandadas pagarian al
demandante,

‘una cantidad equivalente a un Veinte Por Ciento (20%) de cualquier cantidad que se obtenga de la venta de los
mencionados edificios y terrenos, despues de descontar el importe total pagado por dichas demandadas.’" (See
paragraphs 3, 6, 7, 8 and 9 of the amended complaint.)

Plaintiff-appellant next contends that the lower court also erred in dismissing his complaint on the finding that
plaintiff’s right of action to have the period fixed for the sale of the property had already prescribed. It is urged
that the time for enforcing their right of action to have the period judicially determined did not begin to run
until the defendants had been formally demanded and they refused to sell the property. It was only then, it is
argued, that the period of prescription started to run. This seems to be illogical. Before the period is fixed, the
defendants’ obligation to sell is suspended and they, therefore, can not be compelled to act. For this reason, a
complaint to enforce immediately the principal obligation subject to the suspensive period before this is fixed,
will not prosper. But this is not to say that the plaintiff has no cause of action. His cause of action under the
agreement is to have the court fix the period and after the expiration of that period, to compel the performance
of the principal obligation to sell. And this right to have the period judicially fixed is born from the date of the
agreement itself which contains the undetermined period. Extrajudicial demand is not essential for the creation
of this cause of action to have the period fixed. 1 It exists by operation of law from the moment such an
agreement subject to an undetermined period is entered into, whether the period depends upon the will of the
debtor alone, or of the parties themselves, or where from the nature and the circumstances of the obligation it
can be inferred that a period was intended.

This is the clear intendment of Article 1197 of the New Civil Code as well as Article 1128 of the Spanish Civil Code
and the applicable doctrine laid down by this Court. 2 And since the agreement was executed on May 28, 1937
and the complaint to have the period fixed was filed on December 21, 1965 or after almost 20 years, plaintiff’s
action is clearly and indisputably barred under the Statute of Limitations.

Wherefore, finding no reversible error in the order appealed from the same is hereby affirmed, with costs against
the plaintiff-appellant. So ordered.

Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Labrador, Reyes, J. B. L., and Gutierrez David, JJ., concur

 G.R. No. 173134, September 02, 2015

BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. TARCILA FERNANDEZ, Respondent.; DALMIRO SIAN,
THIRD PARTY, Respondent.

D E C I S I O N

BRION, J.:

We resolve the Petition for Review on Certiorari filed by the petitioner Bank of the Philippine Islands (BPI) under
Rule 45 of the Rules of Court, assailing the Court of Appeals (CA) July 14, 2005 Decision1 and the June 14, 2006
Resolution2 in CA-G.R. CV No. 61764.

The Factual Antecedents

The present case arose from respondent Tarcila "Baby" Fernandez's (Tarcila) claim to her proportionate share in
the proceeds of four joint AND/OR accounts that the petitioner BPI released to her estranged husband Manuel
G. Fernandez (Manuel) without the presentation of the requisite certificates of deposit. The facts leading to this
dispute are outlined below.

In 1991, Tarcila together with her husband, Manuel and their children Monique Fernandez and Marco Fernandez,
opened the following AND/OR deposit accounts with the petitioner BPI, Shaw Blvd.
Branch:chanRoblesvirtualLawlibrary

1) Peso Time Certificate of Deposit No. 2425545 issued on June 27, 1991 in the name(s) of Manuel G.
Fernandez Sr. or Baby Fernandez or Monique Fernandez in the amount of P1,684,661.40, with a term of
90 days and a corresponding interest at 17.5% per annum;3
2) Peso Time Certificate of Deposit No. 2425556 issued on July 1, 1991 in the name(s) of Manuel G. Fernandez
Sr. or Marco Fernandez or Tarcila Fernandez, in the amount of P1,534,335.10, with a term of 92 days and
interest at 17.5% per annum;4
3) FCDU Time Certificate of Deposit No. 449059 issued on August 27, 1991 in the name(s)
of Manuel or Tarcila Fernandez in the amount of US$36,219.53, with a term of 30 days and interest at
5.3125% per annum;
4) Deposit under SA No. 3301-0145-61 issued on September 10, 1991 in the name(s) of Manuel
Fernandez or Baby Fernandez or Monique Fernandez in the amount of P11,369,800.78 with interest at
5% per annum.5

The deposits were subject to the following conditions:
"x x x

2. Pre-termination of deposits prior to maturity shall be subject to discretion of [BPI] and if pre-
termination is allowed, it is subject to an interest penalty to be determined on the date of pre-
termination;ChanRoblesVirtualawlibrary

3. Endorsement and presentation of the Certificate of Deposit is necessary for the renewal
or termination of the deposit"

On September 24, 1991, Tarcila went to the BPI Shaw Blvd. Branch to pre-terminate these joint AND/OR
accounts. She brought with her the certificates of time deposit and the passbook, and presented them to the
bank. BPI, however, refused the requested pre-termination despite Tarcila's presentation of the covering
certificates. Instead, BPI, through its branch manager, Mrs. Elma San Pedro Capistrano (Capistrano),
insisted on contacting Manuel, alleging in this regard that this is an integral part of its standard
operating procedure.6

Shortly after Tarcila left the branch, Manuel arrived and likewise requested the pre-termination of the joint
AND/OR accounts.7 Manuel claimed that he had lost the same certificates of deposit that Tarcila had earlier
brought with her.8 BPI, through Capistrano, this time acceded to the pre-termination requests, blindly believed
Manuel's claim,9 and requested him to accomplish BPI's pro-forma affidavit of loss.10

Two days after, Manuel returned to BPI, Shaw Blvd. Branch to pre-terminate the joint AND/OR accounts. He was
accompanied by Atty. Hector Rodriguez, the respondent Dalmiro Sian (Sian), and two (2) alleged National
Bureau of Investigation (NBI) agents.

In place of the actual certificates of deposit, Manuel submitted BPI's pro-forma affidavit of loss that he previously
accomplished and an Indemnity Agreement that he and Sian executed on the same day. The Indemnity
Agreement discharged BPI from any liability in connection with the pre-termination.11Notably, none of the co-
depositors were contacted in carrying out these transactions.

On the same day, the proceeds released to Manuel were funneled to Sian's newly opened account with
BPI. Immediately thereafter, Capistrano requested Sian to sign blank withdrawal slips, which Manuel
used to withdraw the funds from Sian's newly opened account.12Sian's account, after its use, was closed
on the same day.13

A few days after these transactions, Tarcila filed a petition for "Declaration of Nullity of Marriage, etc." against
Manuel, with the Regional Trial Court (RTC) of Pasig, docketed as JRDC No. 2098.14 Based on the records, this
civil case has been archived.15

Tarcila never received her proportionate share of the pre-terminated deposits,16 prompting her to demand from
BPI the amounts due her as a co-depositor in the joint AND/OR accounts. When her demands remained
unheeded, Tarcila initiated a complaint for damages with the Regional Trial Court (RTQ of Makati City, Branch
59, docketed as Civil Case No. 95-671.

In her complaint, Tarcila alleged that BPI's payments to Manuel of the pre-terminated deposits were invalid with
respect to her share.17She argued that BPI was in bad faith for allowing the pre-termination of the time deposits
based on Manuel's affidavit of loss when the bank had actual knowledge that the certificates of deposit were in
her possession.18

In its answer, BPI alleged that the accounts contained conjugal funds that Manuel exclusively funded.19 BPI
further argued that Tarcila could not ask for her share of the pre-terminated deposits because her share in the
conjugal property is considered inchoate until its dissolution.20 BPI further denied refusing Tarcila's request for
pre-termination as it processed her request but she left the branch before BPI could even contact Manuel.

BPI likewise filed a third-party complaint against Sian and Manuel on the basis of the Indemnity Agreement they
had previously executed. As summons against Manuel remained unserved,21 only BPI's complaint against Sian
proceeded to trial.

During the pre-trial, the parties admitted, among others, the conjugal nature of the funds deposited with BPI.

After trial on the merits, the RTC of Makati, Branch 59, ruled in favor of Tarcila and awarded her the following
amounts: 1.) 1/2 of US$36,379.87; 2.) 1/3 of P11,3369,800.78; 3.) 1/3 of Php1,684,661.40; and 1/3 of P1,534,335.10. The
RTC likewise ordered BPI to pay Tarcila the amount of P50,000.00 representing exemplary damages and
P500,000.00 as attorney's fees.

In its decision,22 the RTC opined that the AND/OR nature of the accounts indicate an active solidarity that thus
entitled any of the account holders to demand from BPI payment of their proceeds. Since Tarcila made the first
demand upon BPI, payments should have been made to her23 under Article 1214 of the Civil Code, which
provides:
"Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has
been made by one of them, payment should be made to him."
The RTC did not find merit either in BPI's third-party complaint against Sian on the ground that he was merely
coerced into signing the Indemnity Agreement.24 BPI appealed the RTC ruling with the CA.

CA Ruling

On July 14, 2005, the CA denied BPFs appeal through the decision25 that BPI now challenges before this Court.
The CA ruled that as a co-depositor and a solidary creditor of joint "AND/OR" accounts, BPI did not enjoy the
prerogative to determine the source of the deposited funds and to refuse payment to Tarcila on this basis.

The CA also found that BPI had acted in bad faith in allowing Manuel to pre-terminate the certificates of
deposits and in facilitating the swift funneling of the funds to Sian's account, which allowed Manuel to withdraw
them.26 The CA noted that the transactions were accomplished in one sitting for the purpose of misleading anyone
who would try to trace Manuel's deposit accounts.27

The CA likewise upheld the RTC's dismissal of BPFs third-party complaint against Sian. It affirmed the factual
finding that intimidation and undue influence vitiated Sian's consent in signing the Indemnity Agreement.28

BPI moved for the reconsideration of the CA ruling, but the appellate court denied its motion in its June 14, 2006
Resolution.29 BPI then filed the present petition for review on certiorari under Rule 45 with this Court.

The Petition and Comment

BPI insists in its present petition30 that the CA and the court a quo erred in applying the provisions of Article 1214
of the Civil Code to the present case. It believes that the CA should have relied on the conjugal partnership of
gains provision in view of the existing marriage between the spouses. Accordingly, BPI argues that Tarcila could
not have suffered any damage from its payment of the proceeds to Manuel inasmuch as the proceeds of the pre-
terminated accounts formed part of the conjugal partnership of gains.

BPI likewise claims that it did not breach its obligations under the certificates of deposit; it processed Tarciia's
pre-termination request but she left the branch before her request could be completed. Moreover, assuming
without conceding that BPI indeed declined Tarciia's request, it posits that it possessed the discretion to do so
since the request for pre-termination was done prior to their maturity dates. Thus, BPI firmly believes that it
could not be accused of wanton, fraudulent, reckless, or malevolent conduct as it was merely exercising its rights.

Finally, BPI insists that Sian's consent was not vitiated when he signed the Indemnity Agreement. According to
BPI, the records are bereft of any proof that Sian was actually threatened to sign the Indemnity Agreement. Thus,
BPI maintains that it may validly invoke the Agreement to release itself from any liability.

In her Comment,31 Tarcila points out that the petition raised questions of fact that are not proper issues in a
petition for review on certiorari.32 She also argues that BPI's acts were not mere precautionary steps but
were indicia of bias and bad faith. Finally, Tarcila adds that the issue of who has management, control, and
custody of conjugal property cannot be set up to justify BPI's patent bad faith.

Sian failed to file his Comment on the petition. Nevertheless, he filed a Memorandum33 in compliance with the
Court's September 22, 2008 Resolution.34 He alleged that Manuel forced and intimidated him to sign the
Indemnity Agreement.

THE COURT'S RULING


We deny the petition for lack of merit.

BPI breached its obligation under the certificates of deposit.

A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of
money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to
some other person or his order, whereby the relation of debtor and creditor between the bank and the
depositor is created.35 In particular, the certificates of deposit contain provisions on the amount of interest,
period of maturity, and manner of termination. Specifically, they stressed that endorsement and presentation of
the certificate of deposit is indispensable to their termination. In other words, the accounts may only be
terminated upon endorsement and presentation of the certificates of deposit. Without the requisite
presentation of the certificates of deposit, BPI may not terminate them.

BPI thus may only terminate the certificates of deposit after it has diligently completed two steps. First, it must
ensure the identity of the account holder. Second, BPI must demand the surrender of the certificates of deposit.

This is the essence of the contract entered into by the parties which serves as an accountability measure to other
co-depositors. By requiring the presentation of the certificates prior to termination, the other depositors
may rely on the fact that their investments in the interest-yielding accounts may not be
indiscriminately withdrawn by any of their co-depositors. This protective mechanism likewise benefits
the bank, which shields it from liability upon showing that it released the funds in good faith to an
account holder who possesses the certificates. Without the presentation of the certificates of deposit, BPI
may not validly terminate the certificates of deposit.

With these considerations in mind, we find that BPI substantially breached its obligations to the prejudice of
Tarcila. BPI allowed the termination of the accounts without demanding the surrender of the certificates of
deposits, in the ordinary course of business. Worse, BPI even had actual knowledge that the certificates of
deposit were in Tarcila's possession and yet it chose to release the proceeds to Manuel on the basis of a
falsified affidavit of loss, in gross violation of the terms of the deposit agreements.

As we have stressed in the case of FEBTC v. Querimit:36
"x x x A bank acts at its peril when it pays deposits evidenced by a certificate of deposit, without its
production and surrender after proper indorsement. As a rule, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove payment. The debtor has the burden of
showing with legal certainty that the obligation has been discharged by payment, x x x Petitioner
should not have paid respondent's husband or any third party without requiring the surrender of the
certificates of deposit."37
BPI tried to muddle the issue by claiming that the funds subject of the deposits were conjugal in character. This
contention, however, is misleading. The principal issue involved in the present case is BPFs breach of its
obligations under the express terms of the certificates of deposit and the consequent damage that Tarcila
suffered as a co-depositor because of BPI's acts.

Notably, BPI effectively deprived Tarcila and the other co-depositors of their share in the proceeds of the
certificates of deposits. As the CA noted in the assailed Decision, the series of transactions were
accomplished in one sitting for the purpose of misleading anyone who would try to trace the proceeds
of [Manuel]'s deposit accounts.38 As the court a quo likewise observed:
"Aside from the affidavit of loss, the bank required [Manuel] to execute an Indemnity Agreement. Hence, on
September 26, 1991, [Manuel] returned to the bank. This time, Dalmiro Sian, his son-in-law, Atty. Hector
Rodriguez, his lawyer, and two NBI agents were with him. There, the bank required him and Sian to sign an
Indemnity Agreement whereby they undertook "to hold the bank free and harmless from all liabilities arising
from said [pre-termination]." The agreement was prepared by one of the officers of the bank. At the same time,
Sian was told to open a new account under his name. The opening of a new account N. 3305-0539-44 in the
name of Sian was facilitated. The proceeds of the four deposit accounts were then transferred or
deposited to this new account in the name of Sian. x x x Sian also signed two blank withdrawal slips. With
the use of these withdrawal slips, [Manuel] Fernandez withdrew all the proceeds deposited under the
name of Sian. Shortly thereafter, account no. 3305-0539-44 was closed."39
It appears that BPI connived with Manuel to allow him to divest his co-depositors of their share in proceeds.
Worse, it cooperated with Manuel in trying to conceal this fraudulent conduct by making it appear that the
funds were withdrawn from another account.

The CA correctly ruled that BPI is guilty of bad faith.

We affirm the CA and the trial court's findings that BPI was guilty of bad faith in these transactions. Bad faith
imports a dishonest purpose and conscious wrongdoing.40 It means a breach of a known duty through some
motive or interest or ill will.41

A review of the records of the case show ample evidence supporting BPI's bad faith, as shown by the clear bias it
had against Tarcila. As the CA observed:
"The bias and bad faith on the part of [BPI]'s officers become readily apparent in the face of the fact that
[BPI]'s officers did not require the presentation of the certificates of deposit from [Manuel] but even
assisted and facilitated the pre-termination transaction by the latter on the basis of a mere pro-forma
and defective affidavit of loss, which the bank itself supplied, despite the fact that [BPI]'s officers were
fully aware that the certificates were not lost but in the possession of [Tarcila]. Moreover, given the fact
that said affidavit of loss was executed by [Manuel] just a few minutes after [Tarcila] had presented the
certificates of deposit to [BPI], it taxes one's credulity to say that [BPI] believed in good faith that the certificates
were indeed lost."42
Similarly, the trial court observed:
"It is quite alarming to note the eagerness and haste by which the defendant bank accommodated [Manuel] 's
request for the pre-termination of the questioned account deposits and the subsequent release to him of the full
proceeds thereof, to the exclusion of the [Tarcila]. The prejudice of the officers of [BPI] against the [Tarcila] is
very apparent. Elma Capistrano, branch manager, categorically testified that [Tarcila] is a client of the bank only
in name; and that she does not consider [Tarcila] as a primary depositor to the account because the source of the
money being deposited and being transacted was [Manuel]."43
BPI argues that it merely took precautionary steps when it insisted on contacting Manuel as a form of standard
operating procedure. This assertion, however, is belied by BPI's own witness. During her testimony, Capistrano
narrated:
"x x x
Q: Can you tell us why it was necessary for the branch to get in touch with Mr. Manuel Fernandez?
A: Because he is the one that handles and is in control of all the money deposited in the branch44
x x x
Q: I heard you mentioned the word "primary depositor" does that mean that Mrs. Tarcila Fernandez is not a
primary depositor?
A: Personally, I do not really consider her as the primary depositor to the account because the source
of the money being deposited and being transacted was Mr. Manuel Fernandez.45
x x x
Q: Were you the one who recommended that Mr. Manuel Fernandez prepare this affidavit of loss?
A: That is the usual things that we tell our clients if the original of the certificates of deposits (sic) or passbook
or checkbooks are missing.
Q: But is it not a fact that earlier a few minutes before Mr. Fernandez came, you were aware that the
certificates were not actually missing but were in the possession of Mrs. [Tarcila] Fernandez, is it
not?
A: Yes Sir.
Q: And yet when this affidavit of loss was later prepared and presented to you, did you give due
course to this affidavit of loss? Did you accept the truth of the contents of this affidavit of loss?
A: Because it is Mr. [Manuel] Fernandez who is in possession of all the certificates, and if he is
missing it, I believed that it is really missing."46
The records thus abound with evidence that BPI clearly favored Manuel. BPI considered Manuel as the primary
depositor despite the clear import of the nature of their AND/OR account, which permits either or any of the co-
depositors to transact with BPI, upon the surrender of the certificates of deposit. Worse, BPI facilitated the
scheme in order to allow Manuel to obtain the proceeds and conceal any evidence of wrongdoing.

BPI did not only fail to exercise that degree of diligence required by the nature of its business, it also
exercised its functions with bad faith and manifest partiality against Tarcila. The bank even recognized
an affidavit of loss whose allegations, the bank knew, were false. This aspect of the transactions opens
up other issues that we do not here decide because they are outside the scope of the case before us.

One aspect is criminal in nature because Manuel swore to a falsity and the act was with the knowing
participation of bank officers. The other issue is administrative in character as these bank officers
betrayed the trust reposed in them by the bank. We mention all these because these are disturbing acts
to observe in a banking institution as large as the BPI.

BPI is sternly reminded that the business of banks is impressed with public interest. The fiduciary nature of their
relationship with their depositors requires it to treat the accounts of its clients with the highest degree
of integrity, care and respect. In the present case, the manner by which BPI treated Tarcila also transgresses the
general banking law47 and Article 19 of the Civil Code, which directs every person, in the exercise of his rights, "to
give everyone his due, and observe honesty and good faith."

BPI could not invoke the Indemnity Agreement.

BPI assails the CA's declaration voiding the Indemnity Agreement that would allow it to hold Sian liable for the
withdrawn deposits.48 It argues that Sian's allegation of vitiation of consent should not be recognized as it is
based solely on the presence of Manuel's lawyer and two (2) alleged NBI Agents.49 BPI thus claims that "mere
presence" of law enforcement officers cannot be reasonably equated as imminent threat.50

This particular issue involves a factual determination of vitiated consent, which is a question of fact and one
which is not generally appropriate in a petition for review on certiorari under Rule 45. We, however, are not
precluded from again examining the evidence introduced and considered with respect to this factual issue where
the CA's finding of vitiated consent is both speculative and mistaken.51

We agree with BPFs observation on this point that there is nothing in the records that even remotely resembles
vitiation of consent. In order that intimidation may vitiate consent, it is essential that the intimidation was the
moving cause for giving consent.52 Moreover, the threatened act must be unjust or unlawful.53 In addition, the
threat must be real or serious, and must produce well-grounded fear from the fact that the person making the
threat has the necessary means or ability to inflict the threat.54

Nothing in the records supports this conclusion. In fact, we find it difficult to believe that the presence of
Manuel, his lawyer, and two (2) NBI agents could amount to intimidation in the absence of any act or
threatened injury on Sian. If he did sign the Indemnity Agreement with reluctance, vitiation of consent is still
negated, as we held in Vales v. Villa:55
"There must, then, be a distinction to be made between a case where a person gives his consent reluctantly and
even against his good sense: and judgment, and where he, in reality, gives no consent at all, as where he executes
a contract or performs an act against his will under a pressure which he cannot resist. It is clear that one acts as
voluntarily and independently in the eye of the law when he acts reluctantly and with hesitation as when he acts
spontaneously and joyously. Legally speaking he acts as voluntarily and freely when he acts wholly against his
better sense and judgment as when he acts in conformity with them. Between the two acts there is no difference
in law. But when his sense, judgment, and his will rebel and he refuses absolutely to act as requested, but is
nevertheless overcome by force or intimidation to such an extent that he becomes a mere automation and
acts mechanically only, a new element enters, namely, a disappearance of the personality of the actor. He ceases
to exist as an independent entity with faculties and judgment, and in his place is substituted another — the one
exercising the force or making use of intimidation. While his hand signs, the will which moves it is another's.
While a contract is made, it has, in reality and in law, only one party to it; and, there being only one party, the
one using the force or the intimidation, it is unenforceable for lack of a second party.

From these considerations it is clear that every case of alleged intimidation must be examined to determine
within which class it falls. If it is within the first class it is not duress in law, if it falls in the second, it is."
This notwithstanding, we hold that BPI may still not invoke the provisions of the Indemnity Agreement on the
basis of in pari delicto - it was equally at fault. In pari delicto is a legal doctrine resting on the theory that courts
will not aid parties who base their cause of action on their own immoral or illegal acts.56 When two parties,
acting together, commit an illegal or wrongful act, the party held responsible for the act cannot recover from
the other, because both have been equally culpable and the damage resulted from their joint offense.57

In the present case, equity dictates that BPI should not be allowed to claim from Sian on the basis of the
Indemnity Agreement. The facts unmistakably show that both BPI and Sian participated in the deceptive scheme
to allow Manuel to withdraw the funds. As succinctly admitted by Capistrano during her testimony:
x x x
Q: I see, in other words, the same certificates of deposit earlier presented by Mrs. Tarcila were
recognized by the bank as having been lost and thereafter transactions were made in favor of Mr.
Manuel Fernandez, that was what happened?
A: Yes Sir, because of the representation of Mr. Manuel Fernandez that he lost it.
Q: You accepted, the bank immediately accepted in face value that representation?
A: Yes Sir.58
BPI knew very well the irregularity in Manuel's transaction for it had actual knowledge that the
certificates of deposit were in Tarcila's possession. Because of this knowledge, it entertained the possibility
of reprisal from the co-depositors. Thus, it took shrewdly calculated steps and required Manuel and Sian to
execute an Indemnity Agreement, hoping that this instrument would absolve it from liability.

BPI and Sian are in pari delicto, thus, no affirmative relief should be given to one against the other. BPI came to
court with unclean hands; for which reason, it cannot obtain relief and thereby gain from its indispensable
participation in the irregular transaction. One who seeks equity and justice must come to court with clean
hands.59chanroblesvirtuallawlibrary

Award of exemplary damages proper

Exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated, or compensatory damages.60 In quasi-delicts, exemplary damages may be granted if
the defendant acted with gross negligence.61

In the present case, BPI's bias and bad faith unquestionably caused prejudice to Tarcila. The law allows the grant
of exemplary damages in cases such as this to serve as a warning to the public and as a deterrent against the
repetition of this kind of deleterious actions.62 From this perspective, we find that the CA did not err in affirming
the RTC's award of P50,000.00 by way of exemplary damages.

Attorney's fees in order

In view of the award of exemplary damages, we find that that the CA did not err in confirming the RTC's award
of attorney's fees, in accordance with Article 2208 (1) of the Civil Code. We find the award of attorney's fees,
equivalent to P500,000.00, to be just and reasonable under the circumstances.

WHEREFORE, premises considered, the petition is hereby DENIED. Costs against the petitioner.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-78412 September 26, 1989

TRADERS ROYAL BANK, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. BALTAZAR M. DIZON, Presiding Judge, Regional Trial
Court, Branch 113, Pasay City and ALFREDO CHING, respondents.

San Juan, Africa, Gonzalez and San Agustin for petitioner.

Balgos and Perez for respondents.

GRINO-AQUINO, J.:

This petition for certiorari assails the Court of Appeals' decision dated April 29, 1987 in CA-G.R. SP No. 03593,
entitled "Alfredo Ching vs. Hon. Baltazar M. Dizon and Traders Royal Bank" nullifying the Regional Trial Court's
orders dated August 15,1983 and May 24,1984 and prohibiting it from further proceeding in Civil Case No. 1028-P.

On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly submitted to the
Securities and Exchange Commission a petition for suspension of payments (SEC No. 2250) where Alfredo Ching
was joined as co-petitioner because under the law, he was allegedly entitled, as surety, to avail of the defenses of
PBM and he was expected to raise most of the stockholders' equity of Pl00 million being required under the plan
for the rehabilitation of PBM. Traders Royal Bank was included among PBM's creditors named in Schedule A
accompanying PBM's petition for suspension of payments.

On May 13, 1983, the petitioner bank filed Civil Case No. 1028-P in the Regional Trial Court, Branch CXIII in
Pasay City, against PBM and Alfredo Ching, to collect P22,227,794.05 exclusive of interests, penalties and other
bank charges representing PBM's outstanding obligation to the bank. Alfredo Ching, a stockholder of PBM, was
impleaded as co-defendant for having signed as a surety for PBM's obligations to the extent of ten million pesos
(Pl0,000,000) under a Deed of Suretyship dated July 21, 1977.

In its en banc decision in SEC-EB No. 018 (Chung Ka Bio, et al. vs. Hon. Antonio R. Manabat, et al.), the SEC
declared that it had assumed jurisdiction over petitioner Alfredo Ching pursuant to Section 6, Rule 3 of the new
Rules of Procedure of the SEC providing that "parties in interest without whom no final determination can be
had of an action shall be joined either as complainant, petitioner or respondent" to prevent multiplicity of suits.

On July 9, 1982, the SEC issued an Order placing PBM's business, including its assets and liabilities, under
rehabilitation receivership, and ordered that "all actions for claims listed in Schedule A of the petition pending
before any court or tribunal are hereby suspended in whatever stage the same may be, until further orders from
the Commission" (p. 22, Rollo). As directed by the SEC, said order was published once a week for three
consecutive weeks in the Bulletin Today, Philippine Daily Express and Times Journal at the expense of PBM and
Alfredo Ching.

PBM and Ching jointly filed a motion to dismiss Civil Case No. 1028-P in the RTC, Pasay City, invoking the
pendency in the SEC of PBM's application for suspension of payments (which Ching co-signed) and over which
the SEC had already assumed jurisdiction.
Before the motion to dismiss could be resolved, the court dropped PBM from the complaint, on motion of the
plaintiff bank, for the reason that the SEC had already placed PBM under rehabilitation receivership.

On August 15, 1983, the trial court denied Ching's motion to dismiss the complaint against himself. The court
pointed out that "P.D. 1758 is only concerned with the activities of corporations, partnerships and associations.
Never was it intended to regulate and/or control activities of individuals" (p.11, Rollo). Ching's motion for
reconsideration of that order was denied on May 24,1984. Respondent Judge argued that under P ' D. 902-A, as
amended, the SEC may not validly acquire jurisdiction over an individual, like Ching (p. 62, Rollo).

Ching filed a petition for certiorari and prohibition in the Court of Appeals (CA-G.R. SP No. 03593) to annul the
orders of respondent Judge and to prohibit him from further proceeding in the civil case.

The main issue raised in the petition was whether the court a quo could acquire jurisdiction over Ching in his
personal and individual capacity as a surety of PBM in the collection suit filed by the bank, despite the fact that
PBM's obligation to the bank had been placed under receivership by the SEC.

On April 29, 1987, the Court of Appeals granted the writs prayed for. It nullified the questioned orders of
respondent Judge and prohibited him from further proceeding in Civil Case No. 1028-P, except to enter an order
dismissing the case. The pertinent ruling of the Court of Appeals reads:

In sum, since the SEC had assumed jurisdiction over petitioner in SEC Case No. 2250 and reiterating the
propriety of such assumption in SEC-EB No. 018; and since under PD 902-A, as amended by PD 1758, ... upon
appointment of a ... rehabilitation receiver... pursuant to this Decree, all actions for claims against corporation ...
under management or receivership pending before any court, tribunal, board or body shall be suspended
accordingly ... respondent judge clearly acted without jurisdiction in taking cognizance of the civil case in the
court a quo brought by respondent bank to enforce the surety agreement against petitioner for the purpose of
collecting payment of PBM's outstanding obligations. Respondent bank should have questioned the SEC's
assumption of jurisdiction over petitioner in an appellate forum and not in the court a quo, a tribunal with which
the SEC enjoys a co-equal and coordinate rank. (p. 27, Rollo.)

The Bank assails that decision in this petition for review alleging that the appellate court erred;

1. in holding that jurisdiction over respondent Alfredo Ching was assumed by the SEC because he was a co-signer
or surety of PBM and that the lower court may not assume jurisdiction over him so as to avoid multiplicity of
suits; and

2. in holding that the jurisdiction assumed by the SEC over Ching was to the exclusion of courts or tribunals of
coordinate rank.

The petition for review is meritorious.

Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC could not assume
jurisdiction over his person and properties. The Securities and Exchange Commission was empowered, as
rehabilitation receiver, to take custody and control of the assets and properties of PBM only, for the SEC has
jurisdiction over corporations only not over private individuals, except stockholders in an intra-corporate dispute
(Sec. 5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal party in SEC Case No. 2250, Ching's properties were
not included in the rehabilitation receivership that the SEC constituted to take custody of PBM's assets.
Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for PBM. An anomalous
situation would arise if individual sureties for debtor corporations may escape liability by simply co- filing with
the corporation a petition for suspension of payments in the SEC whose jurisdiction is limited only to
corporations and their corporate assets.
The term "parties-in-interest" in Section 6, Rule 3 of the SEC's New Rules of Procedure contemplates only private
individuals sued or suing as stockholders, directors, or officers of a corporation.

Ching can be sued separately to enforce his liability as surety for PBM, as expressly provided by Article 1216 of the
New Civil Code:

ART. 1216. The creditor may proceed against any of the solidary debtors or all of them simultaneously. The
demand made against one of them shall not be an obstacle to those which may subsequently be directed against
the others, as long as the debt has not been fully collected.

It is elementary that a corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one's property the property also of the
corporation, for they are separate entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482).

Ching's act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest in the SEC jurisdiction over
his person or property, for jurisdiction does not depend on the consent or acts of the parties but upon express
provision of law (Tolentino vs. Social Security System, 138 SCRA 428; Lee vs. Municipal Trial Court of Legaspi
City, Br. I, 145 SCRA 408).

WHEREFORE, the petition for review is granted. The decision of the Court of Appeals in CA-G.R. SP No. 03593 is
set aside. Respondent Judge of the Regional Trial Court in Pasay City is ordered to reinstate Civil Case No. 1028-P
and to proceed therein against the private respondent Alfredo Ching. Costs against the private respondent.

SO ORDERED.

 G.R. No. 142381 October 15, 2003

PHILIPPINE BLOOMING MILLS, INC., and ALFREDO CHING, petitioners,

vs.
COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review on certiorari1 to annul the Decision2 dated 16 July 1999 of the Court of Appeals in CA-
G.R. CV No. 39690, as well as its Resolution dated 17 February 2000 denying the motion for reconsideration. The
Court of Appeals affirmed with modification the Decision3 dated 31 August 1992 rendered by Branch 113 of the
Regional Trial Court of Pasay City ("trial court"). The trial court’s Decision declared petitioner Alfredo Ching
("Ching") liable to respondent Traders Royal Bank ("TRB") for the payment of the credit accommodations
extended to Philippine Blooming Mills, Inc. ("PBM").

Antecedent Facts

This case stems from an action to compel Ching to pay TRB the following amounts:

1. ₱959,611.96 under Letter of Credit No. 479 AD covered by Trust Receipt No. 106;4

2. ₱1,191,137.13 under Letter of Credit No. 563 AD covered by Trust Receipt No. 113;5 and

3. ₱3,500,000 under the trust loan covered by a notarized Promissory Note.6

Ching was the Senior Vice President of PBM. In his personal capacity and not as a corporate officer,
Ching signed a Deed of Suretyship dated 21 July 1977 binding himself as follows:

xxx as primary obligor(s) and not as mere guarantor(s), hereby warrant to the TRADERS ROYAL BANK,
its successors and assigns, the due and punctual payment by the following individuals and/or
companies/firms, hereinafter called the DEBTOR(S), of such amounts whether due or not, as indicated
opposite their respective names, to wit:

NAME OF DEBTOR(S) AMOUNT OF OBLIGATION

PHIL. BLOOMING MILLS CORP. TEN MILLION PESOS

(₱ 10,000,000.00)

owing to said TRADERS ROYAL BANK, hereafter called the CREDITOR, as evidenced by all notes, drafts,
overdrafts and other credit obligations of every kind and nature contracted/incurred by said DEBTOR(S)
in favor of said CREDITOR.

In case of default by any and/or all of the DEBTOR(S) to pay the whole or part of said indebtedness
herein secured at maturity, I/We, jointly and severally, agree and engage to the CREDITOR, its successors
and assigns, the prompt payment, without demand or notice from said CREDITOR, of such notes, drafts,
overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or may hereafter
become indebted to the CREDITOR, together with all interests, penalty and other bank charges as may
 accrue thereon and all expenses which may be incurred by the latter in collecting any or all such
instruments.

I/WE further warrant the due and faithful performance by the DEBTOR(S) of all the obligations to be
performed under any contracts, evidencing indebtedness/obligations and any supplements, amendments,
charges or modifications made thereto, including but not limited to, the due and punctual payment by
the said DEBTOR(S).

I/WE hereby expressly waive notice of acceptance of this suretyship, and also presentment, demand,
protest and notice of dishonor of any and all such instruments, loans, advances, credits, or other
indebtedness or obligations hereinbefore referred to.

MY/OUR liability on this Deed of Suretyship shall be solidary, direct and immediate and not contingent
upon the pursuit by the CREDITOR, its successors or assigns, of whatever remedies it or they may have
against the DEBTOR(S) or the securities or liens it or they may possess; and I/WE hereby agree to be and
remain bound upon this suretyship, irrespective of the existence, value or condition of any collateral, and
notwithstanding also that all obligations of the DEBTOR(S) to you outstanding and unpaid at any time
may exceed the aggregate principal sum herein above stated.

In the event of judicial proceedings, I/WE hereby expressly agree to pay the creditor for and as attorney’s
fees a sum equivalent to TEN PER CENTUM (10%) of the total indebtedness (principal and interest) then
unpaid, exclusive of all costs or expenses for collection allowed by law.7 (Emphasis supplied)

On 24 March and 6 August 1980, TRB granted PBM letters of credit on application of Ching in his
capacity as Senior Vice President of PBM. Ching later accomplished and delivered to TRB trust receipts,
which acknowledged receipt in trust for TRB of the merchandise subject of the letters of credit. Under
the trust receipts, PBM had the right to sell the merchandise for cash with the obligation to turn over the
entire proceeds of the sale to TRB as payment of PBM’s indebtedness. Letter of Credit No. 479 AD,
covered by Trust Receipt No. 106, has a face value of US$591,043, while Letter of Credit No. 563 AD,
covered by Trust Receipt No. 113, has a face value of US$155,460.34.

Ching further executed an Undertaking for each trust receipt, which uniformly provided that:

x x x

6. All obligations of the undersigned under the agreement of trusts shall bear interest at the rate of __ per
centum ( __%) per annum from the date due until paid.

7. [I]n consideration of the Trust Receipt, the undersigned hereby jointly and severally undertake and
agree to pay on demand on the said BANK, all sums and amounts of money which said BANK may call
upon them to pay arising out of, pertaining to, and/or in any manner connected with this receipt. In case
it is necessary to collect the draft covered by the Trust Receipt by or through an attorney-at-law, the
undersigned hereby further agree(s) to pay an additional of 10% of the total amount due on the draft as
attorney’s fees, exclusive of all costs, fees and other expenses of collection but shall in no case be less than
₱200.00"8 (Emphasis supplied)

On 27 April 1981, PBM obtained a ₱3,500,000 trust loan from TRB. Ching signed as co-maker in the notarized
Promissory Note evidencing this trust loan. The Promissory Note reads:

FOR VALUE RECEIVED THIRTY (30) DAYS after date, I/We, jointly and severally, promise to pay the TRADERS
ROYAL BANK or order, at its Office in 4th Floor, Kanlaon Towers Bldg., Roxas Blvd., Pasay City, the sum of
Pesos: THREE MILLION FIVE HUNDRED THOUSAND ONLY (₱3,500,000.00), Philippine Currency, with the
interest rate of Eighteen Percent (18%) per annum until fully paid.
In case of non-payment of this note at maturity, I/We, jointly and severally, agree to pay an additional
amount equivalent to two per cent (2%) of the principal sum per annum, as penalty and collection
charges in the form of liquidated damages until fully paid, and the further sum of ten percent (10%) thereof
in full, without any deduction, as and for attorney’s fees whether actually incurred or not, exclusive of costs and
other judicial/extrajudicial expenses; moreover, I/We jointly and severally, further empower and authorize the
TRADERS ROYAL BANK at its option, and without notice to set off or to apply to the payment of this note any
and all funds, which may be in its hands on deposit or otherwise belonging to anyone or all of us, and to hold as
security therefor any real or personal property which may be in its possession or control by virtue of any other
contract.9 (Emphasis supplied)

PBM defaulted in its payment of Trust Receipt No. 106 (Letter of Credit No. 479 AD) for ₱959,611.96, and of Trust
Receipt No. 113 (Letter of Credit No. 563 AD) for ₱1,191,137.13. PBM also defaulted on its ₱3,500,000 trust loan.

On 1 April 1982, PBM and Ching filed a petition for suspension of payments with the Securities and Exchange
Commission ("SEC"), docketed as SEC Case No. 2250.10 The petition sought to suspend payment of PBM’s
obligations and prayed that the SEC allow PBM to continue its normal business operations free from the
interference of its creditors. One of the listed creditors of PBM was TRB.11

On 9 July 1982, the SEC placed all of PBM’s assets, liabilities, and obligations under the rehabilitation
receivership of Kalaw, Escaler and Associates.12

On 13 May 1983, ten months after the SEC placed PBM under rehabilitation receivership, TRB filed with the trial
court a complaint for collection against PBM and Ching. TRB asked the trial court to order defendants to pay
solidarily the following amounts:

(1) ₱6,612,132.74 exclusive of interests, penalties, and bank charges [representing its indebtedness arising
from the letters of credit issued to its various suppliers];

(2) ₱4,831,361.11, exclusive of interests, penalties, and other bank charges [due and owing from the trust
loan of 27 April 1981 evidenced by a promissory note];

(3) ₱783,300.00 exclusive of interests, penalties, and other bank charges [due and owing from the money
market loan of 1 April 1981 evidenced by a promissory note];

(4) To order defendant Ching to pay ₱10,000,000.00 under the Deed of Suretyship in the event plaintiff
can not recover the full amount of PBM’s indebtedness from the latter;

(5) The sum equivalent to 10% of the total sum due as and for attorney’s fees;

(6) Such other amounts that may be proven by the plaintiff during the trial, by way of damages and
expenses for litigation.13

On 25 May 1983, TRB moved to withdraw the complaint against PBM on the ground that the SEC had already
placed PBM under receivership.14 The trial court thus dismissed the complaint against PBM.15

On 23 June 1983, PBM and Ching also moved to dismiss the complaint on the ground that the trial court had no
jurisdiction over the subject matter of the case. PBM and Ching invoked the assumption of jurisdiction by the
SEC over all of PBM’s assets and liabilities.16

TRB filed an opposition to the Motion to Dismiss. TRB argued that (1) Ching is being sued in his personal
capacity as a surety for PBM; (2) the SEC decision declaring PBM in suspension of payments is not binding on
TRB; and (3) Presidential Decree No. 1758 ("PD No. 1758"),17 which Ching relied on to support his assertion that
all claims against PBM are suspended, does not apply to Ching as the decree regulates corporate activities only.18
In its order dated 15 August 1983,19 the trial court denied the motion to dismiss with respect to Ching and
affirmed its dismissal of the case with respect to PBM. The trial court stressed that TRB was holding Ching liable
under the Deed of Suretyship. As Ching’s obligation was solidary, the trial court ruled that TRB could proceed
against Ching as surety upon default of the principal debtor PBM. The trial court also held that PD No. 1758
applied only to corporations, partnerships and associations and not to individuals.

Upon the trial court’s denial of his Motion for Reconsideration, Ching filed a Petition for Certiorari and
Prohibition20 before the Court of Appeals. The appellate court granted Ching’s petition and ordered the dismissal
of the case. The appellate court ruled that the SEC assumed jurisdiction over Ching and PBM to the exclusion of
courts or tribunals of coordinate rank.

TRB assailed the Court of Appeals’ Decision21 before this Court. In Traders Royal Bank v. Court of
Appeals,22 this Court upheld TRB and ruled that Ching was merely a nominal party in SEC Case No. 2250.
Creditors may sue individual sureties of debtor corporations, like Ching, in a separate proceeding before regular
courts despite the pendency of a case before the SEC involving the debtor corporation.

In his Answer dated 6 November 1989, Ching denied liability as surety and accommodation co-maker of PBM. He
claimed that the SEC had already issued a decision23 approving a revised rehabilitation plan for PBM’s creditors,
and that PBM obtained the credit accommodations for corporate purposes that did not redound to his personal
benefit. He further claimed that even as a surety, he has the right to the defenses personal to PBM. Thus, his
liability as surety would attach only if, after the implementation of payments scheduled under the rehabilitation
plan, there would remain a balance of PBM’s debt to TRB.24 Although Ching admitted PBM’s availment of the
credit accommodations, he did not show any proof of payment by PBM or by him.

TRB admitted certain partial payments on the PBM account made by PBM itself and by the SEC-appointed
receiver.25 Thus, the trial court had to resolve the following remaining issues:

1. How much exactly is the corporate defendant’s outstanding obligation to the plaintiff?

2. Is defendant Alfredo Ching personally answerable, and for exactly how much?26

TRB presented Mr. Lauro Francisco, loan officer of the Remedial Management Department of TRB, and Ms. Carla
Pecson, manager of the International Department of TRB, as witnesses. Both witnesses testified to the following:

1. The existence of a Deed of Suretyship dated 21 July 1977 executed by Ching for PBM’s liabilities to TRB
up to ₱10,000,000;27

2. The application of PBM and grant by TRB on 13 March 1980 of Letter of Credit No. 479 AD for
US$591,043, and the actual availment by PBM of the full proceeds of the credit accommodation;28

3. The application of PBM and grant by TRB on 6 August 1980 of Letter of Credit No. 563 AD for
US$156,000, and the actual availment by PBM of the full proceeds of the credit accommodation;29 and

4. The existence of a trust loan of ₱3,500,000 evidenced by a notarized Promissory Note dated 27 April
1981 wherein Ching bound himself solidarily with PBM;30 and

5. Per TRB’s computation, Ching is liable for ₱19,333,558.16 as of 31 October 1991.31

Ching presented Atty. Vicente Aranda, corporate secretary and First Vice President of the Human Resources
Department of TRB, as witness. Ching sought to establish that TRB’s Board of Directors adopted a resolution
fixing the PBM account at an amount lower than what TRB wanted to collect from Ching. The trial court allowed
Atty. Aranda to testify over TRB’s manifestation that the Answer failed to plead the subject matter of his
testimony. Atty. Aranda produced TRB Board Resolution No. 5935, series of 1990, which contained the minutes
of the special meeting of TRB’s Board of Directors held on 8 June 1990.32 In the resolution, the Board of Directors
advised TRB’s Management "not to release Alfredo Ching from his JSS liability to the bank."33 The resolution also
stated the following:

a) Accept the ₱1.373 million deposits remitted over a period of 17 years or until 2006 which shall be applied
directly to the account (as remitted per hereto attached schedule). The amount of ₱1.373 million shall be
considered as full payment of PBM’s account. (The receiver is amenable to this alternative)

The initial deposit/remittance which amounts to ₱150,000.00 shall be remitted upon approval of the above and
conforme to PISCOR and PBM. Subsequent deposits shall start on the 3rd year and annually thereafter (every
June 30th of the year) until June 30, 2006.

Failure to pay one annual installment shall make the whole obligation due and demandable.

b) Write-off immediately ₱4.278 million. The balance [of] ₱1.373 million to remain outstanding in the books of
the Bank. Said balance will equal the deposits to be remitted to the Bank for a period of 17 years.34

However, Atty. Aranda himself testified that both items (a) and (b) quoted above were never complied with or
implemented. Not only was there no initial deposit of ₱150,000 as required in the resolution, TRB also
disapproved the document prepared by the receiver, which would have released Ching from his suretyship.35

The Ruling of the Trial Court

The trial court found Ching liable to TRB for ₱19,333,558.16 under the Deed of Suretyship. The trial court
explained:

[T]he liability of Ching as a surety attaches independently from his capacity as a stockholder of the Philippine
Blooming Mills. Indisputably, under the Deed of Suretyship defendant Ching unconditionally agreed to assume
PBM’s liability to the plaintiff in the event PBM defaulted in the payment of the said obligation in addition to
whatever penalties, expenses and bank charges that may occur by reason of default. Clear enough, under the
Deed of Suretyship (Exh. J), defendant Ching bound himself jointly and severally with PBM in the payment of the
latter’s obligation to the plaintiff. The obligation being solidary, the plaintiff Bank can hold Ching liable upon
default of the principal debtor. This is explicitly provided in Article 1216 of the New Civil Code already quoted
above.36

The dispositive portion of the trial court’s Decision reads:

WHEREFORE, judgment is hereby rendered declaring defendant Alfredo Ching liable to plaintiff bank in the
amount of ₱19,333,558.16 (NINETEEN MILLION THREE HUNDRED THIRTY THREE THOUSAND FIVE
HUNDRED FIFTY EIGHT & 16/100) as of October 31, 1991, and to pay the legal interest thereon from such date
until it is fully paid. To pay plaintiff 5% of the entire amount by way of attorney’s fees.

SO ORDERED.37

The Ruling of the Court of Appeals

On appeal, Ching stated that as surety and solidary debtor, he should benefit from the changed nature of the
obligation as provided in Article 1222 of the Civil Code, which reads:

Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived
from the nature of the obligation and of those which are personal to him, or pertain to his own share. With
respect to those which personally belong to the others, he may avail himself thereof only as regards that part of
the debt for which the latter are responsible.
Ching claimed that his liability should likewise be reduced since the equitable apportionment of PBM’s
remaining assets among its creditors under the rehabilitation proceedings would have the effect of reducing
PBM’s liability. He also claimed that the amount for which he was being held liable was excessive. He contended
that the outstanding principal balance, as stated in TRB Board Resolution No. 5893-1990, was only
₱5,650,749.09.38 Ching also contended that he was not liable for interest, as the loan documents did not stipulate
the interest rate, pursuant to Article 1956 of the Civil Code.39 Finally, Ching asserted that the Deed of Suretyship
executed on 21 July 1977 could not guarantee obligations incurred after its execution.40

TRB did not file its appellee’s brief. Thus, the Court of Appeals resolved to submit the case for decision.41

The Court of Appeals considered the following issues for its determination:

1. Whether the Answer of Ching amounted to an admission of liability.

2. Whether Ching can still be sued as a surety after the SEC placed PBM under rehabilitation receivership,
and if in the affirmative, for how much.42

The Court of Appeals resolved the first two questions in favor of TRB. The appellate court stated:

Ching did not deny under oath the genuineness and due execution of the L/Cs, Trust Receipts, Undertaking,
Deed of Surety, and the 3.5 Million Peso Promissory Note upon which TRB’s action rested. He is, therefore,
presumed to be liable unless he presents evidence showing payment, partially or in full, of these obligations
(Investment and Underwriting Corporation of the Philippines v. Comptronics Philippines, Inc. and Gene v.
Tamesis, 192 SCRA 725 [1990]).

As surety of a corporation placed under rehabilitation receivership, Ching can answer separately for the
obligations of debtor PBM (Rizal Banking Corporation v. Court of Appeals, Philippine Blooming Mills, Inc., and
Alfredo Ching, 178 SCRA 738 [1990], and Traders Royal Bank v. Philippine Blooming Mills and Alfredo Ching, 177
SCRA 788 [1989]).

Even a[n] SEC injunctive order cannot suspend payment of the surety’s obligation since the rehabilitation
receivers are limited to the existing assets of the corporation.43

The dispositive portion of the Decision of the Court of Appeals reads:

WHEREFORE, the judgment of the lower court is hereby AFFIRMED but modified with respect to the amount of
liability of defendant Alfredo Ching which is lowered from ₱19,333,558.16 to ₱15,773,708.78 with legal interest of
12% per annum until it is fully paid.

SO ORDERED.44

The Court of Appeals denied Ching’s Motion for Reconsideration for lack of merit.

Hence, this petition.

Issues

Ching assigns the following as errors of the Court of Appeals:

1. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT RULED THAT PETITIONER

ALFREDO CHING WAS LIABLE FOR OBLIGATIONS CONTRACTED BY PBM LONG AFTER THE
EXECUTION OF THE DEED OF SURETYSHIP.
 2. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT RULED THAT THE PETITIONERS
WERE LIABLE FOR THE TRUST RECEIPTS DESPITE THE FACT THAT PRIVATE RESPONDENT HAD
PREVENTED THEIR FULFILLMENT.

3. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT FOUND PETITIONER ALFREDO

CHING LIABLE FOR ₱15,773,708.78 WITH LEGAL INTEREST AT 12% PER ANNUM UNTIL FULLY PAID
DESPITE THE FACT THAT UNDER THE REHABILITATION PLAN OF PETITIONER PBM, WHICH WAS
APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, PRIVATE RESPONDENT IS ONLY
ENTITLED TO ₱1,373,415.00.45

Ching asserted that the Deed of Suretyship dated 21 July 1977 could not answer for obligations not yet in
existence at the time of its execution. Specifically, Ching maintained that the Deed of Suretyship could not
answer for debts contracted by PBM in 1980 and 1981. Ching contended that no accessory contract of suretyship
could arise without an existing principal contract of loan. Ching likewise argued that TRB could no longer claim
on the trust receipts because TRB had already taken the properties subject of the trust receipts. Ching likewise
maintained that his obligation as surety could not exceed the ₱1,373,415 apportioned to PBM under the SEC-
approved rehabilitation plan.

In its Comment, TRB asserted that the first two assigned errors raised factual issues not brought before the trial
court. Furthermore, TRB pointed out that Ching never presented PBM’s rehabilitation plan before the trial court.
TRB also stated that the Supreme Court ruling in Traders Royal Bank v. Court of Appeals46 constitutes res
judicata between the parties. Therefore, TRB could proceed against Ching separately from PBM to enforce in full
Ching’s liability as surety.47

The Ruling of the Court

The petition has no merit.

The case before us is an offshoot of the trial court’s denial of Ching’s motion to have the case dismissed against
him. The petition is a thinly veiled attempt to make this Court reconsider its decision in the prior case of Traders
Royal Bank v. Court of Appeals.48 This Court has already resolved the issue of Ching’s separate liability as a surety
despite the rehabilitation proceedings before the SEC. We held in Traders Royal Bank that:

Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC could not assume
jurisdiction over his person and properties. The Securities and Exchange Commission was empowered, as
rehabilitation receiver, to take custody and control of the assets and properties of PBM only, for the SEC has
jurisdiction over corporations only [and] not over private individuals, except stockholders in an intra-corporate
dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal party in SEC Case No. 2250, Ching’s
properties were not included in the rehabilitation receivership that the SEC constituted to take custody of PBM’s
assets. Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for PBM. An
anomalous situation would arise if individual sureties for debtor corporations may escape liability by simply co-
filing with the corporation a petition for suspension of payments in the SEC whose jurisdiction is limited only to
corporations and their corporate assets.

x x x

Ching can be sued separately to enforce his liability as surety for PBM, as expressly provided by Article
1216 of the New Civil Code.

x x x
It is elementary that a corporation has a personality distinct and separate from its individual stockholders and
members. Being an officer or stockholder of a corporation does not make one’s property the property also of the
corporation, for they are separate entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482).

Ching’s act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest in the SEC jurisdiction over
his person or property, for jurisdiction does not depend on the consent or acts of the parties but upon express
provision of law (Tolentino vs. Social Security System, 138 SCRA 428; Lee vs. Municipal Trial Court of Legaspi
City, Br. I, 145 SCRA 408). (Emphasis supplied)

Traders Royal Bank has fully resolved the issue regarding Ching’s liability as a surety of the credit
accommodations TRB extended to PBM. The decision amounts to res judicata49 which bars Ching from raising
the same issue again. Hence, the only question that remains is the amount of Ching’s liability. Nevertheless, we
shall resolve the issues Ching has raised in his attempt to escape liability under his surety.

Whether Ching is liable for obligations PBM contracted after execution of the Deed of Suretyship

Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the 21 July
1977 Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts PBM "may now be
indebted or may hereafter become indebted" to TRB.

The law expressly allows a suretyship for "future debts". Article 2053 of the Civil Code provides:

A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no
claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured. (Emphasis
supplied)

Furthermore, this Court has ruled in Diño v. Court of Appeals50 that:

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

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

Whether Ching’s liability is limited to the amount stated in PBM’s rehabilitation plan

Ching would like this Court to rule that his liability is limited, at most, to the amount stated in PBM’s
rehabilitation plan. In claiming this reduced liability, Ching invokes Article 1222 of the Civil Code which reads:
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived
from the nature of the obligation and of those which are personal to him, or pertain to his own share. With
respect to those which personally belong to the others, he may avail himself thereof only as regards that part of
the debt for which the latter are responsible.

In granting the loan to PBM, TRB required Ching’s surety precisely to insure full recovery of the loan in case PBM
becomes insolvent or fails to pay in full. This was the very purpose of the surety. Thus, Ching cannot use PBM’s
failure to pay in full as justification for his own reduced liability to TRB. As surety, Ching agreed to pay in full
PBM’s loan in case PBM fails to pay in full for any reason, including its insolvency.

TRB, as creditor, has the right under the surety to proceed against Ching for the entire amount of PBM’s loan.
This is clear from Article 1216 of the Civil Code:

ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected. (Emphasis supplied)

Ching further claims a reduced liability under TRB Board Resolution No. 5935. This resolution states that PBM’s
outstanding loans may be reduced to ₱1.373 million subject to certain conditions like the payment of ₱150,000
initial payment.51 The resolution also states that TRB should not release Ching’s solidary liability under his surety.
The resolution even directs TRB’s management to study Ching’s criminal liability under the trust documents.52

Ching’s own witness testified that Resolution No. 5935 was never implemented. For one, PBM or its receiver
never paid the ₱150,000 initial payment to TRB. TRB also rejected the document that PBM’s receiver presented
which would have released Ching from his suretyship. Clearly, Ching cannot rely on Resolution No. 5935 to
escape liability under his suretyship.

Ching’s attempts to have this Court review the factual issues of the case are improper. It is not a function of the
Supreme Court to assess and evaluate again the evidence, testimonial and evidentiary, adduced by the parties
particularly where the findings of both the trial court and the appellate court coincide on the matter.53

Whether Ching is liable for the trust receipts

Ching is still liable for the amounts stated in the letters of credit covered by the trust receipts. Other than his
bare allegations, Ching has not shown proof of payment or settlement with TRB. Atty. Vicente Aranda, TRB’s
corporate secretary and First Vice President of its Human Resource Management Department, testified that the
conditions in the TRB board resolution presented by Ching were not met or implemented, thus:

ATTY. AZURA

Q Going into the resolution itself. A certain stipulation ha[s] been outlined, and may I refer you to
condition or step No. 1, which reads: "a) Accept the ₱1.373 million deposits remitted over a period of 17
years or until 2006 which shall be applied directly to the account (as remitted per hereto attached
schedule). The amount of ₱1.373 million shall be considered as full payment of PBM’s account. (The
receiver is amenable to this alternative.) The initial deposit/remittance which amounts to ₱150,000.00
shall be remitted upon approval of the above and conforme of PISCOR [xxx] and PBM. Subsequent
deposits shall start on the 3rd year and annually thereafter (every June 30th of the year) until June 30,
2006.

Failure to pay one annual installment shall make the whole obligation due and demandable. Now Mr.
Witness, would you be in a position to inform [the court] if these conditions listed in item (a) in
Resolution No. 5935, series of 1990, were implemented or met?
 A Yes. I know for a fact that the conditions, more particularly the initial deposit/remittance in the
amount of ₱150,000.00 which have to be done with approval was not remitted or met.

Q Will you clarify your answer. Would you be in a position to inform the court if those conditions were
met? Because your initial answer was yes.

A Yes sir, I am in a position to state that these conditions were not met.

Q Let me refer you to the condition listed as item (b) of the same resolution which I read and quote:
"Write off immediately ₱4.278 million. The balance of ₱1.373 million to remain outstanding in the books
of the bank. Said balance will be remitted to the Bank for a period of 17 years." Mr. Witness, would you be
in a position to inform the court if the bank implemented that particular condition?

A In the implementation of this settlement the receiver prepared a document for approval and
conformity of the bank. The said document would in effect release the suretyship of Alfredo Ching and
for that reason the bank refused or denied fixing its conformity and approval with the court.

xxx

ATTY. ATIENZA ON REDIRECT EXAMINATION

Q Mr. Witness you stated that the reason why the plaintiff bank did not implement these conditionalities
[sic] was because the former defendant corporation requested that the suretyship of Alfredo Ching be
released, is that correct?

A I did not say that. I said that in effect the document prepared by the lawyer of the receiver xxx the bank
would release the suretyship of Alfredo Ching, that is why the bank is not amenable to such a document.

Q Despite this approved resolution the bank, because of said requirement or conformity did not seek to
implement these conditionalities [sic]?

A Yes sir because the conditions imposed by the board is not being followed in that document because it
was the condition of the board that the suretyship should not be released but the document being
presented to the bank for signature and conformity in effect if signed would release the suretyship. So it
would be a violation with the approval of the board so the bank did not sign the conformity.54

Ching also claims that TRB prevented PBM from fulfilling its obligations under the trust receipts when TRB,
together with other creditor banks, took hold of PBM’s inventories, including the goods covered by the trust
receipts. Ching asserts that this act of TRB released him from liability under the suretyship. Ching forgets that he
executed, on behalf of PBM, separate Undertakings for each trust receipt expressly granting to TRB the right to
take possession of the goods at any time to protect TRB’s interests. TRB may exercise such right without waiving
its right to collect the full amount of the loan to PBM. The Undertakings also provide that any suspension of
payment or any assignment by PBM for the benefit of creditors renders the loan due and demandable. Thus, the
separate Undertakings uniformly provide:

2. That the said BANK may at any time cancel the foregoing trust and take possession of said merchandise
with the right to sell and dispose of the same under such terms and conditions it may deem best, or of
the proceeds of such of the same as may then have been sold, wherever the said merchandise or proceeds
may then be found and all the provisions of the Trust Receipt shall apply to and be deemed to include said
above-mentioned merchandise if the same shall have been made up or used in the manufacture of any other
goods, or merchandise, and the said BANK shall have the same rights and remedies against the said merchandise
in its manufactured state, or the product of said manufacture as it would have had in the event that such
merchandise had remained [in] its original state and irrespective of the fact that other and different merchandise
is used in completing such manufacture. In the event of any suspension, or failure or assignment for the
benefit of creditors on the part of the undersigned or of the non-fulfillment of any obligation, or of the
non-payment at maturity of any acceptance made under said credit, or any other credit issued by the said
BANK on account of the undersigned or of the non-payment of any indebtedness on the part of the
undersigned to the said BANK, all obligations, acceptances, indebtedness and liabilities whatsoever shall
thereupon without notice mature and become due and payable and the BANK may avail of the remedies
provided herein.55 (Emphasis supplied)

Presidential Decree No. 115 ("PD No. 115"), otherwise known as the Trust Receipts Law, expressly allows TRB to
take possession of the goods covered by the trust receipts. Thus, Section of 7 of PD No. 115 states:

SECTION 7. Rights of the entruster. — The entruster shall be entitled to the proceeds from the sale of the goods,
documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to
the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in case of
non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided such are not
contrary to the provisions of this Decree.

The entruster may cancel the trust and take possession of the goods, documents or instruments subject
of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to
comply with any of the terms and conditions of the trust receipt or any other agreement between the
entruster and the entrustee, and the entruster in possession of the goods, documents or instruments may, on
or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving
or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster
may, at a public sale, become a purchaser. The proceeds of any such sale, whether public or private, shall be
applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses of re-taking,
keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustee’s
indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster
for any deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either personally served on
the entrustee or sent by post-paid ordinary mail to the entrustee’s last known business address. (Emphasis
supplied)

Thus, even though TRB took possession of the goods covered by the trust receipts, PBM and Ching remained
liable for the entire amount of the loans covered by the trust receipts.

Absent proof of payment or settlement of PBM and Ching’s credit obligations with TRB, Ching’s liability is what
the Deed of Suretyship stipulates, plus the applicable interest and penalties. The trust receipts, as well as the
Letter of Undertaking dated 16 April 198056 executed by PBM, stipulate in writing the payment of interest without
specifying the rate. In such a case, the applicable interest rate shall be the legal rate, which is now 12% per
annum.57 This is in accordance with Central Bank Circular No. 416, which states:

By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise known as the
"Usury Law," the Monetary Board, in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of
interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall be twelve per cent (12%) per annum. (Emphasis
supplied)

On the other hand, the Promissory Note evidencing the ₱3,500,000 trust loan provides for 18% interest per
annum plus 2% penalty interest per annum in case of default. This stipulated interest should continue to run
until full payment of the ₱3,500,000 trust loan. In addition, the accrued interest on all the credit
accommodations should earn legal interest from the date of filing of the complaint pursuant to Article 2212 of the
Civil Code.
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation
may be silent upon this point.

The trial court found and the appellate court affirmed that the outstanding principal amounts as of the filing of
the complaint with the trial court on 13 May 1983 were ₱959,611.96 under Trust Receipt No. 106, ₱1,191,137.13
under Trust Receipt No. 113, and ₱3,500,000 for the trust loan. As extracted from TRB’s Statement of Account as
of 31 October 1991,58 the accrued interest on the trust receipts and the trust loan as of the filing of the complaint
on 13 May 1983 were ₱311,387.5159 under Trust Receipt No. 106, ₱338,739.8160 under Trust Receipt No. 113, and
₱1,287,616.4461 under the trust loan. The penalty interest on the trust loan amounted to ₱137,315.07.62 Ching did
not rebut this Statement of Account which TRB presented during trial.

Thus, the following is the summary of Ching’s liability under the suretyship as of 13 May 1983, the date of filing of
TRB’s complaint with the trial court:

1. On Trust Receipt No. 106 (Letter of Credit No. 479 AD)

Outstanding Principal ₱ 959,611.96

Accrued Interest (12% per annum) 311,387.51

2. On Trust Receipt No. 113 (Letter of Credit No. 563 AD)

Outstanding Principal ₱ 1,191,137.13

Accrued Interest (12% per annum) 338,739.82

3. On the Trust Loan (Promissory Note)

Outstanding Principal ₱ 3,500,000.00

Accrued Interest (18% per annum) 1,287,616.44

Accrued Penalty Interest (2% per annum) 137,315.07

WHEREFORE, we AFFIRM the decision of the Court of Appeals with MODIFICATION. Petitioner Alfredo Ching
shall pay respondent Traders Royal Bank the following (1) on the credit accommodations under the trust
receipts, the total principal amount of ₱2,150,749.09 with legal interest at 12% per annum from 14 May 1983 until
full payment; (2) on the trust loan evidenced by the Promissory Note, the principal sum of ₱3,500,000 with 20%
interest per annum from 14 May 1983 until full payment; (3) on the total accrued interest as of 13 May 1983,
₱2,075,058.84 with 12% interest per annum from 14 May 1983 until full payment. Petitioner Alfredo Ching shall
also pay attorney’s fees to respondent Traders Royal Bank equivalent to 5% of the total principal and interest.

SO ORDERED.

 G.R. No. 85161 September 9, 1991

COUNTRY BANKERS INSURANCE CORPORATION and ENRIQUE SY, petitioners,

vs.
COURT OF APPEALS and OSCAR VENTANILLA ENTERPRISES CORPORATION, respondents

MEDIALDEA, J.:p

Petitioners seek a review on certiorari of the decision of the Court of Appeals in CA-G.R. CV No. 09504 "Enrique
Sy and Country Bankers Insurance Corporation v. Oscar Ventanilla Enterprises Corporation" affirming in toto
the decision of the Regional Trial Court, Cabanatuan City, Branch XXV, to wit:

WHEREFORE, the complaint of the plaintiff Enrique F. Sy is dismissed, and on the counterclaim of the
defendant O. Ventanilla Enterprises Corporation, judgment is hereby rendered:

1. Declaring as lawful, the cancellation and termination of the Lease Agreement (Exh. A) and the
defendant's re-entry and repossession of the Avenue, Broadway and Capitol theaters under lease on
February 11, 1980;

2. Declaring as lawful, the forfeiture clause under paragraph 12 of the Id Lease Agreement, and confirming
the forfeiture of the plaintiffs remaining cash deposit of P290,000.00 in favor of the defendant
thereunder, as of February 11, 1980;

3. Ordering the plaintiff to pay the defendant the sum of P289,534.78, representing arrears in rentals,
unremitted amounts for amusement tax delinquency and accrued interest thereon, with further interest
on said amounts at the rate of 12% per annum (per lease agreement) from December 1, 1980 until the
same is fully paid;

4. Ordering the plaintiff to pay the defendant the amount of P100,000.00, representing the P10,000.00
portion of the monthly lease rental which were not deducted from the cash deposit of the plaintiff from
February to November, 1980, after the forfeiture of the said cash deposit on February 11, 1980, with
interest thereon at the rate of 12% per annum on each of the said monthly amounts of P10,000.00 from
the time the same became due until it is paid;

5. Ordering the plaintiff to pay the defendant through the injunction bond, the sum of P100,000.00,
representing the P10,000.00 monthly increase in rentals which the defendant failed to realize from
February to November 1980 result from the injunction, with legal interest thereon from the finality of this
decision until fully paid;

6. Ordering the plaintiff to pay to the defendant the sum equivalent to ten per centum (10%) of the
above-mentioned amounts of P289,534.78, P100,000.00 and P100,000.00, as and for attorney's fees; and

7. Ordering the plaintiff to pay the costs. (pp. 94-95, Rollo)

The antecedent facts of the case are as follows:

Respondent Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and the petitioner Enrique F. Sy, as
lessee, entered into a lease agreement over the Avenue, Broadway and Capitol Theaters and the land on which
they are situated in Cabanatuan City, including their air-conditioning systems, projectors and accessories needed
for showing the films or motion pictures. The term of the lease was for six (6) years commencing from June 13,
1977 and ending June 12,1983. After more than two (2) years of operation of the Avenue, Broadway and Capitol
Theaters, the lessor OVEC made demands for the repossession of the said leased properties in view of the Sy's
arrears in monthly rentals and non-payment of amusement taxes. On August 8,1979, OVEC and Sy had a
conference and by reason of Sy's request for reconsideration of OVECs demand for repossession of the three (3)
theaters, the former was allowed to continue operating the leased premises upon his conformity to certain
conditions imposed by the latter in a supplemental agreement dated August 13, 1979.

In pursuance of their latter agreement, Sy's arrears in rental in the amount of P125,455.76 (as of July 31, 1979) was
reduced to P71,028.91 as of December 31, 1979. However, the accrued amusement tax liability of the three (3)
theaters to the City Government of Cabanatuan City had accumulated to P84,000.00 despite the fact that Sy had
been deducting the amount of P4,000.00 from his monthly rental with the obligation to remit the said
deductions to the city government. Hence, letters of demand dated January 7, 1980 and February 3, 1980 were
sent to Sy demanding payment of the arrears in rentals and amusement tax delinquency. The latter demand was
with warning that OVEC will re-enter and repossess the Avenue, Broadway and Capital Theaters on February 11,
1980 in pursuance of the pertinent provisions of their lease contract of June 11, 1977 and their supplemental letter-
agreement of August 13, 1979. But notwithstanding the said demands and warnings SY failed to pay the above-
mentioned amounts in full Consequently, OVEC padlocked the gates of the three theaters under lease and took
possession thereof in the morning of February 11, 1980 by posting its men around the premises of the Id movie
houses and preventing the lessee's employees from entering the same.

Sy, through his counsel, filed the present action for reformation of the lease agreement, damages and injunction
late in the afternoon of the same day. And by virtue of a restraining order dated February 12, 1980 followed by an
order directing the issuance of a writ of preliminary injunction issued in said case, Sy regained possession and
operation of the Avenue, Broadway and Capital theaters.

As first cause of action, Sy alleged that the amount of deposit — P600,000.00 as agreed upon, P300,000.00 of
which was to be paid on June 13, 1977 and the balance on December 13, 1977 — was too big; and that OVEC had
assured him that said forfeiture will not come to pass. By way of second cause of action, Sy sought to recover
from OVEC the sums of P100,000.00 which Sy allegedly spent in making "major repairs" on Broadway Theater
and the application of which to Sy's due rentals; (2) P48,000.00 covering the cost of electrical current allegedly
used by OVEC in its alleged "illegal connection" to Capitol Theater and (3) P31,000.00 also for the cost of
electrical current allegedly used by OVEC for its alleged "illegal connection" to Broadway Theater and for
damages suffered by Sy as a result of such connection. Under the third cause of action, it is alleged in the
complaint that on February 11, 1980, OVEC had the three theaters padlocked with the use of force, and that as a
result, Sy suffered damages at the rate of P5,000.00 a day, in view of his failure to go thru the contracts he had
entered into with movie and booking companies for the showing of movies at ABC. As fourth cause of action, Sy
prayed for the issuance of a restraining order/preliminary injunction to enjoin OVEC and all persons employed
by it from entering and taking possession of the three theaters, conditioned upon Sy's filing of a P500,000.00
bond supplied by Country Bankers Insurance Corporation (CBISCO).

OVEC on the other hand, alleged in its answer by way of counterclaims, that by reason of Sy's violation of the
terms of the subject lease agreement, OVEC became authorized to enter and possess the three theaters in
question and to terminate said agreement and the balance of the deposits given by Sy to OVEC had thus become
forfeited; that OVEC would be losing P50,000.00 for every month that the possession and operation of said three
theaters remain with Sy and that OVEC incurred P500,000.00 for attorney's service.

The trial court arrived at the conclusions that Sy is not entitled to the reformation of the lease agreement; that
the repossession of the leased premises by OVEC after the cancellation and termination of the lease was in
accordance with the stipulation of the parties in the said agreement and the law applicable thereto and that the
consequent forfeiture of Sy's cash deposit in favor of OVEC was clearly agreed upon by them in the lease
agreement. The trial court further concluded that Sy was not entitled to the writ of preliminary injunction issued
in his favor after the commencement of the action and that the injunction bond filed by Sy is liable for whatever
damages OVEC may have suffered by reason of the injunction.
On the counterclaim of OVEC the trial court found that the said lessor was deprived of the possession and
enjoyment of the leased premises and also suffered damages as a result of the filing of the case by Sy and his
violation of the terms and conditions of the lease agreement. Hence, it held that OVEC is entitled to recover the
said damages in addition to the arrears in rentals and amusement tax delinquency of Sy and the accrued interest
thereon. From the evidence presented, it found that as of the end of November, 1980, when OVEC finally
regained the possession of the three (3) theaters under lease, Sy's unpaid rentals and amusement tax liability
amounted to P289,534.78. In addition, it held that Sy was under obligation to pay P10,000.00 every month from
February to November, 1980 or the total amount of P100,000.00 with interest on each amount of P10,000.00 from
the time the same became due. This P10,000.00 portion of the monthly lease rental was supposed to come from
the remaining cash deposit of Sy but with the consequent forfeiture of the remaining cash deposit of
P290,000.00, there was no more cash deposit from which said amount could be deducted. Further, it adjudged Sy
to pay attorney's fees equivalent to 10% of the amounts above-mentioned.

Finally, the trial court held Sy through the injunction bond liable to pay the sum of P10,000.00 every month from
February to November, 1980. The amount represents the supposed increase in rental from P50,000.00 to
P60,000.00 in view of the offer of one RTG Productions, Inc. to lease the three theaters involved for P60,000.00 a
month.

From this decision of the trial court, Sy and (CBISCO) appealed the decision in toto while OVEC appealed insofar
as the decision failed to hold the injunction bond liable for an damages awarded by the trial court.

The respondent Court of Appeals found no ambiguity in the provisions of the lease agreement. It held that the
provisions are fair and reasonable and therefore, should be respected and enforced as the law between the
parties. It held that the cancellation or termination of the agreement prior to its expiration period is justified as it
was brought about by Sy's own default in his compliance with the terms of the agreement and not "motivated by
fraud or greed." It also affirmed the award to OVEC of the amount of P100,000.00 chargeable against the
injunction bond posted by CBISCO which was soundly and amply justified by the trial court.

The respondent Court likewise found no merit in OVECS appeal and held that the trial court did not err in not
charging and holding the injunction bond posted by Sy liable for all the awards as the undertaking of CBISCO
under the bond referred only to damages which OVEC may suffer as a result of the injunction.

From this decision, CBISCO and Sy filed this instant petition on the following grounds:

PRIVATE RESPONDENT SHOULD NOT BE ALLOWED TO UNJUSTLY ENRICH OR BE BENEFITTED

AT THE EXPENSE OF THE PETITIONERS.

RESPONDENT COURT OF APPEALS CO D SERIOUS ERROR OF LAW AND GRAVE ABUSE OF

DISCRETION IN NOT SETTING OFF THE P100,000.00 SUPPOSED DAMAGE RESULTING FROM THE
INJUNCTION AGAINST THE P290,000.00 REMAINING CASH DEPOSIT OF PETITIONER ENRIQUE SY.

RESPONDENT COURT OF APPEALS FURTHER COMMITTED SERIOUS ERROR OF LAW AND GRAVE
ABUSE OF DISCRETION IN NOT DISMISSING PRIVATE RESPONDENTS COUNTER-CLAIM FOR
FAILURE TO PAY THE NECESSARY DOCKET FEE. (p. 10, Rollo)

We find no merit in petitioners' argument that the forfeiture clause stipulated in the lease agreement would
unjustly enrich the respondent OVEC at the expense of Sy and CBISCO — contrary to law, morals, good
customs, public order or public policy. A provision which calls for the forfeiture of the remaining deposit still in
the possession of the lessor, without prejudice to any other obligation still owing, in the event of the termination
or cancellation of the agreement by reason of the lessee's violation of any of the terms and conditions of the
agreement is a penal clause that may be validly entered into. A penal clause is an accessory obligation which the
parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the
debtor a special presentation (generally consisting in the payment of a sum of money) in case the obligation is
not fulfilled or is irregularly or inadequately fulfilled. (Eduardo P. Caguioa, Comments and Cases on Civil Law,
Vol. IV, First Edition, pp. 199-200) As a general rule, in obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of interests in case of non-compliance. This is specifically
provided for in Article 1226, par. 1, New Civil Code. In such case, proof of actual damages suffered by the creditor
is not necessary in order that the penalty may be demanded (Article 1228, New Civil Code). However, there are
exceptions to the rule that the penalty shall substitute the indemnity for damages and the payment of interests
in case of non-compliance with the principal obligation. They are first, when there is a stipulation to the
contrary; second, when the obligor is sued for refusal to pay the agreed penalty; and third, when the obligor is
guilty of fraud (Article 1226, par. 1, New Civil Code). It is evident that in all said cases, the purpose of the penalty
is to punish the obligor. Therefore, the obligee can recover from the obligor not only the penalty but also the
damages resulting from the non-fulfillment or defective performance of the principal obligation.

In the case at bar, inasmuch as the forfeiture clause provides that the deposit shall be deemed forfeited, without
prejudice to any other obligation still owing by the lessee to the lessor, the penalty cannot substitute for the
P100,000.00 supposed damage resulting from the issuance of the injunction against the P290,000.00 remaining
cash deposit. This supposed damage suffered by OVEC was the alleged P10,000.00 a month increase in rental
from P50,000.00 to P60,000,00), which OVEC failed to realize for ten months from February to November, 1980
in the total sum of P100,000.00. This opportunity cost which was duly proven before the trial court, was correctly
made chargeable by the said court against the injunction bond posted by CBISCO. The undertaking assumed by
CBISCO under subject injunction refers to "all such damages as such party may sustain by reason of the
injunction if the Court should finally decide that the Plaintiff was/were not entitled thereto." (Rollo, p. 101) Thus,
the respondent Court correctly sustained the trial court in holding that the bond shall and may answer only for
damages which OVEC may suffer as a result of the injunction. The arrears in rental, the unmeritted amounts of
the amusement tax delinquency, the amount of P100,000.00 (P10,000.00 portions of each monthly rental which
were not deducted from plaintiffs cash deposit from February to November, 1980 after the forfeiture of said cash
deposit on February 11, 1980) and attorney's fees which were all charged against Sy were correctly considered by
the respondent Court as damages which OVEC sustained not as a result of the injunction.

There is likewise no merit to the claim of petitioners that respondent Court committed serious error of law and
grave abuse of discretion in not dismissing private respondent's counterclaim for failure to pay the necessary
docket fee, which is an issue raised for the first time in this petition. Petitioners rely on the rule in Manchester
Development Corporation v. Court of Appeals, G.R. No. 75919, May 7, 1987, 149 SCRA 562 to the effect that all the
proceedings held in connection with a case where the correct docket fees are not paid should be peremptorily be
considered null and void because, for all legal purposes, the trial court never acquired jurisdiction over the case.
It should be remembered however, that in Davao Light and Power Co., Inc. v. Dinopol, G.R. 75195, August 19,
1988, 164 SCRA 748, this Court took note of the fact that the assailed order of the trial court was issued prior to
the resolution in the Manchester case and held that its strict application to the case at bar would therefore be
unduly harsh. Thus, We allowed the amendment of the complaint by specifying the amount of damages within a
non-extendible period of five (5) days from notice and the re-assessment of the filing fees. Then, in Sun Insurance
Office, Ltd. v. Asuncion, G.R. 79937-38, February 3, 1989, 170 SCRA 274, We held that where the filing of the
initiatory pleading is not accompanied by payment of the docket fee, the court may allow payment of the fee
within a reasonable time but in no case beyond the applicable prescriptive or reglemen tary period.

Nevertheless, OVEC's counterclaims are compulsory so no docket fees are required as the following
circumstances are present: (a) they arise out of or are necessarily connected with the transaction or occurrence
that is subject matter of the opposing party's claim; (b) they do not require for their adjudication the presence of
third parties of whom the court cannot acquire jurisdiction; and (c) the court has jurisdiction to entertain the
claim (see Javier v. Intermediate Appellate Court, G.R. 75379, March 31, 1989, 171 SCRA 605). Whether the
respective claims asserted by the parties arise out of the same contract or transaction within the limitation on
counterclaims imposed by the statutes depends on a consideration of all the facts brought forth by the parties
and on a determination of whether there is some legal or equitable relationship between the ground of recovery
alleged in the counterclaim and the matters alleged as the cause of action by the plaintiff (80 C.J.S. 48). As the
counterclaims of OVEC arise from or are necessarily connected with the facts alleged in the complaint for
reformation of instrument of Sy, it is clear that said counterclaims are compulsory.

ACCORDINGLY, finding no merit in the grounds relied upon by petitioners in their petition, the same is hereby
DENIED and the decision dated June 15, 1988 and the resolution dated September 21, 1988, both of the
respondent Court of Appeals are AFFIRMED.

SO ORDERED.

 G.R. No. 78315 January 2, 1989

COMMERCIAL CREDIT CORPORATION CAGAYAN DE ORO, petitioner,

vs.
THE COURT OF APPEALS and THE CAGAYAN DE ORO COLISEUM, INC., respondents.

GANCAYCO, J.:

In this petition for review of a decision of the Court of Appeals in CA G.R. SP No. 10888 1 the issue is whether or
not a compromise judgment which was found by the Court of Appeals to be lawful may be modified by the same
court.

Sometime in 1978 private respondent Cagayan De Oro Coliseum, Inc. executed a promissory note in the amount
of P329,852.54 in favor of petitioner Commercial Credit Corporation of Cagayan de Oro, payable in 36 monthly
installments. The note is secured by a real estate mortgage duly executed by private respondent in favor of
petitioner. As said respondent defaulted in the payment of the monthly installments due, petitioner proceeded
with the extrajudicial foreclosure of the real estate mortgage in September, 1979.

Five minority stockholders of private respondent then instituted Special Civil Action No. 68111 in the then Court
of First Instance (CFI) of Misamis Oriental questioning the power of the private respondent to execute the real
estate mortgage without the consent of its stockholders. In due course a compromise agreement was entered
into by the parties on the basis of which a compromise judgment was rendered by the trial court on March 11,
1980 which reads as follows:

JUDGMENT

The parties in the above-entitled case assisted by their respective counsel, submitted for the
approval of the Court the following Compromise Agreement, to wit:

COMES NOW, Parties, Petitioners and Respondents, represented by their respective counsels,
unto this Honorable Court, most respectfully submit for approval the following Compromise
Agreement:

1. That, Petitioners herein hereby state that they ratified and approved the loan and real estate
mortgage entered into and assigned by the Cagayan de Oro Coliseum, Inc. to the Commercial
Credit Corporation of Cagayan de Oro and as such therefore, the issue raised by the herein
petitioners in the above entitled case has become moot and academic;

2. That, by virtue of the aforementioned, the Cagayan de Oro Coliseum, Inc. thru its Board of
Directors and represented by its President, Mr. Johnny Wilson, hereby admits its total
outstanding obligation to herein Respondent Commercial Credit Corporation of Cagayan de Oro
in the amount of TWO HUNDRED FORTY NINE THOUSAND TWO HUNDRED SIXTY THREE &
23/100 PESOS (P 249,263.23), as of February 15, 1980, including therein the sum of P 10,000.00
representing attorney's fees for Respondent Commercial Credit Corporation of Cagayan de Oro;

3. That the Cagayan de Oro Coliseum, Inc. has agreed to pay the above obligation plus interest on
diminishing balance computed yearly at sixteen (16) percent per annum, thus:

Total Account.................... P 249,263.23

Total Interest...................... P 76,138.60

Total Payable ...................... P 325,401.83

 4. That, the Cagayan de Oro Coliseum, Inc. hereby agrees to pay the aforegoing obligation in
paragraph (3) hereof in equal monthly installments of P11,000.00, the first installment shall be
payable in February, 1980 and every month thereafter until the whole account payable as
aforementioned is fully paid;

5. That, failure on the part of Respondent Cagayan de Oro Coliseum, Inc. to pay any of the
installments as they shall become due, the whole amount then outstanding and unpaid shall
immediately become due and payable in its entirety and shall render the judgment herein to be
immediately final, unappealable and executory; and the overdue and unpaid installments shall
earn a three (3%) per cent per month penalty charge until fully paid, plus five percent (5%) of the
outstanding balance as additional attorney's fee;

6. That, Respondent Commercial Credit Corporation of Cagayan de Oro hereby agrees to

withdraw its application with Respondent City Sheriff of Cagayan de Oro for the extrajudicial
foreclosure of the real estate mortgage subject of this complaint;

7. That, the Parties herein waive in favor of each other any and all forms of damage arising out of,
connected with and/or as a result of this action.

WHEREFORE, the Parties respectfully pray of this Honorable Court that judgment in accordance
with the Compromise Agreement be rendered. (Pages 25-27, Rollo)

However as private respondent failed to comply with the terms of the judgment for failure to pay several
installments in the amount of P70,152.65 which matured on July 13, 1982, petitioner filed an ex-parte motion for
the issuance of a writ of execution on March 4, 1983. The Court granted the said motion in an order dated March
10, 1983. A notice of auction sale was issued on March 11, 1983. Private respondent filed a motion for
reconsideration of said order alleging that it had paid its obligation. The execution of the writ was suspended
pending consideration of said motion. An opposition thereto was filed by petitioner to which a reply was filed by
the private respondent and, in turn, the comment of the petitioner was also submitted. On November 26, 1986,
the trial court denied said motion for reconsideration and, accordingly, a writ of execution was issued on
December 4, 1986. The Deputy Provincial Sheriff set the auction sale for January 23, 1987. However, said auction
sale did not take place as scheduled due to some internal problems in the office of sheriff.

Private respondent then filed a special civil action in the Court of Appeals to annul said compromise-judgment,
alleging that the trial court acted in serious violation of law and/or in grave abuse of discretion. In due course, a
decision was rendered by said appellate court on February 13, 1987, the dispositive part of which reads as follows:

WHEREFORE, the present petition is DENIED due course and is hereby DISMISSED. Effective
March 16, 1983, the overdue and unpaid installments shall earn one half per cent (1/2%) per
month penalty charge until fully paid, plus two per cent (2%) of the outstanding balance as
additional attorney's fees. (Page 33, Rollo)

A motion for reconsideration of the decision was filed by petitioner. On March 23, 1987 a resolution denying the
motion was issued by the respondent appellate court.

On the other hand, private respondent also filed a motion for reconsideration and comment on the petitioner's
motion for reconsideration. On May 19, 1987, respondent Court issued a resolution, the dispositive part of which
reads as follows:

Acting on the said first part of the petitioner's motion for reconsideration as well as the private
respondent's comment thereon, the aforestated grounds for said motion having been already
taken up by this Court in reaching the said February 13, 1987 decision, and finding no reason to
disturb the same, the said motion as to its said first part, is DENIED for lack of merit.
As to the said second part of petitioner's motion for reconsideration, for clarity, the dispositive portion of the
February 13, 1987 decision is re-worded to read as follows:

WHEREFORE, the present petition is GRANTED in the sense that effective March 16, 1983, the
overdue and unpaid installments shall earn one half per cent (1/2%) per month penalty charge
until fully paid, plus two per cent (2%) of the outstanding balance as additional attorney's fees.

And in view of such disposition.

1) THE JUDGMENT DATED MARCH 11, 1980 AND THE ORDER DATED NOVEMBER 26, 1986 OF
RESPONDENT DENT COURT ARE HEREBY DECLARED MODIFIED CONFORMABLY WITH
THE FEBRUARY 13, 1987 DECISION OF THIS COURT; and

2) THE WRIT OF EXECUTION ISSUED BY RESPONDENT DENT CLERK OF COURT, AND THE
SHERIFF'S NOTICE OF SALE, THE PUBLIC AUCTION SALE AND THE CERTIFICATE OF SALE
ARE DECLARED NULL AND VOID IN SO FAR AS THEY ARE NOT IN ACCORDANCE WITH
AND IN EXCESS OF THE NOW MODIFIED JUDGMENT AND MODIFIED ORDER OF THE
RESPONDENT COURT DATED MARCH 11, 1980 AND NOVEMBER 26, 1986, RESPECTIVELY

(Page 148, Rollo)

Hence, the herein petition for review on certiorari wherein petitioner alleges the following reasons as warranting
the grant of the petition:

a) THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION WHEN IT MODIFIED THE TRIAL
COURT'S COMPROMISE JUDGMENT AFTER IT DENIED DUE COURSE AND DISMISSED THE
PETITION FOR ANNULMENT OF RESPONDENT COLISEUM.

b) THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR IN

APPLYING ARTICLE 1229 OF THE CIVIL CODE IN THE CASE AT BAR.

c) THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR

WHEN IT MODIFIED THE EFFECT'S OF THE 3% PENALTY INTEREST AND ATTORNEY'S FEES,
AFTER IT UPHELD THE LEGALITY OF THE COMPROMISE JUDGMENT OF THE TRIAL
COURT." (Page 14, Rollo)

The petition is impressed with merit. It is axiomatic that a compromise judgment is final and immediately
executory. Once a judgment becomes final and executory, the prevailing party can have it executed as a matter of
right and the execution becomes a ministerial duty on the part of the court . 2 A judicial compromise has the
force and effect of res judicata. 3

Such a final and executory judgment cannot be modified or amended. If an amendment is to be made, it may
consist only of supplying an omission, striking out a superfluity or interpreting an ambiguous phrase therein in
relation to the body of the decision which gives it life . 4 A compromise judgment should not be disturbed except
for vices in consent or forgery. 5

In the present case, the compromise agreement was voluntarily entered into by the parties assisted by their
respective counsel and was duly approved by the trial court. Indeed, it was confirmed by the respondent
appellate court to be lawful. There was, therefore, no cogent basis for the respondent appellate court to modify
said compromise agreement by reducing the penalty and attorney's fees provided for therein.
In spite of the protestation of private respondent that the penalty and interests provided in the compromise
agreement was violative of the Usury Law, the respondent appellate court, applying the provisions of Central
Bank Circular No. 721, found no violation thereof as in fact the imposition of the penalty is sanctioned by Article
1226 of the Civil Code. The respondent court cited the De Venecia vs. Del Rosario 6 where this Court held that in
the absence of a stipulation to the contrary, recovery of both the penalty and the interest until full payment of
the debt is allowed under existing laws.

The modification of said compromise judgment by the respondent appellate court is predicated on the provision
of Article 1229 of the Civil Code which provides as follows:

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

The foregoing provision of the law applies only to obligations or contract, subject of a litigation, the condition
being that the same has been partly or irregularly complied with by the debtor. The provision also applies even if
there has been no performance, as long as the penalty is iniquituous or unconscionable. It cannot apply to a final
and executory judgment.

When the parties entered into the said compromise agreement and submitted the same for the approval of the
trial court, its terms and conditions must be the primordial consideration why the parties voluntarily entered
into the same. The trial court approved it because it is lawful, and is not against public policy or morals. Even the
respondent Court of Appeals upheld the validity of the said compromise agreement. Hence, the respondent court
has no authority to reduce the penalty and attorney's fees therein stipulated which is the law between the parties
and is res judicata.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals dated February 13,
1987 and its resolutions dated March 23, 1987 and May 19, 1987 are hereby SET ASIDE and another judgment is
hereby rendered affirming in toto the compromise judgment of the trial court dated March 11, 1980, with costs
against private respondent. This decision is immediately executory.

SO ORDERED.

[ G.R. No. 225562, March 08, 2017 ]
WILLIAM C. LOUH, JR. AND IRENE L. LOUH, PETITIONERS, VS. BANK OF THE PHILIPPINE ISLANDS,
RESPONDENT.

R E S O L U T I O N
REYES, J.:
Before the Court is the instant petition for review on certiorari[1] filed by William C. Louh, Jr. (William) and Irene
L. Louh (Irene) (collectively, the Spouses Louh) to assail the Decision[2] and Resolution,[3] dated August 11, 2015
and May 23, 2016, respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 100754.

Antecedents

The herein respondent, Bank of the Philippine Islands (BPI), issued a credit card in William's name, with Irene as
the extension card holder. Pursuant to the terms and conditions of the cards' issuance, 3.5% finance charge and
6% late payment charge shall be imposed monthly upon unpaid credit availments.[4]

The Spouses Louh made purchases from the use of the credit cards and paid regularly based on the amounts
indicated in the Statement of Accounts (SOAs). However, they were remiss in their obligations starting October
14, 2009.[5] As of August 15, 2010, their account was unsettled prompting BPI to send written demand letters dated
August 7, 2010, January 25, 2011 and May 19, 2011. By September 14, 2010, they owed BPI the total amount of
P533,836.27. Despite repeated verbal and written demands, the Spouses Louh failed to pay BPI.[6]

On August 4, 2011, BPI filed before the Regional Trial Court (RTC) of Makati City a Complaint[7] for Collection of
a Sum of Money.

On February 21, 2012, William filed before the RTC a Motion for Extension of Time to File an Answer or
Responsive Pleading.[8] In its Order[9] dated February 27, 2012, the RTC granted an extension of 15 days or up to
March 4, 2012, but the Spouses Louh still failed to comply within the prescribed period.[10]

On June 11, 2012, BPI filed a motion to declare the Spouses Louh in default.[11] Before the RTC can rule on BPI's
motion, the Spouses Louh filed an Answer[12] on July 20, 2012 or more than three months after the prescribed
period, which ended on March 4, 2012.

On July 24, 2012, the RTC issued an Order[13] declaring the Spouses Louh in default and setting BPI's ex-
parte presentation of evidence on August 7, 2012. The Branch Clerk of Court thereafter submitted a
Commissioner's Report[14] dated September 7, 2012, and the RTC considered the case submitted for decision on
November 27, 2012.[15]

On November 29, 2012, the RTC rendered a Decision,[16] the fallo of which ordered the Spouses Louh to solidarily
pay BPI (1) P533,836.27 plus 12% finance and 12% late payment annual charges starting from August 7, 2010 until
full payment, and (2) 25% of the amount due as attorney's fees, plus P1,000.00 per court hearing and P8,064.00 as
filing or docket fees; and (3) costs of suit.[17]

The RTC explained that BPI had adduced preponderant evidence proving that the Spouses Louh had in fact
availed of credit accommodations from the use of the cards. However, the RTC found the 3.5% finance and 6%
late payment monthly charges[18] imposed by BPI as iniquitous and unconscionable. Hence, both charges were
reduced to 1% monthly. Anent the award of attorney's fees equivalent to 25% of the amount due, the RTC found
the same to be within the terms of the parties' agreement.[19]

The Spouses Louh filed a Motion for Reconsideration,[20] which the RTC denied in the Order[21] issued on April 8,
2013. The appeal[22] they filed was likewise denied by the CA in the herein assailed decision and resolution.

In affirming in toto the RTC's judgment, the CA explained that the Spouses Louh were properly declared in
default for their failure to file an answer within the reglementary period. The Spouses Louh further filed no
motion to set aside the order of default. The CA also found that BPI had offered ample evidence, to wit: (1)
delivery receipts pertaining to the credit cards and the terms and conditions governing the use thereof signed by
the Spouses Louh; (2) computer-generated authentic copies of the SOAs; and (3) demand letters sent by BPI,
which the Spouses Louh received but ignored. As to the award of attorney's fees, the CA ruled that the terms
governing the use of the cards explicitly stated that should the account be referred to a collection agency, then
25% of the amount due shall be charged as attorney's fees.[23]

In the herein assailed Resolution[24] dated May 23, 2016, the CA denied the Spouses Louh's Motion for
Reconsideration.[25]

Issue

Aggrieved, the Spouses Louh are before the Court raising the sole issue of whether or not the CA erred in
sustaining BPI's complaint.[26]

The Spouses Louh pray for the dismissal of BPI's suit. They likewise seek a relaxation of procedural rules claiming
that their failure to file a timely Answer was due to William's medical condition, which required him to undergo
a heart by-pass surgery.[27] They further alleged that BPI failed to establish its case by preponderance of evidence.
Purportedly, BPI did not amply prove that the Spouses Louh had in fact received and accepted the SOAs, which
were, however, unilaterally prepared by the bank.[28] They allege the same circumstance as to the receipt of the
demand letters. The computations likewise did not show the specific amounts pertaining to the principal,
interests and penalties. They point out that since their credit limit was only P326,000.00, it is evident that the
amount of P533,836.27 demanded by BPI included unconscionable charges.[29]

BPI failed to file a comment to the instant petition within the prescribed period, which expired on September 23,
2016.

Ruling of the Court

The Court affirms the herein assailed decision and resolution, but modifies the principal amount and attorney's
fees awarded by the RTC and the CA.

The Spouses Louh reiterate that the RTC wrongly declared them in default since by reason of William's sickness,
they were entitled to a relaxation of the rules. Moreover, BPI had failed to offer preponderant evidence relative to
the actual amount of the Spouses Louh's indebtedness.

The foregoing claims are untenable.

In Magsino v. De Ocampo,[30] the Court instructs that:
Procedural rules are tools designed to facilitate the adjudication of cases. Courts and litigants alike are thus
enjoined to abide strictly by the rules. And while the Court, in some instances, allows a relaxation in the
application of the rules, this, we stress, was never intended to forge a bastion for erring litigants to violate the
rules with impunity. The liberality in the interpretation and application of the rules applies only in proper cases
and under justifiable causes and circumstances. While it is true that litigation is not a game of technicalities, it is
equally true that every case must be prosecuted in accordance with the prescribed procedure to insure an orderly
and speedy administration of justice.
Like all rules, procedural rules should be followed except only when, for the most persuasive of reasons, they
may be relaxed to relieve a litigant of an injustice not commensurate with the degree of his thoughtlessness in
not complying with the prescribed procedure.
The rules were instituted to be faithfully complied with, and allowing them to be ignored or lightly dismissed to
suit the convenience of a party like the petitioner was impermissible. Such rules, often derided as merely
technical, are to be relaxed only in the furtherance of justice and to benefit the deserving. Their liberal
construction in exceptional situations should then rest on a showing of justifiable reasons and of at least
a reasonable attempt at compliance with them. x x x.[31] (Citations omitted and emphasis and italics ours)
In the case at bar, the CA aptly pointed out that the Spouses Louh filed their Answer with the RTC only on July
20, 2012 or more than three months after the prescribed period, which expired on March 4, 2012. When they were
thereafter declared in default, they filed no motion to set aside the RTC's order, a remedy which is allowed under
Rule 9, Section 3[32] of the Rules of Civil Procedure. The Spouses Louh failed to show that they exerted due
diligence in timely pursuing their cause so as to entitle them to a liberal construction of the rules, which can only
be made m exceptional cases.

The Spouses Louh claim as well that BPI's evidence are insufficient to prove the amounts of the former's
obligation; hence, the complaint should be dismissed. The Court, in Macalinao v. BPI,[33] emphatically ruled that:
Considering the foregoing rule, respondent BPI should not be made to suffer for petitioner Macalinao's failure to
file an answer and concomitantly, to allow the latter to submit additional evidence by dismissing or remanding
the case for further reception of evidence. Significantly, petitioner Macalinao herself admitted the existence of
her obligation to respondent BPI, albeit with reservation as to the principal amount. Thus, a dismissal of the case
would cause great injustice to respondent BPI. Similarly, a remand of the case for further reception of evidence
would unduly prolong the proceedings of the instant case and render inutile the proceedings conducted before
the lower courts.[34]
BPI had offered as evidence the (1) testimony of Account Specialist Carlito M. Igos, who executed a Judicial
Affidavit in connection with the case, and (2) documentary exhibits, which included the (a) delivery receipts
pertaining to the credit cards and the terms and conditions governing the use thereof signed by the Spouses
Louh, (b) computer-generated authentic copies of the SOAs,[35] and (c) demand letters sent by BPI, which the
Spouses Louh received.[36] The Clerk of Court subsequently prepared a Commissioner's Report, from which the
RTC based its judgment.

The Spouses Louh slept on their rights to refute BPI's evidence, including the receipt of the SOAs and demand
letters. BPI cannot be made to pay for the Spouses Louh 's negligence, omission or belated actions.

Be that as it may, the Court finds excessive the principal amount and attorneys fees awarded by the RTC and CA. A
modification of the reckoning date relative to the computation of the charges is in order too.

In Macalinao,[37] where BPI charged the credit cardholder of 3.25% interest and 6% penalty per month,[38] and
25% of the total amount due as attorney's fees, the Court unequivocally declared that:
[T]his is not the first time that this Court has considered the interest rate of 36% per annum as excessive
and unconscionable. We held in Chua vs. Timan:
The stipulated interest rates of 7% and 5% per month imposed on respondents' loans must be equitably
reduced to 1% per month or 12% per annum. We need not unsettle the principle we had affirmed in a plethora
of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous,
unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against
the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on
interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could
possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either
enslave their borrowers or lead to a hemorrhaging of their assets. x x x
Since the stipulation on the interest rate is void, it is as if there was no express contract
thereon. Hence, courts may reduce the interest rate as reason and equity demand.

The same is true with respect to the penalty charge. x x x Pertinently, Article 1229 of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no perfom1ance, the penalty may also be reduced
by the courts if it is iniquitous or unconscionable.

x x x x
x x x [T]he stipulated penalty charge of 31% per month or 36% per annum, in addition to regular
interests, is indeed iniquitous and unconscionable.[39] (Citations and emphasis in the original omitted, and
emphasis ours)
Thus, in Macalinao, the Court reduced both the interest and penalty charges to 12% each, and the attorney's fees
to P10,000.00.

In MCMP Construction Corp. v. Monark Equipment Corp.,[40] the creditor cumulatively charged the debtor 60%
annually as interest, penalty and collection fees, and 25% of the total amount due as attorney's fees. The Court
similarly found the rates as exorbitant and unconscionable; hence, directed the reduction of the annual interest
to 12%, penalty and collection charges to 6%, and attorney's fees to 5%. The Court explained that attorney's fees
are in the nature of liquidated damages, which under Article 2227 of the New Civil Code, "shall be equitably
reduced if they are iniquitous or unconscionable."[41]

In the case at bench, BPI imposed a cumulative annual interest of 114%, plus 25% of the amount due as attorney's
fees. Inevitably, the RTC and the CA aptly reduced the charges imposed by BPI upon the Spouses Louh. Note
that incorporated in the amount of P533,836.27 demanded by BPI as the Spouses Louh's obligation as of August
7, 2010 were the higher rates of finance and late payment charges, which the courts a quo had properly directed
to be reduced.

In the SOA[42] dated October 14, 2009, the principal amount indicated was P113,756.83. In accordance
with Macalinao, the finance and late payment charges to be imposed on the principal amount of P113,756.83 are
reduced to 12% each per annum, reckoned from October 14, 2009, the date when the Spouses Louh became
initially remiss in the payment of their obligation to BPI, until full payment.

Anent BPI's litigation expenses, the Court retains the RTC and CA's disquisition awarding P8,064.00 as filing or
docket fees, and costs of suit. However, the Court reduces the attorney's fees to five percent (5%) of the total
amount due from the Spouses Louh pursuant to MCMP[43] and Article 2227 of the New Civil Code.

WHEREFORE, the Decision and Resolution, dated August 11, 2015 and May 23, 2016, respectively, of the Court of
Appeals in CA-G.R. CV No. 100754, finding the Spouses William and Irene Louh liable to the Bank of the
Philippine Islands for the payment of their past credit availments, plus finance and late payment charges of 12%
each per annum, P8,064.00 as filing or docket fees, and costs of suit, are AFFIRMED. The principal amount due,
reckoning period of the computation of finance and late payment charges, and attorney's fees are,
however, MODIFIED as follows:

(1) the principal amount due is P113,756.83 as indicated in the Statement of Account dated October 14, 2009;

(2) finance and late payment charges of twelve percent (12%) each per annum shall be computed from October
14, 2009 until full payment; and

(3) five percent (5%) of the total amount due is to be paid as attorney's fees.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta,* Bersamin, and Caguioa,** JJ., concur.

 G.R. No. 157480 May 6, 2005

PRYCE CORPORATION (formerly PRYCE PROPERTIES CORPORATION), petitioners,

vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, respondent.

D E C I S I O N

PANGANIBAN, J.:

In legal contemplation, the termination of a contract is not equivalent to its rescission. When an agreement is
terminated, it is deemed valid at inception. Prior to termination, the contract binds the parties, who are thus
obliged to observe its provisions. However, when it is rescinded, it is deemed inexistent, and the parties are
returned to their status quo ante. Hence, there is mutual restitution of benefits received. The consequences of
termination may be anticipated and provided for by the contract. As long as the terms of the contract are not
contrary to law, morals, good customs, public order or public policy, they shall be respected by courts. The
judiciary is not authorized to make or modify contracts; neither may it rescue parties from disadvantageous
stipulations. Courts, however, are empowered to reduce iniquitous or unconscionable liquidated damages,
indemnities and penalties agreed upon by the parties.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the May 22, 2002 Decision2 of the
Court of Appeals (CA) in CA-GR CV No. 51629 and its March 4, 2003 Resolution3 denying petitioner’s Motion for
Reconsideration. The assailed Decision disposed thus:

"WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows: (1) In Civil Case No. 93-
68266, the appealed decision[,] is AFFIRMED with MODIFICATION[,] ordering [Respondent] Philippine
Amusement and Gaming Corporation to pay [Petitioner] Pryce Properties Corporation the total amount
of P687,289.50 as actual damages representing the accrued rentals for the quarter September to
November 1993 with interest and penalty at the rate of two percent (2%) per month from date of filing of
the complaint until the amount shall have been fully paid, and the sum of P50,000.00 as attorney’s fees;
(2) In Civil Case No. 93-68337, the appealed decision is REVERSED and SET ASIDE and a new judgment is
rendered ordering [Petitioner] Pryce Properties Corporation to reimburse [Respondent] Philippine
Amusement and Gaming Corporation the amount of P687,289.50 representing the advanced rental
deposits, which amount may be compensated by [Petitioner] Pryce Properties Corporation with its award
in Civil Case No. 93-68266 in the equal amount of P687,289.50."4

The Facts

According to the CA, the facts are as follows:

"Sometime in the first half of 1992, representatives from Pryce Properties Corporation (PPC for brevity)
made representations with the Philippine Amusement and Gaming Corporation (PAGCOR) on the
possibility of setting up a casino in Pryce Plaza Hotel in Cagayan de Oro City. [A] series of negotiations
followed. PAGCOR representatives went to Cagayan de Oro City to determine the pulse of the people
whether the presence of a casino would be welcomed by the residents. Some local government officials
showed keen interest in the casino operation and expressed the view that possible problems were
surmountable. Their negotiations culminated with PPC’s counter-letter proposal dated October 14, 1992.

"On November 11, 1992, the parties executed a Contract of Lease x x x involving the ballroom of the Hotel
for a period of three (3) years starting December 1, 1992 and until November 30, 1995. On November 13,
1992, they executed an addendum to the contract x x x which included a lease of an additional 1000
square meters of the hotel grounds as living quarters and playground of the casino personnel. PAGCOR
advertised the start of their casino operations on December 18, 1992.

"Way back in 1990, the Sangguniang Panlungsod of Cagayan de Oro City passed Resolution No. 2295 x x x
dated November 19, 1990 declaring as a matter of policy to prohibit and/or not to allow the establishment
of a gambling casino in Cagayan de Oro City. Resolution No. 2673 x x x dated October 19, 1992 (or a
month before the contract of lease was executed) was subsequently passed reiterating with vigor and
vehemence the policy of the City under Resolution No. 2295, series of 1990, banning casinos in Cagayan
de Oro City. On December 7, 1992, the Sangguniang Panlungsod of Cagayan de Oro City enacted
Ordinance No. 3353 x x x prohibiting the issuance of business permits and canceling existing business
permits to any establishment for using, or allowing to be used, its premises or any portion thereof for the
operation of a casino.

"In the afternoon of December 18, 1992 and just hours before the actual formal opening of casino
operations, a public rally in front of the hotel was staged by some local officials, residents and religious
leaders. Barricades were placed [which] prevented some casino personnel and hotel guests from entering
and exiting from the Hotel. PAGCOR was constrained to suspend casino operations because of the rally.
An agreement between PPC and PAGCOR, on one hand, and representatives of the rallyists, on the other,
eventually ended the rally on the 20th of December, 1992.

"On January 4, 1993, Ordinance No. 3375-93 x x x was passed by the Sangguniang Panlungsod of Cagayan
de Oro City, prohibiting the operation of casinos and providing for penalty for violation thereof. On
January 7, 1993, PPC filed a Petition for Prohibition with Preliminary Injunction x x x against then public
respondent Cagayan de Oro City and/or Mayor Pablo P. Magtajas x x x before the Court of Appeals,
docketed as CA G.R. SP No. 29851 praying inter alia, for the declaration of unconstitutionality of
Ordinance No. 3353. PAGCOR intervened in said petition and further assailed Ordinance No. 4475-93 as
being violative of the non-impairment of contracts and equal protection clauses. On March 31, 1993, the
Court of Appeals promulgated its decision x x x, the dispositive portion of which reads:

‘IN VIEW OF ALL THE FOREGOING, Ordinance No. 3353 and Ordinance No. 3375-93 are hereby
DECLARED UNCONSTITUTIONAL and VOID and the respondents and all other persons acting
under their authority and in their behalf are PERMANENTLY ENJOINED from enforcing those
ordinances.

‘SO ORDERED.’

"Aggrieved by the decision, then public respondents Cagayan de Oro City, et al. elevated the case to the
Supreme Court in G.R. No. 111097, where, in an En Banc Decision dated July 20, 1994 x x x, the Supreme
Court denied the petition and affirmed the decision of the Court of Appeals.

"In the meantime, PAGCOR resumed casino operations on July 15, 1993, against which, however, another
public rally was held. Casino operations continued for some time, but were later on indefinitely
suspended due to the incessant demonstrations. Per verbal advice x x x from the Office of the President
of the Philippines, PAGCOR decided to stop its casino operations in Cagayan de Oro City. PAGCOR
stopped its casino operations in the hotel prior to September, 1993. In two Statements of Account dated
September 1, 1993 x x x, PPC apprised PAGCOR of its outstanding account for the quarter September 1 to
November 30, 1993. PPC sent PAGCOR another Letter dated September 3, 1993 x x x as a follow-up to the
parties’ earlier conference. PPC sent PAGCOR another Letter dated September 15, 1993 x x x stating its
Board of Directors’ decision to collect the full rentals in case of pre-termination of the lease.

"PAGCOR sent PPC a letter dated September 20, 1993 x x x [stating] that it was not amenable to the
payment of the full rentals citing as reasons unforeseen legal and other circumstances which prevented it
from complying with its obligations. PAGCOR further stated that it had no other alternative but to pre-
 terminate the lease agreement due to the relentless and vehement opposition to their casino operations.
In a letter dated October 12, 1993 x x x, PAGCOR asked PPC to refund the total of P1,437,582.25
representing the reimbursable rental deposits and expenses for the permanent improvement of the
Hotel’s parking lot. In a letter dated November 5, 1993 x x x, PAGCOR formally demanded from PPC the
payment of its claim for reimbursement.

"On November 15, 1993 x x x, PPC filed a case for sum of money in the Regional Trial Court of Manila
docketed as Civil Case No. 93-68266. On November 19, 1993, PAGCOR also filed a case for sum of money
in the Regional Trial Court of Manila docketed as Civil Case No. 93-68337.

"In a letter dated November 25, 1993, PPC informed PAGCOR that it was terminating the contract of lease
due to PAGCOR’s continuing breach of the contract and further stated that it was exercising its rights
under the contract of lease pursuant to Article 20 (a) and (c) thereof.

"On February 2, 1994, PPC filed a supplemental complaint x x x in Civil Case No. 93-68266, which the trial
court admitted in an Order dated February 11, 1994. In an Order dated April 27, 1994, Civil Case No. 93-
68377 was ordered consolidated with Civil Case No. 93-68266. These cases were jointly tried by the court
a quo. On August 17, 1995, the court a quo promulgated its decision. Both parties appealed."5

In its appeal, PPC faulted the trial court for the following reasons: 1) failure of the court to award actual and
moral damages; 2) the 50 percent reduction of the amount PPC was claiming; and 3) the court’s ruling that the 2
percent penalty was to be imposed from the date of the promulgation of the Decision, not from the date
stipulated in the Contract.

On the other hand, PAGCOR criticized the trial court for the latter’s failure to rule that the Contract of Lease had
already been terminated as early as September 21, 1993, or at the latest, on October 14, 1993, when PPC received
PAGCOR’s letter dated October 12, 1993. The gaming corporation added that the trial court erred in 1) failing to
consider that PPC was entitled to avail itself of the provisions of Article XX only when PPC was the party
terminating the Contract; 2) not finding that there were valid, justifiable and good reasons for terminating the
Contract; and 3) dismissing the Complaint of PAGCOR in Civil Case No. 93-68337 for lack of merit, and not
finding PPC liable for the reimbursement of PAGCOR’S cash deposits and of the value of improvements.

Ruling of the Court of Appeals

First, on the appeal of PAGCOR, the CA ruled that the PAGCOR’S pretermination of the Contract of Lease was
unjustified. The appellate court explained that public demonstrations and rallies could not be considered as
fortuitous events that would exempt the gaming corporation from complying with the latter’s contractual
obligations. Therefore, the Contract continued to be effective until PPC elected to terminate it on November 25,
1993.

Regarding the contentions of PPC, the CA held that under Article 1659 of the Civil Code, PPC had the right to ask
for (1) rescission of the Contract and indemnification for damages; or (2) only indemnification plus the
continuation of the Contract. These two remedies were alternative, not cumulative, ruled the CA.

As PAGCOR had admitted its failure to pay the rentals for September to November 1993, PPC correctly exercised
the option to terminate the lease agreement. Previously, the Contract remained effective, and PPC could collect
the accrued rentals. However, from the time it terminated the Contract on November 25, 1993, PPC could no
longer demand payment of the remaining rentals as part of actual damages, the CA added.

Denying the claim for moral damages, the CA pointed out the failure of PPC to show that PAGCOR had acted in
gross or evident bad faith in failing to pay the rentals from September to November 1993. Such failure was shown
especially by the fact that PPC still had in hand three (3) months advance rental deposits of PAGCOR. The
former could have simply applied this deposit to the unpaid rentals, as provided in the Contract. Neither did PPC
adequately show that its reputation had been besmirched or the hotel’s goodwill eroded by the establishment of
the casino and the public protests.

Finally, as to the claimed reimbursement for parking lot improvement, the CA held that PAGCOR had not
presented official receipts to prove the latter’s alleged expenses. The appellate court, however, upheld the trial
court’s award to PPC of P50,000 attorney’s fees.

Hence this Petition.6

Issues

In their Memorandum, petitioner raised the following issues:

"MAIN ISSUE:

"Did the Honorable Court of Appeals commit x x x grave and reversible error by holding that Pryce was
not entitled to future rentals or lease payments for the unexpired period of the Contract of Lease between
Pryce and PAGCOR?

"Sub-Issues:

"1. Were the provisions of Sections 20(a) and 20(c) of the Contract of Lease relative to the right of PRYCE
to terminate the Contract for cause and to moreover collect rentals from PAGCOR corresponding to the
remaining term of the lease valid and binding?

"2. Did not Article 1659 of the Civil Code supersede Sections 20(a) and 20(c) of the Contract, PRYCE
having ‘rescinded’ the Contract of Lease?

"3. Do the case of Rios, et al. vs. Jacinto Palma Enterprises, et al. and the other cases cited by PAGCOR
support its position that PRYCE was not entitled to future rentals?

"4. Would the collection by PRYCE of future rentals not give rise to unjust enrichment?

"5. Could we not have ‘harmonized’ Article 1659 of the Civil Code and Article 20 of the Contract of Lease?

"6. Is it not a basic rule that the law, i.e. Article 1659, is deemed written in contracts, particularly in the
PRYCE-PAGCOR Contract of Lease?"7

The Court’s Ruling

The Petition is partly meritorious.

Main Issue:

Collection of Remaining Rentals

PPC anchors its right to collect future rentals upon the provisions of the Contract. Likewise, it argues
that termination, as defined under the Contract, is different from the remedy of rescission prescribed under
Article 1659 of the Civil Code. On the other hand, PAGCOR contends, as the CA ruled, that Article 1659 of the
Civil Code governs; hence, PPC is allegedly no longer entitled to future rentals, because it chose to rescind the
Contract.
Contract Provisions
Clear and Binding

Article 1159 of the Civil Code provides that "obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith."8 In deference to the rights of the parties, the
law9 allows them to enter into stipulations, clauses, terms and conditions they may deem convenient; that is, as
long as these are not contrary to law, morals, good customs, public order or public policy. Likewise, it is settled
that if the terms of the contract clearly express the intention of the contracting parties, the literal meaning of the
stipulations would be controlling.10

In this case, Article XX of the parties’ Contract of Lease provides in part as follows:

"XX. BREACH OR DEFAULT

"a) The LESSEE agrees that all the terms, conditions and/or covenants herein contained shall be deemed
essential conditions of this contract, and in the event of default or breach of any of such terms, conditions
and/or covenants, or should the LESSEE become bankrupt, or insolvent, or compounds with his
creditors, the LESSOR shall have the right to terminate and cancel this contract by giving them fifteen (15
days) prior notice delivered at the leased premises or posted on the main door thereof. Upon such
termination or cancellation, the LESSOR may forthwith lock the premises and exclude the LESSEE
therefrom, forcefully or otherwise, without incurring any civil or criminal liability. During the fifteen (15)
days notice, the LESSEE may prevent the termination of lease by curing the events or causes of
termination or cancellation of the lease.

"b) x x x x x x x x x

"c) Moreover, the LESSEE shall be fully liable to the LESSOR for the rentals corresponding to the remaining
term of the lease as well as for any and all damages, actual or consequential resulting from such default
and termination of this contract.

"d) x x x x x x x x x." (Italics supplied)

The above provisions leave no doubt that the parties have covenanted 1) to give PPC the right to terminate and
cancel the Contract in the event of a default or breach by the lessee; and 2) to make PAGCOR fully liable for
rentals for the remaining term of the lease, despite the exercise of such right to terminate. Plainly, the parties
have voluntarily bound themselves to require strict compliance with the provisions of the Contract by stipulating
that a default or breach, among others, shall give the lessee the termination option, coupled with the lessor’s
liability for rentals for the remaining term of the lease.

For sure, these stipulations are valid and are not contrary to law, morals, good customs, public order or public
policy. Neither is there anything objectionable about the inclusion in the Contract of mandatory provisions
concerning the rights and obligations of the parties.11 Being the primary law between the parties, it governs the
adjudication of their rights and obligations. A court has no alternative but to enforce the contractual stipulations
in the manner they have been agreed upon and written.12 It is well to recall that courts, be they trial or appellate,
have no power to make or modify contracts.13 Neither can they save parties from disadvantageous provisions.

Termination or Rescission?

Well-taken is petitioner’s insistence that it had the right to ask for "termination plus the full payment of future
rentals" under the provisions of the Contract, rather than just rescission under Article 1659 of the Civil Code. This
Court is not unmindful of the fact that termination and rescission are terms that have been used loosely and
interchangeably in the past. But distinctions ought to be made, especially in this controversy, in which the terms
mean differently and lead to equally different consequences.
The term "rescission" is found in 1) Article 119114 of the Civil Code, the general provision on rescission of
reciprocal obligations; 2) Article 1659,15 which authorizes rescission as an alternative remedy, insofar as the rights
and obligations of the lessor and the lessee in contracts of lease are concerned; and 3) Article 138016 with regard
to the rescission of contracts.

In his Concurring Opinion in Universal Food Corporation v. CA,17 Justice J. B. L. Reyes differentiated rescission
under Article 1191 from that under Article 1381 et seq. as follows:

"x x x. The rescission on account of breach of stipulations is not predicated on injury to economic
interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity
between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing
anywhere that the action for rescission thereunder is subordinated to anything other than the culpable
breach of his obligations to the defendant. This rescission is a principal action retaliatory in character, it
being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in
the old Latin aphorism: ‘Non servanti fidem, non est fides servanda.’ Hence, the reparation of damages for
the breach is purely secondary.

"On the contrary, in rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison d’etre as well as the measure of
the right to rescind. x x x."18

Relevantly, it has been pointed out that resolution was originally used in Article 1124 of the old Civil Code, and
that the term became the basis for rescission under Article 1191 (and, conformably, also Article 1659).19

Now, as to the distinction between termination (or cancellation) and rescission (more
properly, resolution), Huibonhoa v. CA20 held that, where the action prayed for the payment of rental arrearages,
the aggrieved party actually sought the partial enforcement of a lease contract. Thus, the remedy was not
rescission, but termination or cancellation, of the contract. The Court explained:

"x x x. By the allegations of the complaint, the Gojoccos’ aim was to cancel or terminate the contract
because they sought its partial enforcement in praying for rental arrearages. There is a distinction in law
between cancellation of a contract and its rescission. To rescind is to declare a contract void in its
inception and to put an end to it as though it never were. It is not merely to terminate it and release parties
from further obligations to each other but to abrogate it from the beginning and restore the parties to
relative positions which they would have occupied had no contract ever been made.

"x x x. The termination or cancellation of a contract would necessarily entail enforcement of its terms prior
to the declaration of its cancellation in the same way that before a lessee is ejected under a lease contract,
he has to fulfill his obligations thereunder that had accrued prior to his ejectment. However, termination of
a contract need not undergo judicial intervention. x x x."21 (Italics supplied)

Rescission has likewise been defined as the "unmaking of a contract, or its undoing from the beginning, and not
merely its termination." Rescission may be effected by both parties by mutual agreement; or unilaterally by one of
them declaring a rescission of contract without the consent of the other, if a legally sufficient ground exists or if a
decree of rescission is applied for before the courts.22 On the other hand, termination refers to an "end in time or
existence; a close, cessation or conclusion." With respect to a lease or contract, it means an ending, usually
before the end of the anticipated term of such lease or contract, that may be effected by mutual agreement or by
one party exercising one of its remedies as a consequence of the default of the other.23

Thus, mutual restitution is required in a rescission (or resolution), in order to bring back the parties to their
original situation prior to the inception of the contract.24 Applying this principle to this case, it means that PPC
would re-acquire possession of the leased premises, and PAGCOR would get back the rentals it paid the former
for the use of the hotel space.
In contrast, the parties in a case of termination are not restored to their original situation; neither is the contract
treated as if it never existed. Prior to its termination, the parties are obliged to comply with their contractual
obligations. Only after the contract has been cancelled will they be released from their obligations.

In this case, the actions and pleadings of petitioner show that it never intended to rescind the Lease Contract
from the beginning. This fact was evident when it first sought to collect the accrued rentals from September to
November 1993 because, as previously stated, it actually demanded the enforcement of the Lease Contract prior
to termination. Any intent to rescind was not shown, even when it abrogated the Contract on November 25, 1993,
because such abrogation was not the rescission provided for under Article 1659.

Future Rentals

As to the remaining sub-issue of future rentals, Rios v. Jacinto25 is inapplicable, because the remedy resorted to
by the lessors in that case was rescission, not termination. The rights and obligations of the parties in Rios were
governed by Article 1659 of the Civil Code; hence, the Court held that the damages to which the lessor was
entitled could not have extended to the lessee’s liability for future rentals.

Upon the other hand, future rentals cannot be claimed as compensation for the use or enjoyment of another’s
property after the termination of a contract. We stress that by abrogating the Contract in the present case, PPC
released PAGCOR from the latter’s future obligations, which included the payment of rentals. To grant that right
to the former is to unjustly enrich it at the latter’s expense.

However, it appears that Section XX (c) was intended to be a penalty clause. That fact is manifest from a reading
of the mandatory provision under subparagraph (a) in conjunction with subparagraph (c) of the Contract. A
penal clause is "an accessory obligation which the parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the
payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled."26

Quite common in lease contracts, this clause functions to strengthen the coercive force of the obligation and to
provide, in effect, for what could be the liquidated damages resulting from a breach.27 There is nothing immoral
or illegal in such indemnity/penalty clause, absent any showing that it was forced upon or fraudulently foisted on
the obligor.28

In obligations with a penal clause, the general rule is that the penalty serves as a substitute for the indemnity for
damages and the payment of interests in case of noncompliance; that is, if there is no stipulation to the
contrary,29 in which case proof of actual damages is not necessary for the penalty to be demanded.30 There are
exceptions to the aforementioned rule, however, as enumerated in paragraph 1 of Article 1226 of the Civil Code: 1)
when there is a stipulation to the contrary, 2) when the obligor is sued for refusal to pay the agreed penalty, and
3) when the obligor is guilty of fraud. In these cases, the purpose of the penalty is obviously to punish the obligor
for the breach. Hence, the obligee can recover from the former not only the penalty, but also other damages
resulting from the nonfulfillment of the principal obligation. 31

In the present case, the first exception applies because Article XX (c) provides that, aside from the payment of
the rentals corresponding to the remaining term of the lease, the lessee shall also be liable "for any and all
damages, actual or consequential, resulting from such default and termination of this contract." Having entered
into the Contract voluntarily and with full knowledge of its provisions, PAGCOR must be held bound to its
obligations. It cannot evade further liability for liquidated damages.

Reduction of Penalty

In certain cases, a stipulated penalty may nevertheless be equitably reduced by the courts.32 This power is
explicitly sanctioned by Articles 1229 and 2227 of the Civil Code, which we quote:
 "Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable."

"Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable."

The question of whether a penalty is reasonable or iniquitous is addressed to the sound discretion of the courts.
To be considered in fixing the amount of penalty are factors such as -- but not limited to -- the type, extent and
purpose of the penalty; the nature of the obligation; the mode of the breach and its consequences; the
supervening realities; the standing and relationship of the parties; and the like.33

In this case, PAGCOR’s breach was occasioned by events that, although not fortuitous in law, were in fact real
and pressing. From the CA’s factual findings, which are not contested by either party, we find that PAGCOR
conducted a series of negotiations and consultations before entering into the Contract. It did so not only with
the PPC, but also with local government officials, who assured it that the problems were surmountable. Likewise,
PAGCOR took pains to contest the ordinances34 before the courts, which consequently declared them
unconstitutional. On top of these developments, the gaming corporation was advised by the Office of the
President to stop the games in Cagayan de Oro City, prompting the former to cease operations prior to
September 1993.

Also worth mentioning is the CA’s finding that PAGCOR’s casino operations had to be suspended for days on end
since their start in December 1992; and indefinitely from July 15, 1993, upon the advice of the Office of President,
until the formal cessation of operations in September 1993. Needless to say, these interruptions and stoppages
meant that PAGCOR suffered a tremendous loss of expected revenues, not to mention the fact that it had fully
operated under the Contract only for a limited time.

While petitioner’s right to a stipulated penalty is affirmed, we consider the claim for future rentals to the tune
of P7,037,835.40 to be highly iniquitous. The amount should be equitably reduced. Under the circumstances, the
advanced rental deposits in the sum of P687,289.50 should be sufficient penalty for respondent’s breach.

WHEREFORE, the Petition is GRANTED in part. The assailed Decision and Resolution are hereby MODIFIED to
include the payment of penalty. Accordingly, respondent is ordered to pay petitioner the additional amount
of P687,289.50 as penalty, which may be set off or applied against the former’s advanced rental deposits.
Meanwhile, the CA’s award to petitioner of actual damages representing the accrued rentals for September to
November 1993 -- with interest and penalty at the rate of two percent (2%) per month, from the date of filing of
the Complaint until the amount shall have been fully paid -- as well as the P50,000 award for attorney’s fees,
is AFFIRMED. No costs.

SO ORDERED.

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

ASIATRUST DEVELOPMENT BANK,, Petitioner, v. CONCEPTS TRADING CORPORATION, respondent.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1 of the Court of Appeals and its Resolution in CA-G.R.
CV No. 44211 affirming on appeal with modification the Decision[2 of the Regional Trial Court of Makati, Branch
68, in Civil Case No. 89-3789.

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

In March 1996, respondent Concepts Trading Corporation obtained from petitioner Asiatrust Development
Corporation a credit accommodation in the amount of P2,000,000 covered by a loan agreement[3 and secured by
real and chattel mortgages.[4 The amount was drawn from an Industrial Guarantee Loan Fund (IGLF) account
opened by the petitioner in favor of the respondent. On March 4, 1986, the respondent executed Promissory
Note (PN) No. 3574[5 in favor of the petitioner. Under the promissory note, the principal amount of P2,000,000
would be charged an interest of 23% per annum, inclusive of 1% service fee. Attached to and made part of the
promissory note was the schedule of amortization agreed upon by the parties.[6 As set forth in the schedule, the
payment of the loan was to be amortized quarterly over a period of ten years with a two-year grace period on the
principal payment. The first payment fell due on May 15, 1986 and the subsequent installments were to be paid
every three months thereafter.

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

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

The respondent failed to pay the amortizations due on August 15 and November 15, 1987, prompting the
petitioner to enforce the aforementioned acceleration clause. On January 25, 1988, the petitioner sent a
letter[7 to the respondent demanding payment of its outstanding loan obligation, amounting to P3,203,049
under PN No. 3574 and PN No. 4132.[8

In its Letter to the petitioner dated February 3, 1988, the respondent expressed its willingness to settle its
obligation and, due to its tight financial situation, negotiated for a modified payment scheme.[9 Thereafter, on
March 30, 1988, the parties entered into a Memorandum of Agreement (MOA), the pertinent provisions of which
read:

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

...

1. CONCEPTS hereby promises and undertakes to pay the BANK the LOAN OBLIGATION in the following
manner, to wit:
a) On 5 May 1988, the amount of P159,259.14, to be covered by a post-dated check for the same amount to be
issued by CONCEPTS; and

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

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

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

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

5. It shall likewise be understood that this mode of payment arises out of the BANKs liberality and is without
prejudice and without waiver of the BANKs accrued rights under the existing chattel and real estate mortgages as
well as the Continuing Suretyship Agreement pertinent to the LOAN OBLIGATION, all of which mortgages and
Agreement are hereby expressly continued to be in force and effect.[10

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

On March 30, 1989, the petitioner wrote to the respondent requesting for the delivery of the last checks to
completely rehabilitate its account in accordance with the MOA. When the respondent failed to make the said
payments, the petitioner on April 25, 1989 sent a final demand on the respondent to pay its entire obligation
under the IGLF in the amount of P2,361,970.10 within five days from receipt thereof.11cräläwvirtualibräry

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

In its answer, the petitioner averred that as of February 15, 1988, the outstanding obligation of the respondent
amounted to P2,833,867.04. According to the petitioner, the monthly amortizations paid by the respondent
covered only the penalties accruing on the loan. Further, declaratory relief as a remedy sought by the respondent
was allegedly improper as it already committed a breach of its obligations. The respondent filed the action a
quo merely to defer or avoid payment of its legally contracted loan obligation with the petitioner. By way of
compulsory counterclaim, the petitioner prayed for damages and attorneys fees.
The respondent then filed an amended complaint alleging that as of August 1989, it had already paid the
petitioner the total amount of P2,259,259 and that there was an overpayment of P100,000. The respondent
prayed that the petitioner be ordered to refund the amount overpaid, as well as to release the mortgages and to
pay damages and attorneys fees.

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

WHEREFORE, judgment is hereby rendered:

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

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

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

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

So ordered.[12

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

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

SO ORDERED.[13

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

A.

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

B.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN ACCORD WITH
20 OF RULE 132 OF THE RULES OF COURT IN FINDING WITNESS REBECCA DE LA CRUZ UNREBUTTED
IDENTIFICATION OF ASIATRUSTS EXHIBIT 7 AS A STATEMENT OF ACCOUNT, AND HER UNREBUTTED
IDENTIFICATION OF THE SIGNATURE OF THE EXHIBIT, AS INSUFFICIENT AUTHENTICATION OF THAT
EXHIBIT, AND IN RELYING ON TESTIMONY READ FROM A LEDGER NEITHER IDENTIFIED NOR OFFERED
IN EVIDENCE.[14

The petition is bereft of merit.

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

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

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

The Court does not agree with the petitioner.

It is a time-honored rule of evidence that when the terms of an agreement are reduced to writing, it is deemed to
contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents of the
agreement itself.[15 This rule allows exceptions, in that a party may present parole evidence to modify, explain or
add to the terms of the written agreement if he puts in issue in his pleadings:

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

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

c) The validity of the written agreement; or

d) The existence of other terms agreed to by the parties or their successors-in-interest after the execution of the
written agreement.[16

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

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

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

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

It is likewise understood that upon payment of ten (10) monthly amortizations as above-indicated or upon
updating of payments of the LOAN OBLIGATION, CONCEPTS shall have the right to re-negotiate with the Bank
the reinstatement of the original terms of payment under Promissory Note No. 3574.[17

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

Atty. Ortiz:

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

COURT: (to the witness)

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

WITNESS:

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

COURT:

Service charges of how much?

WITNESS:

A: P123,000.00 and still we have unpaid penalties of P76,000.00, Your Honor.[18

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

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

Thus, the MOA itself provides:

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

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

In the MOAs first whereas clause, the term loan obligation was referred to as the amount of P2 Million, which to
date, is already overdue and demandable in its entirety including all interests, penalties, service and other
miscellaneous charges. (p. 1, MOA; pp. 4 and 44, ibid.). The MOA, therefore, acknowledged that plaintiff-
appellee, having failed to pay several amortizations under the PN, was liable for the entire amount of P2 million
plus interest in arrears, penalties and other charges in accordance with the acceleration clause of the PN.
However, due to the banks liberality, it waived the demandability of the entire loan by entering into the MOA,
allowing plaintiff-appellee to continue paying its amortization, this time on a monthly basis. By such waiver,
plaintiff-appellee has effectively not been rendered in default thereby waiving likewise the penalty imposable on
the loan in the event of default.

Accordingly, under the MOA, plaintiff-appellee continues to be liable for its obligation under the note, i.e.,
principal amount of P2 million plus interests and service fees, as if it was not yet in default. The first installment
under the MOA in the amount of P159,259.14 including several of the monthly installments of P150,000 were
applicable to interest and service fees in arrears while the remaining monthly amortizations covered the
principal and interest falling due thereon.[19

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

However, due to the banks liberality, it waived the demandability of the entire loan by entering into the MOA,
allowing plaintiff-appellee to continue paying its amortization, this time on a monthly basis. By such waiver,
plaintiff-appellee has effectively not been rendered in default thereby waiving likewise the penalty imposable on
the loan in event of default.[20

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

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

The records show that the respondent, in accordance with the MOA, made the initial payment of P159,259.16 on
May 5, 1988. Thereafter, the respondent made payments in the amount of P150,000 every month up to September
1989. The CA then tabulated these payments[21 as follows:

Principal Interest Service Charge Penalty Subtotal Payment Total

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Indeed, this Court had equitably reduced the penalty in not a few cases. In the recent case of Ligutan v. Court of
Appeals,[22 the Court affirmed the reduction of the penalty charges by the CA upon its finding that the debtors
therein had partially complied with their obligation. In Rizal Commercial Banking Corp. v. Court of
Appeals,[23 the Court tempered the penalty charges after taking into account the debtors pitiful situation and its
offer to settle the entire obligation with the creditor bank. In Insular Bank of Asia and America v. Spouses
Salazar,[24 the Court reduced the penalty charge on a loan of P42,050, considering that the debtor spouses paid
a total of P68,676.75 which the creditor bank applied to satisfy the penalty and interest charges.

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

Anent the second issue, the petitioner insists that the CA should have relied on the petitioners statement of
account25 to determine the amount owed by the respondent. According to the said statement, the respondent
still owed the petitioner P5,665,906 as of June 29, 1990, since previous payments made were applied only to the
penalties and service charges. The Court does not agree. The MOA clearly provides that the loan obligation
of P2,000,000 shall be paid by the respondent by issuing the post-dated checks in the amount of P150,000 every
month beginning June 5, 1998 until the same shall have been fully paid. Thus, the monthly payments made by
the respondent were for the satisfaction of the principal loan obligation, not merely as payments of the penalties
and service charges.

Further, as correctly pointed out by the CA, the petitioners statement of account could not be given any
probative value because it was belied for the most part by its key witness, comptroller Rebecca de la Cruz. Even
the trial court gave scant consideration to this statement of account, upon its finding that certain entries therein
were inconsistent with the terms of the promissory note. The Court thus finds no cogent reason to deviate from
the trial courts and the CAs assessment of the probative value of the same. After all, it is not this Courts function
under Rule 45 of the Rules of Court, as amended, to review, examine, and evaluate or weigh the probative value
of the evidence presented.[26

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

SO ORDERED.

 G.R. No. L-45349 August 15, 1988

NEWTON JISON and SALVACION I. JOSUE petitioners,

vs.
COURT OF APPEALS and ROBERT 0. PHILLIPS & SONS, INC., respondents.

CORTES, J.:

The instant petition for review of the decision of the Court of Appeals poses the issue of the validity of the
rescission of a contract to sell a subdivision lot due to the failure of the lot buyer to pay monthly installments on
their due dates and the forfeiture of the amounts already paid.

The case is not one of first impression, and neither is it exceptional. On the contrary, it unambiguous. the
common plight of countless subdivision lot buyers.

Petitioners, the spouses Newton and Salvacion Jison, entered into a Contract to Sell with private respondent,
Robert O. Phillips & Sons, Inc., whereby the latter agreed to sell to the former a lot at the Victoria Valley
Subdivision in Antipolo, Rizal for the agreed price of P55,000.00, with interest at 8,1965 per annum, payable on
an installment basis.

Pursuant to the contract, petitioners paid private respondents a down payment of P11,000.00 on October 20, 1961
and from October 27, 1961; to May 8, 1965 a monthly installment of P533.85.

Thereafter, due to the failure of petitioners to build a house as provided in the contract, the stipulated penalty of
P5.00 per square meter was imposed to the effect that the monthly amortization was increased to P707.24.

On January 1, 1966, February 1, 1966 and March 1, 1966, petitioners failed to pay the monthly installments due on
said dates although petitioners subsequently paid the amounts due and these were accepted by private
respondent.

Again on October 1, 1966, November 1, 1966, December 1, 1966 and January 1, 1967, petitioners failed to pay. On
January 11, 1967, private respondent sent a letter (Exh. "3") to petitioners calling their attention to the fact that
their account was four months overdue. This letter was followed up by another letter dated February 27, 1967
(Exh. "3") where private respondent reminded petitioner of the automatic rescission clause of the contract.
Petitioners eventually paid on March 1, 1967.

Petitioners again failed to pay the monthly installments due on February 1, 1967, March 1, 1967 and April 1, 1967.
Thus, in a letter dated April 6, 1967 (Exh. "D"), private respondent returned petitioners' check and informed
them that the contract was cancelled when on April 1, 1987 petitioners failed to pay the monthly installment due,
thereby making their account delinquent for three months.

On April 19, 1967, petitioners tendered payment for all the installments already due but the tender was refused.
Thus, petitioners countered by filing a complaint for specific performance with the Court of First Instance of
Rizal on May 4, 1967 and consigning the monthly installments due with the court.

Following the hearing of the case, wherein the parties entered into a stipulation of facts, the trial court on
January 9, 1969 rendered judgment in favor of private respondent, dismissing the complaint and declaring the
contract cancelled and all payments already made by petitioner franchise. ordering petitioners to pay P1,000.00
as and for attorney's fees; and declaring the consignation and tender of payment made by petitioners as not
amounting to payment of the corresponding monthly installments.
Not satisfied with the decision of the trial court, petitioners appealed to the Court of Appeals. Agreeing with the
findings and conclusions of the trial court, the Court of Appeals on November 4, 1976 affirmed the former's
decision.

Thus, the instant petition for review.

In assailing the decision of the Court of Appeals, petitioners attributed the following errors:

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE
SUBSTANTIALLY, COMPLIED WITH THE TERMS OF THEIR AGREEMENT WITH PRIVATE RESPONDENTS.

II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE CONTRACT TO SELL MAY BE
AUTOMATICALLY RESCINDED AND PRIVATE RESPONDENT MAY UNILATERALLY RESCINDED SAID
CONTRACT AND REJECT THE CONSIGNATION OF PAYMENTS MADE BY PETITIONERS, WHICH ACTIONS
OF PRIVATE RESPONDENT ARE HIGHLY INIQUITOUS AND UNCONSCIONABLE.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT'S ACT OF
FORFEITING ALL PREVIOUS PAYMENTS MADE BY PETITIONERS IS CONTRARY TO LAW, HIGHLY
INIQUITOUS AND UNCONSCIONABLE. [Petitioners' Brief, pp. 13-27.]

As stated at the outset, the principal issue in this case is the legality of the rescission of the contract and the
forfeiture of the payments already made by petitioners.

To support the rescission and forfeiture private respondent falls back on paragraph 3 of the contract which
reads:

This contract shall be considered automatically rescinded and cancelled and of no further force and effect, upon
the failure of the Vendee to pay when due Three (3) or more consecutive monthly installments mentioned in
Paragraph 2 of this Contract, or to comply with any of the terms and conditions hereof, in which case the Vendor
shall have the right to resell the said parcel of land to any Vendee and any amount derived from the sale on
account hereof shall be forfeited in favor of the Vendor as liquidated damages for the breach of the Contract by
the Vendee, the latter hereby renouncing and reconveying absolutely and forever in favor of the Vendor all rights
and claims to and for all the amount paid by the Vendee on account of the Contract, as well as to and for all
compensation of any kind, hereby also agreeing in this connection, to forthwith vacate the said property or
properties peacefully without further advise of any kind.

Since the contract was executed and cancelled prior to the effectivity of Republic Act No. 65856, (the Realty
Installment Buyers', Protection Act) and Presidential Decree No. 957 (the Subdivision and Condominium Buyers'
Protective Decree), it becomes necessary to resort to jurisprudence and the general provisions of law to resolve
the controversy.

The decision in the recent case of Palay, Inc. v. Clave [G.R. No. L-56076, September 21, 1983, 124 SCRA 7,1969,
factions the resolution of the controversy. In deciding whether the rescission of the contract to sell a subdivision
lot after the lot buyer has failed to pay several installments was valid, the Court said:

Well settled is the rule, as held in previous k.- [Torralba v. De los Angeles, 96 SCRA 69, Luzon Brokerage Co.,
Inc. v. Maritime Building Co., 43 SCRA 93 and 86 SCRA 305; Lopez v. Commissioner of Customs, 37 SCRA 327;
U.P. v. De los Angeles, 35 SCRA 102; Ponce Enrile v. CA, 29 SCRA 504; Froilan v. Pan Oriental Shipping Co., 12
SCRA 276; Taylor v. Uy Tieng Piao; 43 Phil. 896, that judicial action for the rescission of a contract is not
necessary where the contract provides that it may be cancelled for violation of any of its terms and conditions.
However, even in the cited cases, there was at least a written notice sent to the degeneration, informing him of
the rescission. As stressed in University of the Philippines v. Walfrido de los Angeles [35 SCRA 102] the act of a
party in treating a contract as cancelled should be made known to the other....

xxx xxx xxx

In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in
Court. If the debtor impugns the declaration it shall be subject to judicial determination.

In this case, private respondent has denied that rescission is justified and has resorted to judicial action. It is now
for the Court to determine whether resolution of the contract by petitioner was warranted.

We hold that resolution by petitioners of the contract was ineffective and inoperative against private respondent
for lack of notice of resolution, as held in the U.P. v. Angeles case, supra.

xxx xxx xxx

The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No. 65856,
entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments." which took effect on
September 14-15). when it specifically provided:

Sec. 3 (b) ... the actual cataract, of the contract shall take place thirty days from receipt by the buyer of the notice
of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.

There is no denying that in the instant case the resolution or rescission of the Contract to Sell was valid. Neither
can it be said that the cancellation of the contract was ineffective for failure of private respondents to give
petitioners notice thereof as petitioners were informed cancelled private respondent that the contract was
cancelled in the letter dated April 6, 1967 (Exh. "D"). As R.A. No. 65856, was not yet effective, the notice of
cancellation need not be by notarial act, private respondent's letter being sufficient compliance with the legal
requirement.

The facts of 'fee instant case should be distinguished from those in the Palay Inc. case, as such distinction will
explain why the Court in said case invalidated the resolution of the contract. In said case, the subdivision
developer, without informing the buyer of the cancellation of the contract, resold the lot to another person. The
lot buyer in said case was only informed of the resolution of the contract some six years later after the developer,
rejected his request for authority to assign his rights under the contract. Such a situation does not obtain illness:
the instant case. In fact, petitioners were informed of the cancellation of their contract in April 1967, when
private respondent wrote them the letter dated April 6, 1967 (Exh. "D"), and within a month they were able to file
a complaint against Private respondent.

While the resolution of the contract and the forfeiture of the amounts already paid are valid and binding upon
petitioners, the Court is convinced that the forfeiture of the amount of P5.00 although it includes the
accumulated fines for petitioners' failure to construct a house as required by the contract, is clearly iniquitous
considering that the contract price is only P6,173.15 The forfeiture of fifty percent (50%) of the amount already
paid, or P3,283.75 appears to be a fair settlement. In arriving at this amount the Court gives weight to the fact
that although petitioners have been delinquent in paying their amortizations several times to the prejudice of
private respondent, with the cancellation of the contract the possession of the lot review.... to private respondent
who is free to resell it to another party. Also, had R.A. No. 65856, been applicable to the instant case, the same
percentage of the amount already paid would have been forfeited [Torralba 3(b).]
The Court's decision to reduce the amount forfeited finds support in the Civil Code. As stated in paragraph 3 of
the contract, in case the contract is cancelled, the amounts already paid shall be forfeited in favor of the vendor
as liquidated damages. The Code provides that liquidated damages, whether intended as an indemnity or a
penalty, shall be equitably reduced if they are iniquitous or unconscionable [Art. 2227.]

Further, in obligations with a penal clause, the judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor [Art. 1229; Hodges v. Javellana, G.R. No. L-
17247, April 28, 1962, 4 SCRA 1228]. In this connection, the Court said:

It follows that, in any case wherein there has been a partial or irregular compliance with the provisions in a
contract for special indemnification in the event of failure to comply with its terms, courts will rigidly apply the
doctrine of strict construction and against the enforcement in its entirety of the industry.' where it is clear from
the terms of the contract that the amount or character of the indemnity is fixed without regard to the probable
damages which might be anticipated as a result of a breach of the terms of the contract; or, in other words,
where the indemnity provided for is essentially a mere penalty having for its principal object the enforcement of
compliance with the corporations; (Laureano v. Kilayco, 32 Phil. 194 (1943).

This principle was reiterated in Makati Development Corp. v. Empire Insurance Co. [G.R. No. L-21780, June 30,
1967, 20 SCRA 557] where the Court affirmed the judgment of the Court of First Instance reducing the
subdivision lot buyer's liability from the stipulated P12,000.00 to Plaintiffs after finding that he had partially
performed his obligation to complete at least fifty percent (50%) of his house within two (2) years from March 31,
1961, fifty percent (50%) of the house having been completed by the end of April 1961.

WHEREFORE, the Decision of the Court of Appeals is hereby MODIFIED as to the amount forfeited which is
reduced to fifty percent (50%) of the amount already paid or P23,656.32 and AFFIRMED as to all other respects.

Private respondent is ordered to refund to petitioners the excess of P23,656.32 within thirty (30) days from the
date of finality of this judgment.

SO ORDERED.

[G.R. No. 149420. October 8, 2003.]

SONNY LO, Petitioner, v. KJS ECO-FORMWORK SYSTEM PHIL., INC., Respondent.

D E C I S I O N


YNARES-SANTIAGO, J.:


Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel scaffoldings,
while petitioner Sonny L. Lo, doing business under the name and style San’s Enterprises, is a building contractor.
On February 22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80. 1 He paid a
downpayment in the amount of P150,000.00. The balance was made payable in ten monthly
installments.chanrob1es virtua1 1aw 1ibrary

Respondent delivered the scaffoldings to petitioner. 2 Petitioner was able to pay the first two monthly
installments. His business, however, encountered financial difficulties and he was unable to settle his obligation
to respondent despite oral and written demands made against him. 3

On October 11, 1990, petitioner and respondent executed a Deed of Assignment, 4 whereby petitioner assigned to
respondent his receivables in the amount of P335,462.14 from Jomero Realty Corporation. Pertinent portions of
the Deed provide:chanrob1es virtual 1aw library

WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located at Greenmeadow
Avenue, Quezon City owned by Jomero Realty Corporation;

WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR purchased on account
scaffolding equipments from the ASSIGNEE payable to the latter;

WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the purchase of the
aforementioned scaffoldings now in the amount of Three Hundred Thirty Five Thousand Four Hundred Sixty
Two and 14/100 Pesos (P335,462.14);

NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five Thousand Four Hundred
Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which represents part of the ASSIGNOR’s
collectible from Jomero Realty Corp., said ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE
all collectibles amounting to the said amount of P335,462.14;

And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full power and authority to
demand, collect, receive, compound, compromise and give acquittance for the same or any part thereof, and in
the name and stead of the said ASSIGNOR;

And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors and assigns that
said debt is justly owing and due to the ASSIGNOR for Jomero Realty Corporation and that said ASSIGNOR has
not done and will not cause anything to be done to diminish or discharge said debt, or delay or to prevent the
ASSIGNEE, its successors or assigns, from collecting the same;

And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors,
administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or
assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary
to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the
true intent and meaning of these presents. . . . 5 (Italics supplied)

However, when respondent tried to collect the said credit from Jomero Realty Corporation, the latter refused to
honor the Deed of Assignment because it claimed that petitioner was also indebted to it. 6 On November 26,
1990, respondent sent a letter 7 to petitioner demanding payment of his obligation, but petitioner refused to pay
claiming that his obligation had been extinguished when they executed the Deed of Assignment.

Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money against the
petitioner before the Regional Trial Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074. 8

During the trial, petitioner argued that his obligation was extinguished with the execution of the Deed of
Assignment of credit. Respondent, for its part, presented the testimony of its employee, Almeda Bañaga, who
testified that Jomero Realty refused to honor the assignment of credit because it claimed that petitioner had an
outstanding indebtedness to it.chanrob1es virtua1 1aw 1ibrary

On August 25, 1994, the trial court rendered a decision 9 dismissing the complaint on the ground that the
assignment of credit extinguished the obligation. The decretal portion thereof provides:chanrob1es virtual 1aw
library

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the defendant and against
the plaintiff, dismissing the complaint and ordering the plaintiff to pay the defendant attorney’s fees in the
amount of P25,000.00.

Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court rendered a
decision, 10 the dispositive portion of which reads:chanrob1es virtual 1aw library

WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and enters judgment
ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-FORMWORK SYSTEM
PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with
legal interest of 6% per annum from January 10, 1991 (filing of the Complaint) until fully paid and attorney’s fees
equivalent to 10% of the amount due and costs of the suit.

SO ORDERED. 11

In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the respondent, the
Court of Appeals held that (1) petitioner failed to comply with his warranty under the Deed; (2) the object of the
Deed did not exist at the time of the transaction, rendering it void pursuant to Article 1409 of the Civil Code; and
(3) petitioner violated the terms of the Deed of Assignment when he failed to execute and do all acts and deeds
as shall be necessary to effectually enable the respondent to recover the collectibles. 12

Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of Appeals. 13

In this petition for review, petitioner assigns the following errors:chanrob1es virtual 1aw library

I


THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING THE DEED OF
ASSIGNMENT (EXH. "4") AS NULL AND VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE HEARSAY
CLAIM.

II


THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT (EXH. "4")
DID NOT EXTINGUISH PETITIONER’S OBLIGATION ON THE WRONG NOTION THAT PETITIONER FAILED
TO COMPLY WITH HIS WARRANTY THEREUNDER.

III


THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT AND
IN ORDERING PAYMENT OF INTERESTS AND ATTORNEY’S FEES. 14

The petition is without merit.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a
legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers
his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor. 15chanrob1es virtua1 1aw 1ibrary

Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding debt. 16 In order that there be a valid dation
in payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of
payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against
the third person; (2) There must be some difference between the prestation due and that which is given in
substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that the obligation
is immediately extinguished by reason of the performance of a prestation different from that due. 17 The
undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged against the debtor’s debt. As such, the vendor in good
faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the
solvency of the debtor, in specified circumstances. 18

Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property, 19
produced the effects of a dation in payment which may extinguish the obligation. 20 However, as in any other
contract of sale, the vendor or assignor is bound by certain warranties. More specifically, the first paragraph of
Article 1628 of the Civil Code provides:chanrob1es virtual 1aw library

The vendor in good faith shall be responsible for the existence: and legality of the credit at the time of the sale,
unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly
stipulated or unless the insolvency was prior to the sale and of common knowledge.

From the above provision, Petitioner, as vendor or assignor, is bound to warrant the existence and legality of the
credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to petitioner
since the latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been
extinguished by compensation. 21 In other words, respondent alleged the non-existence of the credit and
asserted its claim to petitioner’s warranty under the assignment. Therefore, it behooved on petitioner to make
good its warranty and paid the obligation.

Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to wit:chanrob1es
virtual 1aw library

And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors,
administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or
assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary
to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the
true intent and meaning of these presents. 22 (Emphasis ours)

Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the performance
thereof in case the same is later found to be inexistent. He should be held liable to pay to respondent the amount
of his indebtedness.

Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the sum of
P335,462.14 with legal interest thereon. However, we find that the award by the Court of Appeals of attorney’s
fees is without factual basis. No evidence or testimony was presented to substantiate this claim. Attorney’s fees,
being in the nature of actual damages, must be duly substantiated by competent proof.

WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19, 2001 in CA-G.R. CV
No. 47713, ordering petitioner to pay respondent the sum of P335,462.14 with legal interest of 6% per annum from
January 10, 1991 until fully paid is AFFIRMED with MODIFICATION. Upon finality of this Decision, the rate of
legal interest shall be 12% per annum, inasmuch as the obligation shall thereafter become equivalent to a
forbearance of credit. 23 The award of attorney’s fees is DELETE for lack of evidentiary basis.chanrob1es virtua1
1aw 1ibrary

SO ORDERED.

G.R. No. L-46658 May 13, 1991

PHILIPPINE NATIONAL BANK, petitioner,

vs.
HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance of Rizal,
Branch XXI and TAYABAS CEMENT COMPANY, INC., respondents.

FERNAN, C.J.:

In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks to annul and set aside the orders
dated March 4, 1977 and May 31, 1977 rendered in Civil Case No. 244221 of the Court of First Instance of Rizal,
Branch XXI, respectively granting private respondent Tayabas Cement Company, Inc.'s application for a writ of
preliminary injunction to enjoin the foreclosure sale of certain properties in Quezon City and Negros Occidental
and denying petitioner's motion for reconsideration thereof.

In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained a loan of P580,000.00
from petitioner bank to purchase 60% of the subscribed capital stock, and thereby acquire the controlling
interest of private respondent Tayabas Cement Company, Inc. (TCC).2 As security for said loan, the spouses
Arroyo executed a real estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 55323 of
the Register of Deeds of Quezon City known as the La Vista property.

Thereafter, TCC filed with petitioner bank an application and agreement for the establishment of an eight (8)
year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of Tokyo, Japan, to
cover the importation of a cement plant machinery and equipment.

Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha, Ltd. for the
account of TCC, the Arroyo spouses executed the following documents to secure this loan accommodation:
Surety Agreement dated August 5, 19643 and Covenant dated August 6, 1964.4

The imported cement plant machinery and equipment arrived from Japan and were released to TCC under a
trust receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding drawings against the
L/C as scheduled. TCC, however, failed to remit and/or pay the corresponding amount covered by the drawings.
Thus, on May 19, 1968, pursuant to the trust receipt agreement, PNB notified TCC of its intention to repossess, as
it later did, the imported machinery and equipment for failure of TCC to settle its obligations under the L/C.5

In the meantime, the personal accounts of the spouses Arroyo, which included another loan of P160,000.00
secured by a real estate mortgage over parcels of agricultural land known as Hacienda Bacon located in Isabela,
Negros Occidental, had likewise become due. The spouses Arroyo having failed to satisfy their obligations with
PNB, the latter decided to foreclose the real estate mortgages executed by the spouses Arroyo in its favor.

On July 18, 1975, PNB filed with the City Sheriff of Quezon City a petition for extra-judicial foreclosure under Act
3138, as amended by Act 4118 and under Presidential Decree No. 385 of the real estate mortgage over the
properties known as the La Vista property covered by TCT No. 55323.6 PNB likewise filed a similar petition with
the City Sheriff of Bacolod, Negros Occidental with respect to the mortgaged properties located at Isabela,
Negros Occidental and covered by OCT No. RT 1615.

The foreclosure sale of the La Vista property was scheduled on August 11, 1975. At the auction sale, PNB was the
highest bidder with a bid price of P1,000,001.00. However, when said property was about to be awarded to PNB,
the representative of the mortgagor-spouses objected and demanded from the PNB the difference between the
bid price of P1,000,001.00 and the indebtedness of P499,060.25 of the Arroyo spouses on their personal account.
It was the contention of the spouses Arroyo's representative that the foreclosure proceedings referred only to the
personal account of the mortgagor spouses without reference to the account of TCC.

To remedy the situation, PNB filed a supplemental petition on August 13, 1975 requesting the Sheriff's Office to
proceed with the sale of the subject real properties to satisfy not only the amount of P499,060.25 owed by the
spouses Arroyos on their personal account but also the amount of P35,019,901.49 exclusive of interest,
commission charges and other expenses owed by said spouses as sureties of TCC.7 Said petition was opposed by
the spouses Arroyo and the other bidder, Jose L. Araneta.

On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff Diana L. Dungca issued a resolution finding
that the questions raised by the parties required the reception and evaluation of evidence, hence, proper for
adjudication by the courts of law. Since said questions were prejudicial to the holding of the foreclosure sale, she
ruled that her "Office, therefore, cannot properly proceed with the foreclosure sale unless and until there be a
court ruling on the aforementioned issues."8

Thus, in May, 1976, PNB filed with the Court of First Instance of Quezon City, Branch V a petition
for mandamus9 against said Diana Dungca in her capacity as City Sheriff of Quezon City to compel her to
proceed with the foreclosure sale of the mortgaged properties covered by TCT No. 55323 in order to satisfy both
the personal obligation of the spouses Arroyo as well as their liabilities as sureties of TCC.10

On September 6, 1976, the petition was granted and Dungca was directed to proceed with the foreclosure sale of
the mortgaged properties covered by TCT No. 55323 pursuant to Act No. 3135 and to issue the corresponding
Sheriff's Certificate of Sale.11

Before the decision could attain finality, TCC filed on September 14, 1976 before the Court of First Instance of
Rizal, Pasig, Branch XXI a complaint12 against PNB, Dungca, and the Provincial Sheriff of Negros Occidental and
Ex-Officio Sheriff of Bacolod City seeking, inter alia, the issuance of a writ of preliminary injunction to restrain
the foreclosure of the mortgages over the La Vista property and Hacienda Bacon as well as a declaration that its
obligation with PNB had been fully paid by reason of the latter's repossession of the imported machinery and
equipment.13

On October 5, 1976, the CFI, thru respondent Judge Gregorio Pineda, issued a restraining order14 and on March 4,
1977, granted a writ of preliminary injunction.15 PNB's motion for reconsideration was denied, hence this petition.

Petitioner PNB advances four grounds for the setting aside of the writ of preliminary injunction, namely: a) that
it contravenes P.D. No. 385 which prohibits the issuance of a restraining order against a government financial
institution in any action taken by such institution in compliance with the mandatory foreclosure provided in
Section 1 thereof; b) that the writ countermands a final decision of a co-equal and coordinate court; c) that the
writ seeks to prohibit the performance of acts beyond the court's territorial jurisdiction; and, d) private
respondent TCC has not shown any clear legal right or necessity to the relief of preliminary injunction.

Private respondent TCC counters with the argument that P.D. No. 385 does not apply to the case at bar, firstly
because no foreclosure proceedings have been instituted against it by PNB and secondly, because its account
under the L/C has been fully satisfied with the repossession of the imported machinery and equipment by PNB.

The resolution of the instant controversy lies primarily on the question of whether or not TCC's liability has been
extinguished by the repossession of PNB of the imported cement plant machinery and equipment.

We rule for the petitioner PNB. It must be remembered that PNB took possession of the imported cement plant
machinery and equipment pursuant to the trust receipt agreement executed by and between PNB and TCC
giving the former the unqualified right to the possession and disposal of all property shipped under the Letter of
Credit until such time as all the liabilities and obligations under said letter had been discharged.16 In the case
of Vintola vs. Insular Bank of Asia and America17 wherein the same argument was advanced by the Vintolas as
entrustees of imported seashells under a trust receipt transaction, we said:

Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished inasmuch
as, through no fault of their own, they were unable to dispose of the seashells, and that they have
relinquished possession thereof to the IBAA, as owner of the goods, by depositing them with the Court.

The foregoing submission overlooks the nature and mercantile usage of the transaction involved. A letter
of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics.
Under that set-up, a bank extends a loan covered by the Letter of Credit, with the trust receipt as a
security for the loan. In other words, the transaction involves a loan feature represented by the letter of
credit, and a security feature which is in the covering trust receipt.

x x x x x x x x x

A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest"
in the goods.1âwphi1 It secures an indebtedness and there can be no such thing as security interest that
secures no obligation. As defined in our laws:

(h) "Security interest" means a property interest in goods, documents or instruments to secure
performance of some obligations of the entrustee or of some third persons to the entruster and
includes title, whether or not expressed to be absolute, whenever such title is in substance taken
or retained for security only.

x x x x x x x x x

Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was
merely the holder of a security title for the advances it had made to the VINTOLAS. The goods the
VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their
own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a
lender and creditor.

x x x x x x x x x

Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because
they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court,
they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the
goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to
recover the advances it had made under the Letter of Credit.

PNB's possession of the subject machinery and equipment being precisely as a form of security for the advances
given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan
secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same
and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for
foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the
property and includes the sale itself.18

Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is
alienated to the creditor in satisfaction of a debt in money and the same is governed by sales.19 Dation in
payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation.20 As aforesaid, the repossession of the machinery and equipment
in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferring
ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished.
Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the spouses Arroyo as
sureties of TCC. A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable.21 As
sureties, the Arroyo spouses are primarily liable as original promissors and are bound immediately to pay the
creditor the amount outstanding.22

Under Presidential Decree No. 385 which took effect on January 31, 1974, government financial institutions like
herein petitioner PNB are required to foreclose on the collaterals and/or securities for any loan, credit or
accommodation whenever the arrearages on such account amount to at least twenty percent (20%) of the total
outstanding obligations, including interests and charges, as appearing in the books of account of the financial
institution concerned.23 It is further provided therein that "no restraining order, temporary or permanent
injunction shall be issued by the court against any government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining
order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties . . ."24

It is not disputed that the foreclosure proceedings instituted by PNB against the Arroyo spouses were in
compliance with the mandate of P.D. 385. This being the case, the respondent judge acted in excess of his
jurisdiction in issuing the injunction specifically proscribed under said decree.

Another reason for striking down the writ of preliminary injunction complained of is that it interfered with the
order of a co-equal and coordinate court. Since Branch V of the CFI of Rizal had already acquired jurisdiction
over the question of foreclosure of mortgage over the La Vista property and rendered judgment in relation
thereto, then it retained jurisdiction to the exclusion of all other coordinate courts over its judgment, including
all incidents relative to the control and conduct of its ministerial officers, namely the sheriff thereof.25 The
foreclosure sale having been ordered by Branch V of the CFI of Rizal, TCC should not have filed injunction
proceedings with Branch XXI of the same CFI, but instead should have first sought relief by proper motion and
application from the former court which had exclusive jurisdiction over the foreclosure proceeding.26

This doctrine of non-interference is premised on the principle that a judgment of a court of competent
jurisdiction may not be opened, modified or vacated by any court of concurrent jurisdiction.27

Furthermore, we find the issuance of the preliminary injunction directed against the Provincial Sheriff of Negros
Occidental and ex-officio Sheriff of Bacolod City a jurisdictional faux pas as the Courts of First Instance, now
Regional Trial Courts, can only enforce their writs of injunction within their respective designated territories.28

WHEREFORE, the instant petition is hereby granted. The assailed orders are hereby set aside. Costs against
private respondent.

 G.R. No. 121989 January 31, 2006

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,

vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION, Respondents.

D E C I S I O N

TINGA, J.:

In this Petition for Review on Certiorari, Philippine Commercial International Bank (PCIB) impugns the
Decision1 of the Court of Appeals dated 21 June 1995 finding it liable to Atlas Consolidated Mining and
Development Corporation (Atlas), as well as the Resolution2 dated 12 September 1995 denying its Motion for
Reconsideration.3

The antecedents follow.

PCIB and, Manila Banking Corporation (MBC) were joint bidders in a foreclosure sale held on 20 December 1975
of assorted mining machinery and equipment previously mortgaged to them by the Philippine Iron Mines, Inc.
(PIM).

Four (4) years later, Atlas agreed to purchase some of these properties owned jointly at that time by PCIB and
MBC. The sale was evidenced by a Deed of Sale dated 8 February 1979, with the parties agreeing therein to an
initial downpayment of P12,000,000.00 and the balance of P18,000,000.00 payable in six (6) monthly
installments. It was also stipulated that the total purchase price would be finally adjusted to exclude items to be
retained by the Bureau of Mines. The contract contained provisions expressly warranting the following: (1) full
and sufficient title to the properties, (2) freeing the properties from all liens and encumbrances, (3) freeing Atlas
from all claims and incidental actions of the National Mines and Allied Workers Union (NAMAWU), and (4) full
rights and capacity of the seller to convey title to and effect peaceful delivery of the properties to Atlas.4

The NAMAWU claim stemmed from a labor dispute docketed as RB-VI-3322-75 of the National Labor Relations
Commission (NLRC), where it obtained a favorable judgment against PIM in the amount of P4,298,307.77. This
award was affirmed by the Court.5 After the judgment became final and executory, a writ of execution was duly
issued.

In compliance with the contract, on 12 February 1979, Atlas issued Hongkong and Shanghai Bank Check No.
003842 in the amount of P12,000,000.00 as downpayment, payable to both PCIB and MBC.

In a letter-agreement6 dated 7 March 1979 between PCIB and MBC bearing the conformity of Atlas that was
made a supplement to the Deed of Sale, the final purchase price was adjusted to P29,630,000.00.

On the following day, PCIB and MBC wrote Atlas requesting that subsequent installment payments of the
balance be made in the following proportions: PCIB – 63.1579% and MBC - 36.8421%. The request was expressed
through a letter7 signed by Ruben G. Asedillo and Porfirio Q. Cabalu, Vice Presidents respectively of MBC and
PCIB.

On 18 April 1979, Atlas paid to NAMAWU the amount of P4,298,307.77. This payment was made in compliance
with the writ of garnishment issued on the same date against Atlas to satisfy the final judgment in favor of
NAMAWU and against PIM.

PCIB and MBC filed on 23 April 1979 a petition for certiorari with this Court, seeking to annul and set aside the
order of garnishment and to enjoin Atlas from complying with it. The Court, in G.R. No. L-50402, dismissed the
petition and sustained Atlas’s rights as follows:
. . . Atlas had the right to receive the properties free from any lien and encumbrance, and when the garnishment
was served on it, it was perfectly in the right in slashing the P4,298,307.77 from the P30M it had to pay
petitioners (PCIB, MBC) in order to satisfy the long existing and vested right of the laborers of financially
moribund PIM, without any liability to petitioners for reimbursement thereof."8

In the meantime, Atlas had made six (6) monthly payments in 1979 totaling P13,696,692.22, of
which P8,650,543.18 or 63.1579% was received by PCIB.

According to Atlas, apart from the downpayment of P12,000,000.00 and installment payments of P13,696,692.22,
it should be credited with its payment of P4,298,307.77 to NAMAWU as a consequence of the garnishment with
which the latter had secured together with corresponding P5,000.00 sheriff’s fee. Thus, Atlas claims to have paid
a total of P30,000,000.00, of which P370,000.00 was an overpayment. Following the payment allocations between
PCIB and MBI, Atlas claimed that PCIB should reimburse it to the tune of P233,684.23. When PCIB refused to
pay, Atlas sued PCIB to obtain reimbursement of the alleged overpayment.

On the other hand, PCIB contended that Atlas still owed it a total of P908,398.75. It also alleged that even before
the writ of garnishment was served on Atlas, the judgment in favor of NAMAWU had already been partially
satisfied in the amount of P601,260.00. On account of this earlier payment, PCIB argued that the total payments
NAMAWU had received exceeded what it was entitled to by reason of the final judgment and, therefore, Atlas
could not credit the full amount received by NAMAWU in satisfaction of the Atlas obligation to PCIB.

The trial court, in a Decision9 dated 29 November 1990, upheld PCIB’s position and ordered Atlas to
pay P908,398.75, plus interest at the legal rate from the time of demand until payment of said amount.10 It ruled:

After a thorough analysis and evaluation of the evidence thus far adduced and remaining unrebutted, the Court
is convinced that defendant only received the amount of P6,819,766.10, as its share out of the P12,000,000.00
downpayment, provided in the Deed of Sale, not P7,578,948.00 as claimed by plaintiff. The Court is furthermore
convinced that plaintiff erroneously paid the amount of P4,298,307.77 to NAMAWU which payment was made
pursuant to the writ of garnishment in NLRC Case No. RB-VI-3322-75. Before the service of the writ of
garnishment on April 18, 1979, the judgment in NLRC Case had already been satisfied in the amount
of P601,260.00 on account of several execution sales held on February 28, 1976 and October 20, 1976 and the
remaining balance thereto at the time of the service of the writ of garnishment on plaintiff was
only P3,697,[047].77. Certainly, this is the only amount which can be credited to plaintiff by defendant because
63.1579% of P3,697,047.77 is P2,334,977.74, according to letter-request of defendant PCIB and MBC to plaintiff
dated March 8, 1979. Instead of paying NAMAWU the amount of P3,697,047.77 which is the correct amount,
plaintiff paid the amount of P4,298,307.77.

The Court of Appeals reversed the lower court by ordering PCIB to pay Atlas the sum of P233,654.23, plus interest
at the legal rate from the date of the first demand on 3 September 1984, until fully paid, as well as the sum
of P20,000.00 as attorney’s fees and costs of suit. The appellate court disposed of the case as follows:

A careful examination of the evidences presented in the case, though, evidently show that appellee PCIB has no
cause to blame appellant Atlas for its failure to receive what it maintains was a shortchange in the share of P12
Million downpayment. It must be emphasized that at the time the downpayment check was paid, the Deed of
Sale did not mention any proportionate sharing of the proceeds thereof between PCIB and MBC implying a 50-50
sharing between the two (2) sellers. The 63.1579% for PCIB and 36.8421% was only made known and relayed to
Atlas in a letter dated March 8, 1979 after the downpayment check of P12 Million had already been paid on
February 12, 1979. Furthermore, the initial check was paid and received by Porfirio O. Cabalu, Jr., Vice-President
of defendant-appellee PCIB. Apparently, after the check was deposited in the account of MBC, the latter issued
its MBC Check No. 1652661 in the amount of P6,819,766.10 to PCIB, properly receipted under Official Receipt No.
466652 of PCIB. In other words, what the appellee herein receipted was the share given to it by Manilabank.
Whether the same was short of what is legally entitled becomes an internal matter between MBC and PCIB, with
Atlas having nothing to do with it. Legally, Atlas had effectively paid the P12 Million downpayment to both PCIB
and MBC.

As regard the second item, the propriety of the P4,298,307.77 paid by Atlas to NAMAWU and incidental amount
of P5,000.00 to the Sheriff by virtue of the Notice of Garnishment in the labor dispute NLRC Case No. RB-VI-331-
75, had already been judicially settled in the case of "PCIB and MBC versus NAMAWU-IMF, L-50402, August
1982, 115 SCRA 873." Said case is a Petition for Certiorari praying, inter-alia that the High Court orders [sic] the
NLRC to stop delivery of the check of P4,298,307.77 (same check in this case) of private respondent Atlas and/or
to stop payment to NAMAWU.

. . . .

Rightfully so, with the above discussion and the conceded fact that Atlas made a P370,000.00 overpayment to
PCIB and MBC, said amount should be ordered returned. And since mathematically, 63.1579% of P370,000.00
is P233,684.23, appellee PCIB should be ordered to pay back Atlas said amount with interest at the legal rate,
being a forbearance of money, from the first demand until fully paid. Reasonable attorney’s [fees] of P20,000.00
is likewise award[ed] to appellant Atlas for having been forced to litigate after its several prior lawful demands to
collect from PCIB the overpayment, were obstinately and unjustly refused.11 (Emphasis not ours.)

PCIB moved for a reconsideration of the decision but the same was denied by the Court of Appeals in a
Resolution dated 12 September 1995.

PCIB is now before us. The instant petition is anchored on two grounds, namely: (1) the Court of Appeals erred in
reversing the trial court by disturbing the latter’s factual findings and conclusions despite the absence of strong
and cogent reasons: and (2) the Court of Appeals erred in finding that Atlas had complied with its obligation to
PCIB.12

Prefatorily, findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed on appeal to
this Court.13 A deviation from this rule, however, is justified where the findings of fact of the Court of Appeals
contradict those of the trial court.14 In the case at bar, the contradictory findings of the courts below necessitate
our review of the factual issues.

The controversy boils down into whether Atlas overpaid or underpaid PCIB. To resolve the conflicting claims, we
must dispose of two issues: whether PCIB should settle for only P6,819,766.10 which it received out of
the P12,000,000.00 downpayment or it is entitled to more than that, specifically 63.1579% of the downpayment;
and whether Atlas should be fully credited for the amount of P4,298,307.77 it had paid to NAMAWU.

Let us briefly recall the pertinent antecedents to appreciate the issues in a better light. There is no dispute that
the total purchase price of the properties bought by Atlas was P29,630,000.00. Of this amount, PCIB claims that
it is entitled to receive from Atlas the total of P18,713,685.77 or 63.1579% of the purchase price, pursuant to the
letter dated 7 March 1979 of the P12,000,000.00 down payment made by Atlas to PCIB and MBC, and PCIB
acknowledged that it had received P6,819,766.10. PCIB also admitted having received P8,650,543.18 as its share
from the subsequent installment payments made by Atlas.

On the first issue, the Court of Appeals rejected PCIB’s claim that it should received 63.1579% of the
downpayment. It ruled in essence that PCIB cannot demand from Atlas more than what it got from MBC out of
the downpayment remitted by Atlas to both PCIB and MBC.

We uphold the appellate court on this issue.

This case concerns a joint obligation, which is defined as an obligation where there is a concurrence of several
creditors, or of several debtors, or of several debtors, or of several creditors and debtors, by virtue of which each
of the creditors has a right to demand, and each of the debtors is bound to render, compliance with his
proportionate part of the prestation which constitutes the object of the

obligation.15 Article 120816 of the Civil Code mandates the equal sharing of creditors in the payment of debt in the
absence of any law or stipulation to the contrary.

PCIB is adamant in claiming that it only received P6,819,766.10 as its share in the downpayment. To prove its
allegation, PCIB presented its own receipt17 wherein it was clearly stated that PCIB received from Atlas the
amount of P6,819,766.10.

It is beyond dispute that Atlas issued Hongkong Shanghai Bank Check No. 003842 in the sum of P12,000,000.00
with PCIB and MBC as joint payees as downpayment of the purchase price on 12 February 1979. The check was
received by Porfirio Cabalu, Jr., a PCIB Vice-President. As admitted by the parties during trial, the check was
afterwards deposited in the account of MBC.18 Therefore, it is reasonable to conclude that the amount received
by PCIB, as evidenced by the receipt, was given to it by MBC. The appellate court arrived at the same conclusion,
to wit:

Apparently, after the check was deposited in the account of MBC, the latter issued its MBC Check No. 1652661 in
the amount of P6,819,766.10 to PCIB, properly receipted under Official Receipt No. 466652 of PCIB. In other
words, what the appellee herein receipted was the share given to it by Manilabank.

Undeniably, there was yet no agreement as of that date concerning the corresponding share of each creditor. It
was only on 8 March 1979 when PCIB communicated to Atlas the percentage of payments to be remitted to PCIB
and MBC. Before said date, Atlas could be secure in the thought that the matter of sharing was best left to the
creditors to decide.

Thus, we agree with the appellate court’s conclusion that whatever deficiency PCIB is entitled from
the P12,000,000.00 down payment had become an internal matter between it and MBC.19 The obligation was
deemed fulfilled to the extent of P12,000,000.00 on the part of Atlas when the check was received by a
representative of PCIB and eventually deposited in the account of MBC.

On the second issue, PCIB posits that Atlas cannot be credited with the payment of the full amount
of P4,298,307.77 because the remaining outstanding balance with respect to the NAMAWU judgment claim at
the time of the service of the writ of garnishment on Atlas was only P3,697,047.77. Atlas, on the other hand,
insists that the creditable payment to NAMAWU was P4,298,307.77, as upheld by the Supreme Court in
NAMAWU v. PCIB. Accordingly, it is this amount which should be the basis in extracting the 63.1579% share of
PCIB, which amounts to P2,714,720.92 and not P2,334,977.74 as erroneously asserted by PCIB.20

The appellate court upheld the position of Atlas on the second issue. We reverse the appellate court.

While the original amount sought to be garnished was P4,298,307.77, the partial payment of P601,260.00
naturally reduced it to P3,697,047.77. Clearly, Atlas overpaid NAMAWU. It will be recalled that upon receipt of
the writ of garnishment, Atlas immediately paid NAMAWU, without making any investigation or consultation
with PCIB.

Article 1236 of the Civil Code applies in this instance. It provides that whoever pays for another may demand
from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor.

PCIB is the debtor in this case, it having purchased along with MBC legally garnished properties, while Atlas is
the third person who paid the obligation of the debtor without the latter’s knowledge and consent. Since Atlas
readily paid NAMAWU without the knowledge and consent of PCIB, Atlas may only recover from PCIB or, more
precisely charge to PCIB, only the amount of payment which has benefited the latter.
Generally, the third person who paid another’s debt is entitled to recover the full amount he had paid. The law,
however, limits his recovery to the amount by which the debtor has been benefited, if the debtor has no
knowledge of, or has expressed his opposition to such payment. Where the defenses that could have been set up
by the debtor against the creditor were existing and perfected, a payment by a third person without the
knowledge of the debtor cannot obligate the

debtor to such third person to an amount more than what he could have been compelled by the creditor to pay.
Thus, if the debt has been remitted, paid, compensated or prescribed, a payment by a third person would
constitute a payment of what is not due; his remedy would be against the person who received the payment
under such conditions, and not against the debtor who did not benefit from the payment.21

The trial court correctly ruled that the overpayment amounting to P601,260.00 should be recovered from
NAMAWU. The remedy of Atlas in this case would be to proceed, not against PCIB, but against NAMAWU who
was paid in excess, applying the principle that no person can unjustly enrich himself at the expense of another.22

Having established that there has been partial satisfaction of the judgment in the amount of P601,260.00, the
remaining obligation of PCIB in the judgment account stood at P2,334,977.74. Consequently, this is the only
amount which must be credited to Atlas.

As it stands, the total payments by Atlas amounted to only P29,398,739.99. Therefore, Atlas must
settle P231,260.00, the balance of the purchase price, of which PCIB is entitled to receive P146,058.96 as its
proportionate share.

WHEREFORE, based on the foregoing, the petition is GRANTED in PART. The Decision of the Court of Appeals
is REVERSED and SET ASIDE and in lieu thereof Atlas is ORDERED to pay PCIB the sum of P146,058.96, with
legal interest commencing from the time of first demand on 22 August 1985.

No costs.

SO ORDERED.

 G.R. No. 125862 April 15, 2004

FRANCISCO CULABA and DEMETRIA CULABA, doing business under the name and style "Culaba
Store", petitioners,
vs.
COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

CALLEJO, SR., J.:

This is a petition for review under Rule 45 of the Revised Rules of Civil Procedure of the Decision1 of the Court of
Appeals in CA-G.R. CV No. 19836 affirming in toto the Decision2 of the Regional Trial Court of Makati, Branch
138, in Civil Case No. 1033 for collection of sum of money, and the Resolution3 denying the motion for
reconsideration of the said decision.

The Undisputed Facts

The spouses Francisco and Demetria Culaba were the owners and proprietors of the Culaba Store and were
engaged in the sale and distribution of San Miguel Corporation’s (SMC) beer products. SMC sold beer products
on credit to the Culaba spouses in the amount of P28,650.00, as evidenced by Temporary Credit Invoice No.
42943.4 Thereafter, the Culaba spouses made a partial payment of P3,740.00, leaving an unpaid balance of
P24,910.00. As they failed to pay despite repeated demands, SMC filed an action for collection of a sum of money
against them before the RTC of Makati, Branch 138.

The defendant-spouses denied any liability, claiming that they had already paid the plaintiff in full on four
separate occasions. To substantiate this claim, the defendants presented four (4) Temporary Charge Sales (TCS)
Liquidation Receipts, as follows:

April 19, 1983 Receipt No. 27331 for P8,0005

April 22, 1983 Receipt No. 27318 for P9,0006

April 27, 1983 Receipt No. 27339 for P4,5007

April 30, 1983 Receipt No. 27346 for P3,4108

Defendant Francisco Culaba testified that he made the foregoing payments to an SMC supervisor who came in an
SMC van. He was then showed a list of customers’ accountabilities which included his account. The defendant, in
good faith, then paid to the said supervisor, and he was, in turn, issued genuine SMC liquidation receipts.

For its part, SMC submitted a publisher’s affidavit9 to prove that the entire booklet of TCSL Receipts bearing Nos.
27301-27350 were reported lost by it, and that it caused the publication of the notice of loss in the July 9, 1983
issue of the Daily Express, as follows:

NOTICE OF LOSS

OUR CUSTOMERS ARE HEREBY INFORMED THAT TEMPORARY CHARGE SALES LIQUIDATION
RECEIPTS WITH SERIAL NOS. 27301-27350 HAVE BEEN LOST.

ANY TRANSACTION, THEREFORE, ENTERED INTO WITH THE USE OF THE ABOVE RECEIPTS WILL
NOT BE HONORED.
 SAN MIGUEL CORPORATION
BEER DIVISION
Makati Beer Region10

The Trial Court’s Ruling

After trial on the merits, the trial court rendered judgment in favor of SMC, and held the Culaba spouses liable
on the balance of its obligation, thus:

Wherefore, judgment is hereby rendered in favor of the plaintiff, as follows:

1. Ordering defendants to pay the amount of P24,910.00 plus legal interest of 6% per annum from April 12,
1983 until the whole amount is fully paid;

2. Ordering defendants to pay 20% of the amount due to plaintiff as and for attorney’s fees plus costs.

SO ORDERED.11

According to the trial court, it was unusual that defendant Francisco Culaba forgot the name of the collector to
whom he made the payments and that he did not require the said collector to print his name on the receipts. The
court also noted that although they were part of a single booklet, the TCS Liquidation Receipts submitted by the
defendants did not appear to have been issued in their natural sequence. Furthermore, they were part of the lost
booklet receipts, which the public was duly warned of through the Notice of Loss the plaintiff caused to be
published in a daily newspaper. This confirmed the plaintiff’s claim that the receipts presented by the defendants
were spurious ones.

The Case on Appeal

On appeal, the appellants interposed the following assignment of errors:

THE TRIAL COURT ERRED IN FINDING THAT THE RECEIPTS PRESENTED BY DEFENDANTS
EVIDENCING HIS PAYMENTS TO PLAINTIFF SAN MIGUEL CORPORATION, ARE SPURIOUS.

II

THE TRIAL COURT ERRED IN CONCLUDING THAT PLAINTIFF-APPELLEE HAS SUFFICIENTLY

PROVED ITS CAUSE OF ACTION AGAINST THE DEFENDANTS.

III

THE TRIAL COURT ERRED IN ORDERING DEFENDANTS TO PAY 20% OF THE AMOUNT DUE TO
PLAINTIFF AS ATTORNEY’S FEES.12

The appellants asserted that while the trial court’s observations were true, it was the usual business practice in
previous transactions between them and SMC. The SMC previously honored receipts not bearing the salesman’s
name. According to appellant Francisco Culaba, he even lost some of the receipts, but did not encounter any
problems.

According to appellant Francisco, he could not be faulted for paying the SMC collector who came in a van and
was in uniform, and that any regular customer would, without any apprehension, transact with such an SMC
employee. Furthermore, the respective receipts issued to him at the time he paid on the four occasions
mentioned had not yet then been declared lost. Thus, the subsequent publication in a daily newspaper declaring
the booklets lost did not affect the validity and legality of the payments made. Accordingly, by its actuations, the
SMC was estopped from questioning the legality of the payments and had no cause of action against the
appellants.

Anent the issue of attorney’s fees, the order of the trial court for payment thereof is without basis. According to
the appellant, the provision for attorney’s fees is a contingent fee, already provided for in the SMC’s contract with
the law firm. To further order them to pay 20% of the amount due as attorney’s fees is double payment,
tantamount to undue enrichment and therefore improper.13

The appellee, for its part, contended that the primary issue in the case at bar revolved around the basic and
fundamental principles of agency.14 It was incumbent upon the defendants-appellants to exercise ordinary
prudence and reasonable diligence to verify and identify the extent of the alleged agent’s authority. It was their
burden to establish the true identity of the assumed agent, and this could not be established by mere
representation, rumor or general reputation. As they utterly failed in this regard, the appellants must suffer the
consequences.

The Court of Appeals affirmed the decision of the trial court, thus:

In the face of the somewhat tenuous evidence presented by the appellants, we cannot fault the lower
court for giving more weight to appellee’s testimonial and documentary evidence, all of which establish
with some degree of preponderance the existence of the account sued upon.

ALL CONSIDERED, we cannot find any justification to reject the factual findings of the lower court to
which we must accord respect, for which reason, the judgment appealed from is hereby AFFIRMED in all
respects.

SO ORDERED.15

Hence, the instant petition.

The petitioners pose the following issues for the Court’s resolution:

I. WHETHER OR NOT THE RESPONDENT HAD PROVEN BY PREPONDERANT EVIDENCE THAT IT

HAD PROPERLY AND TIMELY NOTIFIED PETITIONER OF LOST BOOKLET OF RECEIPTS

II. WHETHER OR NOT RESPONDENT HAD PROVEN BY PREPONDERANT EVIDENCE THAT

PETITIONER WAS REMISS IN THE PAYMENT OF HIS ACCOUNTS TO ITS AGENT.16

According to the petitioners, receiving receipts from the private respondent’s agents instead of its salesmen was a
usual occurrence, as they had been operating the store since 1979. Thus, on four occasions in April 1983, when an
agent of the respondent came to the store wearing an SMC uniform and driving an SMC van, petitioner Francisco
Culaba, without question, paid his accounts. He received the receipts without fear, as they were similar to what
he used to receive before. Furthermore, the petitioners assert that, common experience will attest that unless the
attention of the customers is called for, they would not take note of the serial number of the receipts.

The petitioners contend that the private respondent advertised its warning to the public only after the damage
was done, or on July 9, 1993. Its belated notice showed its glaring lack of interest or concern for its customers’
welfare, and, in sum, its negligence.

Anent the second issue, petitioner Francisco Culaba avers that the agent to whom the accounts were paid had all
the physical and material attributes or indications of a representative of the private respondent, leaving no doubt
that he was duly authorized by the latter. Petitioner Francisco Culaba’s testimony that "he does not necessarily
check the contents of the receipts issued to him except for the amount indicated if [the] same accurately reflects
his actual payment" is a common attitude of customers. He could, thus, not be faulted for paying the private
respondent’s agent on four occasions. Petitioner Francisco Culaba asserts that he made the payment in good
faith, to an agent who issued SMC receipts which appeared to be genuine. Thus, according to the petitioners,
they had duly paid their obligation in accordance with Articles 1240 and 1242 of the New Civil Code.

The private respondent, for its part, avers that the burden of proving payment is with the debtor, in consonance
with the express provision of Article 1233 of the New Civil Code. The petitioners miserably failed to prove the
self-serving allegation that they already paid their liability to the private respondent. Furthermore, under normal
circumstances, an obligor would not just pay a substantial amount to someone whom he saw for the first time,
without even asking for the latter’s name.

The Ruling of the Court

The petition is dismissed.

The petitioners question the findings of the Court of Appeals as to whether the payment of the petitioners’
obligation to the private respondent was properly made, thus, extinguishing the same. This is clearly a factual
issue, and beyond the purview of the Court to delve into. This is in consonance with the well-settled rule that
findings of fact of the trial court, especially when affirmed by the Court of Appeals, are accorded the highest
degree of respect, and generally will not be disturbed on appeal. Such findings are binding and conclusive on the
Court.17 Furthermore, it is not the Court’s function under Rule 45 of the Rules of Court, as amended, to review,
examine and evaluate or weigh the probative value of the evidence presented.18

To reiterate, the issue being raised by the petitioners does not involve a question of law, but a question of fact,
not cognizable by this Court in a petition for review under Rule 45. The jurisdiction of the Court in such a case is
limited to reviewing only errors of law, unless the factual findings being assailed are not supported by evidence
on record or the impugned judgment is based on a misapprehension of facts.19

A careful study of the records of the case reveal that the appellate court affirmed the trial court’s factual findings
as follows:

First. Receipts Nos. 27331, 27318, 27339 and 27346 were included in the private respondent’s lost booklet, which
loss was duly advertised in a newspaper of general circulation; thus, the private respondent could not have
officially issued them to the petitioners to cover the alleged payments on the dates appearing thereon.

Second. There was something amiss in the way the receipts were issued to the petitioners, as one receipt bearing
a higher serial number was issued ahead of another receipt bearing a lower serial number, supposedly covering a
later payment. The petitioners failed to explain the apparent mix-up in these receipts, and no attempt was made
in this regard.

Third. The fact that the salesman’s name was invariably left blank in the four receipts and that the petitioners
could not even remember the name of the supposed impostor who received the said payments strongly argue
against the veracity of the petitioners’ claim.

We find no cogent reason to reverse the said findings.

The dismissal of the petition is inevitable even upon close perusal of the merits of the case.

Payment is a mode of extinguishing an obligation.20 Article 1240 of the Civil Code provides that payment shall be
made to the person in whose favor the obligation has been constituted, or his successor-in-interest, or any
person authorized to receive it.21 In this case, the payments were purportedly made to a "supervisor" of the
private respondent, who was clad in an SMC uniform and drove an SMC van. He appeared to be authorized to
accept payments as he showed a list of customers’ accountabilities and even issued SMC liquidation receipts
which looked genuine. Unfortunately for petitioner Francisco Culaba, he did not ascertain the identity and
authority of the said supervisor, nor did he ask to be shown any identification to prove that the latter was,
indeed, an SMC supervisor. The petitioners relied solely on the man’s representation that he was collecting
payments for SMC. Thus, the payments the petitioners claimed they made were not the payments that
discharged their obligation to the private respondent.

The basis of agency is representation.22 A person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent.23 In the instant case, the petitioners’ loss could have been avoided if
they had simply exercised due diligence in ascertaining the identity of the person to whom they allegedly made
the payments. The fact that they were parting with valuable consideration should have made them more
circumspect in handling their business transactions. Persons dealing with an assumed agent are bound at their
peril to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.24 The petitioners in this case failed to discharge
this burden, considering that the private respondent vehemently denied that the payments were accepted by it
and were made to its authorized representative.

Negligence is the omission to do something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing of something, which a prudent and
reasonable man would not do.25 In the case at bar, the most prudent thing the petitioners should have done was
to ascertain the identity and authority of the person who collected their payments. Failing this, the petitioners
cannot claim that they acted in good faith when they made such payments. Their claim therefor is negated by
their negligence, and they are bound by its consequences. Being negligent in this regard, the petitioners cannot
seek relief on the basis of a supposed agency.26

WHEREFORE, the instant petition is hereby DENIED. The assailed Decision dated April 16, 1996, and the
Resolution dated July 19, 1996 of the Court of Appeals are AFFIRMED. Costs against the petitioners.

SO ORDERED.

 G.R. No. 175863, February 18, 2015

NATIONAL POWER CORPORATION, Petitioner, v. LUCMAN M. IBRAHIM, ATTY. OMAR G. MARUHOM,

ELIAS G. MARUHOM, BUCAY G. MARUHOM, MAMOD G. MARUHOM, FAROUK G. MARUHOM,
HIDJARA G. MARUHOM, ROCANIA G. MARUHOM, POTRISAM G. MARUHOM, LUMBA G. MARUHOM,
SINAB G. MARUHOM, ACMAD G. MARUHOM, SOLAYMAN G. MARUHOM, MOHAMAD M. IBRAHIM,
CAIRONESA M. IBRAHIM AND MACAPANTON K. MANGONDATO, Respondents.

D E C I S I O N

PEREZ, J.:

At bench is a petition for review on certiorari1 assailing the Decision2 dated 24 June 2005 and Resolution3 dated 5
December 2006 of the Court of Appeals in CA-G.R. CV No. 68061.

The facts:

The Subject Land

In 1978, petitioner took possession of a 21,995 square meter parcel of land in Marawi City (subject land) for the
purpose of building thereon a hydroelectric power plant pursuant to its Agus 1 project. The subject land, while in
truth a portion of a private estate registered under Transfer Certificate of Title (TCT) No. 378-A4 in the name of
herein respondent Macapanton K. Mangondato (Mangondato),5 was occupied by petitioner under the mistaken
belief that such land is part of the vast tract of public land reserved for its use by the government
under Proclamation No. 1354, s. 1974.6cralawred

Mangondato first discovered petitioner’s occupation of the subject land in 1979—the year that petitioner started
its construction of the Agus 1 plant. Shortly after such discovery, Mangondato began demanding compensation
for the subject land from petitioner.

In support of his demand for compensation, Mangondato sent to petitioner a letter7 dated 28 September 1981
wherein the former detailed the origins of his ownership over the lands covered by TCT No. 378-A, including the
subject land. The relevant portions of the letter read:chanRoblesvirtualLawlibrary

Now let me trace the basis of the title to the land adverted to for particularity. The land titled in my name was
originally consisting of seven (7) hectares. This piece of land was particularly set aside by the Patriarch
Maruhom, a fact recognized by all royal datus of Guimba, to belong to his eldest son, Datu Magayo-ong
Maruhom. This is the very foundation of the right and ownership over the land in question which was titled in
my name because as the son-in-law of Hadji Ali Maruhom the eldest son of, and only lawyer among the
descendants of Datu Magayo-ong Maruhom, the authority and right to apply for the title to the land was given to
me by said heirs after mutual agreement among themselves besides the fact that I have already bought a
substantial portion of the original seven (7) hectares.

The original title of this seven (7) hectares has been subdivided into several TCTs for the other children of Datu
Magayo-ong Maruhom with whom I have executed a quit claim. Presently, only three (3) hectares is left to me
out of the original seven (7) hectares representing those portion [sic] belonging to my wife and those I have
bought previously from other heirs. This is now the subject of this case.8cralawlawlibrary

Petitioner, at first, rejected Mangondato’s claim of ownership over the subject land; the former then adamant in
its belief that the said land is public land covered by Proclamation No. 1354, s. 1974. But, after more than a
decade, petitioner finally acquiesced to the fact that the subject land is private land covered by TCT No. 378-A
and consequently acknowledged Mangondato’s right, as registered owner, to receive compensation therefor.

Thus, during the early 1990s, petitioner and Mangondato partook in a series of communications aimed at settling
the amount of compensation that the former ought to pay the latter in exchange for the subject land. Ultimately,
however, the communications failed to yield a genuine consensus between petitioner and Mangondato as to the
fair market value of the subject land.chanroblesvirtuallawlibrary

Civil Case No. 605-92 and Civil Case No. 610-92

With an agreement basically out of reach, Mangondato filed a complaint for reconveyance against petitioner
before the Regional Trial Court (RTC) of Marawi City in July 1992. In his complaint, Mangondato asked for,
among others, the recovery of the subject land and the payment by petitioner of a monthly rental from 1978 until
the return of such land. Mangondato’s complaint was docketed as Civil Case No. 605-92.

For its part, petitioner filed an expropriation complaint9 before the RTC on 27 July 1992. Petitioner’s complaint
was docketed as Civil Case No. 610-92.

Later, Civil Case No. 605-92 and Civil Case No. 610-92 were consolidated before Branch 8 of the Marawi City
RTC.

On 21 August 1992, Branch 8 of the Marawi City RTC rendered a Decision10 in Civil Case No. 605-92 and Civil
Case No. 610-92. The decision upheld petitioner’s right to expropriate the subject land: it denied Mangondato’s
claim for reconveyance and decreed the subject land condemned in favor of the petitioner, effective July of 1992,
subject to payment by the latter of just compensation in the amount of P21,995,000.00. Anent petitioner’s
occupation of the subject land from 1978 to July of 1992, on the other hand, the decision required the former to
pay rentals therefor at the rate of P15,000.00 per month with 12% interest per annum. The
decision’s fallo reads:chanRoblesvirtualLawlibrary

WHEREFORE, the prayer in the recovery case for [petitioner’s] surrender of the property is denied but
[petitioner] is ordered to pay monthly rentals in the amount of P15,000.00 from 1978 up to July 1992 with 12%
interest per annum xxx and the property is condemned in favor of [petitioner] effective July 1992 upon payment
of the fair market value of the property at One Thousand (P1,000.00) Pesos per square meter or a total of
Twenty-One Million Nine Hundred Ninety-Five Thousand (P21,995,000.00) [P]esos.11cralawred
cralawlawlibrary

Disagreeing with the amount of just compensation that it was adjudged to pay under the said decision, petitioner
filed an appeal with the Court of Appeals. This appeal was docketed in the Court of Appeals as CA-G.R. CV No.
39353.

Respondents Ibrahims and Maruhoms and Civil Case No. 967-93

During the pendency of CA-G.R. CV No. 39353, or on 29 March 1993, herein respondents the Ibrahims and
Maruhoms12 filed before the RTC of Marawi City a complaint13 against Mangondato and petitioner. This
complaint was docketed as Civil Case No. 967-93 and was raffled to Branch 10 of the Marawi City RTC.

In their complaint, the Ibrahims and Maruhoms disputed Mangondato’s ownership of the lands covered by TCT
No. 378-A, including the subject land. The Ibrahims and Maruhoms asseverate that they are the real owners of
the lands covered by TCT No. 378-A; they being the lawful heirs of the late Datu Magayo-ong Maruhom, who was
the original proprietor of the said lands.14 They also claimed that Mangondato actually holds no claim or right
over the lands covered by TCT No. 378-A except that of a trustee who merely holds the said lands in trust for
them.15cralawred

The Ibrahims and Maruhoms submit that since they are the real owners of the lands covered by TCT No. 378-A,
they should be the ones entitled to any rental fees or expropriation indemnity that may be found due for the
subject land.

Hence, the Ibrahims and Maruhoms prayed for the following reliefs in their complaint:16cralawred

1. That Mangondato be ordered to execute a Deed of Conveyance transferring to them the ownership of the
lands covered by TCT No. 378-A;ChanRoblesVirtualawlibrary

2. That petitioner be ordered to pay to them whatever indemnity for the subject land it is later on adjudged
to pay in Civil Case No. 605-92 and Civil Case No. 610-92;ChanRoblesVirtualawlibrary

3. That Mangondato be ordered to pay to them any amount that the former may have received from the
petitioner by way of indemnity for the subject land;ChanRoblesVirtualawlibrary

4. That petitioner and Mangondato be ordered jointly and severally liable to pay attorney’s fees in the sum
of P200,000.00.

In the same complaint, the Ibrahims and Maruhoms also prayed for the issuance of a temporary restraining order
(TRO) and a writ of preliminary injunction to enjoin petitioner, during the pendency of the suit, from making
any payments to Mangondato concerning expropriation indemnity for the subject land.17cralawred

On 30 March 1993, Branch 10 of the Marawi City RTC granted the prayer of the Ibrahims and Maruhoms for the
issuance of a TRO.18 On 29 May 1993, after conducting an appropriate hearing for the purpose, the same court
likewise granted the prayer for the issuance of a writ of preliminary injunction.19cralawred

In due course, trial then ensued in Civil Case No. 967-93.chanroblesvirtuallawlibrary

The Decision of the Court of Appeals in CA-G.R. CV No. 39353

and the Decision of this Court in G.R. No. 113194

On 21 December 1993, the Court of Appeals rendered a Decision in CA-G.R. CV No. 39353 denying the appeal of
petitioner and affirming in toto the 21 August 1992 Decision in Civil Case No. 605-92 and Civil Case No. 610-92.
Undeterred, petitioner next filed a petition for review on certiorari with this Court that was docketed herein
as G.R. No. 113194.20cralawred

On 11 March 1996, we rendered our Decision in G.R. No. 113194 wherein we upheld the Court of Appeals’ denial of
petitioner’s appeal.21 In the same decision, we likewise sustained the appellate court’s affirmance of the decision
in Civil Case No. 605-92 and Civil Case No. 610-92 subject only to a reduction of the rate of interest on the
monthly rental fees from 12% to 6% per annum.22cralawred

Our decision in G.R. No. 113194 eventually became final and executory on 13 May 1996.23cralawred

Execution of the 21 August 1992 Decision in Civil Case No. 605-92 and
Civil Case No. 610-92, as Modified

In view of the finality of this Court’s decision in G.R. No. 113194, Mangondato filed a motion for execution of the
decision in Civil Case No. 605-92 and Civil Case No. 610-92.24 Against this motion, however, petitioner filed an
opposition.25cralawred

In its opposition, petitioner adverted to the existence of the writ of preliminary injunction earlier issued in Civil
Case No. 967-93 that enjoins it from making any payment of expropriation indemnity over the subject land in
favor of Mangondato.26 Petitioner, in sum, posits that such writ of preliminary injunction constitutes a legal
impediment that effectively bars any meaningful execution of the decision in Civil Case No. 605-92 and Civil
Case No. 610-92.

Finding no merit in petitioner’s opposition, however, Branch 8 of the Marawi City RTC rendered a
Resolution27 dated 4 June 1996 ordering the issuance of a writ of execution in favor of Mangondato in Civil Case
No. 605-92 and Civil Case No. 610-92. Likewise, in the same resolution, the trial court ordered the issuance of a
notice of garnishment against several of petitioner’s bank accounts28 for the amount of P21,801,951.00—the
figure representing the total amount of judgment debt due from petitioner in Civil Case No. 605-92 and Civil
Case No. 610-92 less the amount then already settled by the latter. The dispositive portion of the resolution
reads:chanRoblesvirtualLawlibrary

WHEREFORE, let a Writ of Execution and the corresponding order or notice of garnishment be immediately
issued against [petitioner] and in favor of [Mangondato] for the amount of Twenty One Million Eight Hundred
One Thousand and Nine Hundred Fifty One (P21,801,951.00) Pesos.chanrobleslaw

x x x.29cralawlawlibrary

Pursuant to the above resolution, a notice of garnishment30 dated 5 June 1996 for the amount of P21,801,951.00
was promptly served upon the Philippine National Bank (PNB)—the authorized depositary of petitioner.
Consequently, the amount thereby garnished was paid to Mangondato in full satisfaction of petitioner’s
judgment debt in Civil Case No. 605-92 and Civil Case No. 610-92.chanroblesvirtuallawlibrary

Decision in Civil Case No. 967-93

Upon the other hand, on 16 April 1998, Branch 10 of the Marawi City RTC decided Civil Case No. 967-93.31 In its
decision, Branch 10 of the Marawi City RTC made the following relevant findings:32cralawred

1. The Ibrahims and Maruhoms—not Mangondato—are the true owners of the lands covered by TCT No.
378-A, which includes the subject land.

2. The subject land, however, could no longer be reconveyed to the Ibrahims and Maruhoms since the same
was already expropriated and paid for by the petitioner under Civil Case No. 605-92 and Civil Case No.
610-92.

3. Be that as it may, the Ibrahims and Maruhoms, as true owners of the subject land, are the rightful
recipients of whatever rental fees and indemnity that may be due for the subject land as a result of its
expropriation.

Consistent with the foregoing findings, Branch 10 of the Marawi City RTC thus required payment of all the rental
fees and expropriation indemnity due for the subject land, as previously adjudged in Civil Case No. 605-92 and
Civil Case No. 610-92, to the Ibrahims and Maruhoms.

Notable in the trial court’s decision, however, was that it held both Mangondato and the
petitioner solidarily liable to the Ibrahims and Maruhoms for the rental fees and expropriation
indemnity adjudged in Civil Case No. 605-92 and Civil Case No. 610-92.33cralawred

In addition, Mangondato and petitioner were also decreed solidarily liable to the Ibrahims and Maruhoms for
attorney’s fees in the amount of P200,000.00.34cralawred

The pertinent dispositions in the decision read:chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, judgment is hereby rendered in favor of [the Ibrahims and Maruhoms] and
against [Mangondato and petitioner] as follows:

1. x x x
 2. Ordering [Mangondato and petitioner] to pay jointly and severally [the Ibrahims and Maruhoms]
all forms of expropriation indemnity as adjudged for [the subject land] consisting of 21,995 square
meters in the amount of P21,801,051.00 plus other forms of indemnity such as rentals and
interests;ChanRoblesVirtualawlibrary

3. Ordering [Mangondato and petitioner] to pay [the Ibrahims and Maruhoms] jointly and severally
the sum of P200,000.00 as attorney’s fees;ChanRoblesVirtualawlibrary

4. x x x

5. x x x

6. x x x

SO ORDERED.35cralawred
cralawlawlibrary

Petitioner’s Appeal to the Court of Appeals and the Execution
Pending Appeal of the Decision in Civil Case No. 967-93

Petitioner appealed the decision in Civil Case No. 967-93 with the Court of Appeals: contesting mainly the
holding in the said decision that it ought to be solidarily liable with Mangondato to pay to the Ibrahims and
Maruhoms the rental fees and expropriation indemnity adjudged due for the subject land. This appeal was
docketed as CA-G.R. CV No. 68061.

While the foregoing appeal was still pending decision by the Court of Appeals, however, the Ibrahims and
Maruhoms were able to secure with the court a quo a writ of execution pending appeal36 of the decision in Civil
Case No. 967-93. The enforcement of such writ led to the garnishment of Mangondato’s moneys in the
possession of the Social Security System (SSS) in the amount of P2,700,000.00 on 18 September
1998.37 Eventually, the amount thereby garnished was paid to the Ibrahims and Mangondato in partial
satisfaction of the decision in Civil Case No. 967-93.

On 24 June 2005, the Court of Appeals rendered its Decision38 in CA-G.R. CV No. 68061 denying petitioner’s
appeal. The appellate court denied petitioner’s appeal and affirmed the decision in Civil Case No. 967-93, subject
to the right of petitioner to deduct the amount of P2,700,000.00 from its liability as a consequence of the partial
execution of the decision in Civil Case No. 967-93.39

Hence, the present appeal by petitioner.

The Present Appeal

The present appeal poses the question of whether it is correct, in view of the facts and circumstances in this case,
to hold petitioner liable in favor of the Ibrahims and Maruhoms for the rental fees and expropriation indemnity
adjudged due for the subject land.

In their respective decisions, both Branch 10 of the Marawi City RTC and the Court of Appeals had answered the
foregoing question in the affirmative. The two tribunals postulated that, notwithstanding petitioner’s previous
payment to Mangondato of the rental fees and expropriation indemnity as a consequence of the execution of the
decision in Civil Case No. 605-92 and 610-92, petitioner may still be held liable to the Ibrahims and Maruhoms
for such fees and indemnity because its previous payment to Mangondato was tainted with “bad faith.”40 As proof
of such bad faith, both courts cite the following considerations:41cralawred
 1. Petitioner “allowed” payment to Mangondato despite its prior knowledge, which dates back as early as 28
September 1981, by virtue of Mangondato’s letter of even date, that the subject land was owned by a
certain Datu Magayo-ong Maruhom and not by Mangondato; and

2. Petitioner “allowed” such payment despite the issuance of a TRO and a writ of preliminary injunction in
Civil Case No. 967-93 that precisely enjoins it from doing so.

For the two tribunals, the bad faith on the part of petitioner rendered its previous payment to Mangondato
invalid insofar as the Ibrahims and Maruhoms are concerned. Hence, both courts concluded that petitioner may
still be held liable to the Ibrahims and Maruhoms for the rental fees and expropriation indemnity previously paid
to Mangondato.42cralawred

Petitioner, however, argues otherwise. It submits that a finding of bad faith against it would have no basis in fact
and law, given that it merely complied with the final and executory decision in Civil Case No. 605-92 and Civil
Case No. 610-92 when it paid the rental fees and expropriation indemnity due the subject to
Mangondato.43 Petitioner thus insists that it should be absolved from any liability to pay the rental fees and
expropriation indemnity to the Ibrahims and Maruhoms and prays for the dismissal of Civil Case No. 967-93
against it.chanroblesvirtuallawlibrary

OUR RULING

We grant the appeal.

No Bad Faith On The Part
of Petitioner

Petitioner is correct. No “bad faith” may be taken against it in paying Mangondato the rental fees and
expropriation indemnity due the subject land.

Our case law is not new to the concept of bad faith. Decisions of this Court, both old and new, had been teeming
with various pronouncements that illuminate the concept amidst differing legal contexts. In any attempt to
understand the basics of bad faith, it is mandatory to take a look at some of these pronouncements:

In Lopez, et al. v. Pan American World Airways,44 a 1966 landmark tort case, we defined the concept of bad faith
as:chanRoblesvirtualLawlibrary

“…a breach of a known duty through some motive of interest or ill will.”45cralawlawlibrary

Just months after the promulgation of Lopez, however, came the case of Air France v. Carrascoso, et al.,46 In Air
France, we expounded on Lopez’s definition by describing bad faith as:chanRoblesvirtualLawlibrary

“xxx a state of mind affirmatively operating with furtive design or with some motive of self-interest or will or for
ulterior purpose.”47cralawlawlibrary

Air France’s articulation of the meaning of bad faith was, in turn, echoed in a number subsequent cases,48 one of
which, is the 2009 case of Balbuena, et al. v. Sabay, et al.49cralawred

In the 1967 case of Board of Liquidators v. Heirs of M. Kalaw,50 on the other hand, we enunciated one of the more
oft-repeated formulations of bad faith in our case law:chanRoblesvirtualLawlibrary

“xxx bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong. It means breach of a known duty thru some motive or interest of
ill will; it partakes of the nature of fraud.”51cralawlawlibrary

As a testament to its enduring quality, the foregoing pronouncement in Board of Liquidators had been reiterated
in a slew of later cases,52 more recently, in the 2009 case of Nazareno, et al. v. City of Dumaguete53 and the 2012
case of Aliling v. Feliciano.54cralawred

Still, in 1995, the case of Far East Bank and Trust Company v. Court of Appeals55 contributed the following
description of bad faith in our jurisprudence:chanRoblesvirtualLawlibrary

“Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or
moral obliquity;xxx.”56cralawlawlibrary

The description of bad faith in Far East Bank and Trust Company then went on to be repeated in subsequent
cases such as 1995’s Ortega v. Court of Appeals,57 1997’s Laureano Investment and Development Corporation v.
Court of Appeals,58 2010’s Lambert Pawnbrokers v. Binamira59 and 2013’s California Clothing, Inc., v. Quiñones,60 to
name a few.

Verily, the clear denominator in all of the foregoing judicial pronouncements is that the essence of bad faith
consists in the deliberate commission of a wrong. Indeed, the concept has often been equated with malicious or
fraudulent motives, yet distinguished from the mere unintentional wrongs resulting from mere simple
negligence or oversight.61cralawred

A finding of bad faith, thus, usually assumes the presence of two (2) elements: first, that the actor knew or should
have known that a particular course of action is wrong or illegal, and second, that despite such actual or
imputable knowledge, the actor, voluntarily, consciously and out of his own free will, proceeds with such course
of action. Only with the concurrence of these two elements can we begin to consider that the wrong committed
had been done deliberately and, thus, in bad faith.

In this case, both Branch 10 of the Marawi City RTC and the Court of Appeals held that petitioner was in bad
faith when it paid to Mangondato the rental fees and expropriation indemnity due the subject land. The two
tribunals, in substance, fault petitioner when it “allowed” such payment to take place despite the latter’s alleged
knowledge of the existing claim of the Ibrahims and Maruhoms upon the subject land and the issuance of a TRO
in Civil Case No. 967-93. Hence, the two tribunals claim that petitioner’s payment to Mangondato is ineffective
as to the Ibrahims and Maruhoms, whom they found to be the real owners of the subject land.

We do not agree.

Branch 10 of the Marawi City RTC and the Court of Appeals erred in their finding of bad faith because they have
overlooked the utter significance of one important fact: that petitioner’s payment to Mangondato of the
rental fees and expropriation indemnity adjudged due for the subject land in Civil Case No. 605-92 and Civil
Case No. 610-92, was required by the final and executory decision in the said two cases and was
compelled thru a writ of garnishment issued by the court that rendered such decision. In other words,
the payment to Mangondato was not a product of a deliberate choice on the part of the petitioner but was
made only in compliance to the lawful orders of a court with jurisdiction.

Contrary then to the view of Branch 10 of the Marawi City RTC and of the Court of Appeals, it was not the
petitioner that “allowed” the payment of the rental fees and expropriation indemnity to Mangondato. Indeed,
given the circumstances, the more accurate rumination would be that it was the trial court in Civil Case No. 605-
92 and Civil Case No. 610-92 that ordered or allowed the payment to Mangondato and that petitioner merely
complied with the order or allowance by the trial court. Since petitioner was only acting under the lawful orders
of a court in paying Mangondato, we find that no bad faith can be taken against it, even assuming that petitioner
may have had prior knowledge about the claims of the Ibrahims and Maruhoms upon the subject land and the
TRO issued in Civil Case No. 967-93.

Sans Bad Faith, Petitioner
Cannot Be Held Liable to the
Ibrahims and Maruhoms

Without the existence of bad faith, the ruling of the RTC and of the Court of Appeals apropos petitioner’s
remaining liability to the Ibrahims and Maruhoms becomes devoid of legal basis. In fact, petitioner’s previous
payment to Mangondato of the rental fees and expropriation indemnity due the subject land pursuant to the
final judgment in Civil Case No. 605-92 and Civil Case No. 610-92 may be considered to have extinguished the
former’s obligation regardless of who between Mangondato, on one hand, and the Ibrahims and
Maruhoms, on the other, turns out to be the real owner of the subject land.62 Either way, petitioner cannot
be made liable to the Ibrahims and Maruhoms:

First. If Mangondato is the real owner of the subject land, then the obligation by petitioner to pay for the rental
fees and expropriation indemnity due the subject land is already deemed extinguished by the latter’s previous
payment under the final judgment in Civil Case No. 605-92 and Civil Case No. 610-92. This would be a simple
case of an obligation being extinguished through payment by the debtor to its creditor.63 Under this scenario, the
Ibrahims and Maruhoms would not even be entitled to receive anything from anyone for the subject
land. Hence, petitioner cannot be held liable to the Ibrahims and Maruhoms.

Second. We, however, can reach the same conclusion even if the Ibrahims and Maruhoms turn out to be the real
owners of the subject land.

Should the Ibrahims and Maruhoms turn out to be the real owners of the subject land, petitioner’s previous
payment to Mangondato pursuant to Civil Case No. 605-92 and Civil Case No. 610-92—given the absence of bad
faith on petitioner’s part as previously discussed—may nonetheless be considered as akin to a payment made in
“good faith” to a person in “possession of credit” per Article 1242 of the Civil Code that, just the same,
extinguishes its obligation to pay for the rental fees and expropriation indemnity due for the subject land. Article
1242 of the Civil Code reads:chanRoblesvirtualLawlibrary

“Payment made in good faith to any person in possession of the credit shall release the debtor.” cralawlawlibrary

Article 1242 of the Civil Code is an exception to the rule that a valid payment of an obligation can only be made
to the person to whom such obligation is rightfully owed.64 It contemplates a situation where a debtor pays
a “possessor of credit” i.e., someone who is not the real creditor but appears, under the circumstances, to be the
real creditor.65 In such scenario, the law considers the payment to the “possessor of credit” as valid even as
against the real creditor taking into account the good faith of the debtor.

Borrowing the principles behind Article 1242 of the Civil Code, we find that Mangondato—being the judgment
creditor in Civil Case No. 605-92 and Civil Case No. 610-92 as well as the registered owner of the subject land at
the time66—may be considered as a “possessor of credit” with respect to the rental fees and expropriation
indemnity adjudged due for the subject land in the two cases, if the Ibrahims and Maruhoms turn out to be the
real owners of the subject land. Hence, petitioner’s payment to Mangondato of the fees and indemnity due for
the subject land as a consequence of the execution of Civil Case No. 605-92 and Civil Case No. 610-92 could still
validly extinguish its obligation to pay for the same even as against the Ibrahims and Maruhoms.

Effect of Extinguishment of
Petitioner’s Obligation

The extinguishment of petitioner’s obligation to pay for the rental fees and expropriation indemnity due the
subject land carries with it certain legal effects:

First. If Mangondato turns out to be the real owner of the subject land, the Ibrahims and Maruhoms would not
be entitled to recover anything from anyone for the subject land. Consequently, the partial execution of the
decision in Civil Case No. 967-93 that had led to the garnishment of Mangondato’s moneys in the possession of
the Social Security System (SSS) in the amount of P2,700,000.00 in favor of the Ibrahims and Maruhoms,
becomes improper and unjustified. In this event, therefore, the Ibrahims and Maruhoms may be ordered to
return the amount so garnished to Mangondato.

Otherwise, i.e. if the Ibrahims and Maruhoms really are the true owners of the subject land, they may only
recover the rental fees and expropriation indemnity due the subject land against Mangondato but only up to
whatever payments the latter had previously received from petitioner pursuant to Civil Case No. 605-92 and Civil
Case No. 610-92.

Second. At any rate, the extinguishment of petitioner’s obligation to pay for the rental fees and expropriation
indemnity due the subject land negates whatever cause of action the Ibrahims and Maruhoms might have had
against the former in Civil Case No. 967-93. Hence, regardless of who between Mangondato, on one hand,
and the Ibrahims and Maruhoms, on the other, turns out to be the real owner of the subject land, the
dismissal of Civil Case No. 967-93 insofar as petitioner is concerned is called for.

Re: Attorney’s Fees

The dismissal of Civil Case No. 967-93 as against petitioner necessarily absolves the latter from paying attorney’s
fees to the Ibrahims and Maruhoms arising from that case.

WHEREFORE, premises considered, the instant petition is GRANTED. The Decision dated 24 June 2005 and
Resolution dated 5 December 2006 of the Court of Appeals in CA-G.R. CV No. 68061 is hereby SET ASIDE. The
Decision dated 16 April 1998 of the Regional Trial Court in Civil Case No. 967-93 is MODIFIED in that petitioner
is absolved from any liability in that case in favor of the respondents Lucman M. Ibrahim, Atty. Omar G.
Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G.
Maruhom, Rocania G. Maruhom, Potrisam G. Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G.
Maruhom, Solayman G. Maruhom, Mohamad M. Ibrahim and Caironesa M. Ibrahim. Civil Case No. 967-93
is DISMISSED as against petitioner.

No costs.

SO ORDERED.



















 [G.R. NO. 135043 : July 14, 2004]

TOWNE & CITY DEVELOPMENT CORPORATION, Petitioner, v. COURT OF APPEALS and GUILLERMO R.
VOLUNTAD (substituted by TOMAS VOLUNTAD and FLORDELIZA ESTEBAN Vda. De
VOLUNTAD) Respondents.

D E C I S I O N

TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 assailing the August 12, 1998 Decision1 of the Court
of Appeals, Tenth Division, in CA-G.R. CV No. 50919.

Respondent Guillermo Voluntad (Guillermo) and petitioner Towne & City Development Corporation were both
engaged in the construction business. From 1984 to 1985, Guillermo and petitioner entered into a contract for the
(a) construction of several housing units belonging to or reserved for different individuals; (b) repair of several
existing housing units belonging to different individuals; and (c) repair of facilities, all located at the Virginia
Valley Subdivision, owned and developed by the petitioner. The total contract cost amounted to One Million
Forty One Thousand Three Hundred Fifty Nine (P1,041,359.00) Pesos.

The parties agreed that Guillermo should be paid in full by petitioner the agreed contract cost upon completion
of the project. In 1985, pending completion of the project, Guillermo was allowed by petitioner to occupy, free of
charge, one of its houses at the Virginia Valley Subdivision.

After completing the construction and repair works subject of the contract, Guillermo demanded payment for
his services.

When petitioner failed to satisfy his claim in full, Guillermo filed on April 30, 1990 a Complaint for collection
against petitioner before the Regional Trial Court of Manila (RTC). The case was docketed as Civil Case No. 90-
52880 and raffled to Branch 25 of the RTC. Guillermo alleged that petitioner paid him only the amount
of P69,400.00, leaving a balance of P971,959.00 under the terms of their contract.2 cralawred

In its Answer with Counter-claims (sic), petitioner averred that it had already paid Guillermo the amount
of P1,022,793.46 for his services and that there was even an overpayment of P58,189.46. Petitioner further claimed
that Guillermo is liable for unpaid rentals amounting to P66,000.00 as of June 1990 for his occupancy of one of
the houses in Virginia Valley Subdivision since 1985.3 cralawred

During the pre-trial of the case, the parties agreed to limit the issues to: (1) whether petitioner had paid
Guillermo in full in accordance with their contract; (2) if payment in full had been made by petitioner, whether
there was an overpayment on its part; and (3) whether either or both parties are entitled to attorneys
fees.4 cralawred

While the case was pending before the trial court, Guillermo passed away. Upon motion of respondents Tomas
Voluntad and Flordeliza Vda. de Voluntad, the trial court issued an Order substituting them as plaintiffs in place
of the deceased Guillermo.5 cralawred

Guillermo did not adduce evidence, whether testimonial or documentary, as evidence-in-chief in view of the
admissions made by petitioner in its Answer with Counter-claims6 that indeed it entered into a contract with him
and that it was obliged to pay him for his services. Petitioner, for its part, presented as its sole witness Ms.
Rhodora Aguila (Ms. Aguila), its Corporate Secretary, to prove that it paid Guillermo for his services under the
contract. She testified that she personally handed or delivered the cash or check payments to Guillermo, adding
that Guillermo acknowledged payments with his signatures on the vouchers.7 In rebuttal, Guillermo testified
along with two employees of the Special Security System.
On December 29, 1994, the trial court rendered its Decision, the dispositive portion of which
states:chanroblesvirtua1awlibrary

WHEREFORE, premises considered, judgment is hereby rendered, as follows:chanroblesvirtua1awlibrary

1. Ordering defendant to pay plaintiff the total sum of P715,228.50 representing defendants unpaid balance owing
in favor of plaintiff, with 3% interest from the time of filing of the complaint until the full amount is
satisfied;chanroblesvirtuallawlibrary

2. Ordering plaintiff to vacate the house occupied by him belonging to defendant;chanroblesvirtuallawlibrary

3. No pronouncement as to cost and attorneys fees.

SO ORDERED.8 cralawred

Petitioner filed a Motion for Reconsideration on March 2, 1995, stressing that the lower court erred that it had not
paid Guillermos claim in full.9 The trial court denied the motion for lack of merit in its Order dated April 24,
1995.10 cralawred

Consequently, on May 3, 1995 petitioner filed its Notice of Partial Appeal to the Court of Appeals insofar as
the Decision ordered it to pay Guillermo the total sum of P715,228.50, which according to the lower court
represented its unpaid balance, with interest thereon.11 cralawred

On August 12, 1998, the appellate court rendered a Decision affirming the judgment of the lower court. The
dispositive portion reads:chanroblesvirtua1awlibrary

ACCORDINGLY, finding no reversible error in the decision appealed from dated December 29, 1994, the same is
hereby AFFIRMED in all respects. Costs against defendant-appellant.

SO ORDERED.12 cralawred

Hence, this Petition .

Petitioner submits that the Court a quo committed reversible errors of law and/or acted with grave abuse of
discretion in not considering as proofs of payment the vouchers and other documentary exhibits, and in ignoring
the ruling in Philippine National Bank v. Court of Appeals,13 although it was cited in the assailed
decisions.14 cralawred

The alleged errors, however, refer to the appreciation of evidence which the appellate and trial courts made.As
such, they involve questions of fact of which the Court cannot take cognizance of In the case of Naguiat v. Court
of Appeals ,15 the Court said that there is a question of fact when a doubt or difference arises as to the truth or the
falsehood of alleged facts, while there is a question of law when such doubt or difference refers to what the law is
on a certain state of facts.

It must be emphasized that this Court is not a trier of facts, and under Rule 45 of the 1997 Rules of Civil
Procedure, a Petition for Review to be given due course should raise only questions of law.16 This rule finds even
greater application when the findings of fact of the trial court were affirmed by the Court of Appeals, as in this
case.17 cralawred

Neither does the present case fall under any of the recognized exceptions18 to warrant a review of the assailed
factual findings.Truth to tell, the findings of the Court of Appeals are amply supported by the evidence on
record.
To skirt the procedural obstacle, petitioner insists that the issue of whether a voucher suffices as evidence of
payment is a question of law. Significantly, petitioner claims that the appellate courts failure to consider the
vouchers as proof of payment runs counter to our ruling in Philippine National Bank (PNB) v. Court of
Appeals19 that the best evidence for proving payment is by evidence of receipts showing the same.

Fundamentally, however, petitioners point raises a question of fact which is definitely out of place in a Petition
for Review under Rule 45. The question of whether petitioners vouchers bearing Guillermos signature constitute
adequate proof of payment of Guillermos claim requires an examination of the vouchers and an inquiry into the
circumstances surrounding petitioners issuance thereof. Such are functions reserved for the trial courts and the
Court of Appeals when reviewing findings of fact by the trial court. They are not functions of this Court.

The ruling in PNB v. Court of Appeals20 is that while a receipt of payment is the best evidence of the fact of
payment, it is, however, not conclusive but merely presumptive;21 neither it is exclusive evidence as the fact of
payment may be established also by parole evidence.22 Contrary to petitioners stance, the appellate court did not
disregard but instead took into account the ruling in the cited case. This may easily be confirmed by reviewing
the factual predicates on which the ruling was handed down.

In the cited case, private respondent Flores purchased from petitioner PNB and its Manila Pavilion Unit, two (2)
managers check worth P500,000.00 each, paying a total of P1,000,040.00, the extra P40.00 representing the
service charge. PNB issued a receipt for the amount. On the following day, Flores presented the checks at PNB
Baguio Hyatt Casino unit, but PNB initially refused to encash the checks. Eventually, it agreed to encash one of
the checks. However, it deferred payment of the other check until after Flores agreed that it be broken down to
five (5) checks of P100,000.00 each. Moreover, PNB refused to encash one of the five (5) checks until after it shall
have been cleared by its Manila Pavilion Hotel Unit. The PNB Malate Branch, to which Flores made
representations upon his return to Manila, refused to encash the last check. So, Flores filed a case for collection,
plus damages.

PNB admitted that it issued a receipt for P1,000,040.00 but at same time countered that the receipt is not the
best evidence to prove how much Flores actually paid for the purchase of its managers checks. So, according to
PNB, the issue was not what appears on the receipt but how much money Flores paid to PNB which, also
according to PNB, allows the presentation of evidence aliunde.

This Court held:chanroblesvirtua1awlibrary

Although a receipt is not conclusive evidence, in the case at bench, an exhaustive review of the records fails to
disclose any other evidence sufficient and strong enough to overturn the acknowledgment embodied in
petitioners receipt(as to the amount of money it actually received.)23 cralawred

.. ..

Having failed to adduce sufficient rebuttal evidence, petitioner is bound by the contents of the receipt it issued
to Flores. The subject receipt remains to be the primary or best evidence or that which affords the greatest
certainty of the fact in question.24 cralawred

In the case at bar, petitioner has relied on vouchers to prove its defense of payment. However, as correctly
pointed out by the trial court which the appellate court upheld, vouchers are not receipts.

It should be noted that a voucher is not necessarily an evidence of payment. It is merely a way or method of
recording or keeping track of payments made. A procedure adopted by companies for the orderly and proper
accounting of funds disbursed.Unless it is supported by an actual payment like the issuance of a check which is
subsequently encashed or negotiated, or an actual payment of cash duly receipted for as is customary among
businessmen, a voucher remains a piece of paper having no evidentiary weight.25 (Emphasis supplied).
A receipt is a written and signed acknowledgment that money has been or goods have been delivered,26 while a
voucher is documentary record of a business transaction.27 cralawred

The references to alleged check payments in the vouchers presented by the petitioner do not vest them with the
character of receipts. Under Article 1249 of the Civil Code,28 payment of debts in money has to be made in legal
tender and the delivery of mercantile documents, including checks, shall produce the effect of payment only
when they have been cashed, or when through the fault of the creditor they have been impaired.

From the text of the Civil Code provision, it is clear that there are two exceptions to the rule that payment by
check does not extinguish the obligation. Neither exception is present in this case. Concerning the first,
petitioner failed to produce the originals of the checks after their supposed encashment and even the bank
statements although the supposed payments by check were effected only about 5 years before the filing of the
collection suit. Anent the second exception, the doctrine is that it does not apply to instruments executed by the
debtor himself and delivered to the creditor.29 Indubitably, that is not the situation in this case.

Petitioner also relied upon the testimony of its Corporate Secretary, Rhodora Aguila. Again, the issue about the
credibility of said witness involves a question of fact which is a definite incongruity in petitions for review, as in
the case before us. In any event, the Court of Appeals convincingly debunked the testimony.30 cralawred

All told, the Court finds no reason to disturb the findings of the Court of Appeals which affirmed in toto the trial
courts Decision.

WHEREFORE, the Petition is DENIED. The assailed Decision of the Court of Appeals is AFFIRMED. Costs
against the petitioner.

SO ORDERED.

 G.R. No. 211564, November 20, 2017

BENJAMIN EVANGELISTA, Petitioner, v. SCREENEX,1 INC., REPRESENTED BY ALEXANDER G,

YU, Respondent.

D E C I S I O N

SERENO, C.J.:

This is a Petition2 for Review on Certiorari seeking to set aside the Decision3 and Resolution4 rendered by the
Court of Appeals (CA) Manila, Fifth Division, in CA-G.R. SP No. 110680.

ANTECEDENT FACTS

The facts as summarized by the CA are as follows:

Sometime in 1991, [Evangelista] obtained a loan from respondent Screenex, Inc. which issued two (2) checks to
[Evangelista]. The first check was UCPB Check No. 275345 for P1,000,000 and the other one is China Banking
Corporation Check No. BDO 8159110 for P500,000. There were also vouchers of Screenex that were signed by the
accused evidencing that he received the 2 checks in acceptance of the loan granted to him.

As security for the payment of the loan, [Evangelista] gave two (2) open dated checks: UCPB Check Nos. 616656
and 616657, both pay to the order of Screenex, Inc. From the time the checks were issued by [Evangelista], they
were held in safe keeping together with the other documents and papers of the company by Philip Gotuaco, Sr.,
father-in-law of respondent Alexander Yu, until the former's death on 19 November 2004.

Before the checks were deposited, there was a personal demand from the family for [Evangelista] to settle the
loan and likewise a demand letter sent by the family lawyer.5

On 25 August 2005, petitioner was charged with violation of Batas Pambansa (BP) Blg. 22 in Criminal Case Nos.
343615-16 filed with the Metropolitan Trial Court (MeTC) of Makati City, Branch 61.6 The Information reads:

That sometime in 1991, in the City of Makati, Metro Manila, Philippines, a place within the jurisdiction of this
Honorable Court, the above-named accused, did then and there, willfully, unlawfully and feloniously make out,
draw, and issue to SCREENEX INC., herein represented by ALEXANDER G. YU, to apply on account or for value
the checks described below:

Check No. Date Amount

United Coconut AGR 616656 12-22-04 P1,000,000.00

Planters Bank AGR 616657 12-22-04 500,000.00

said accused well knowing that at the time of issue thereof, said accused did not have sufficient funds in or credit
with the drawee bank for the payment in full of the face amount of such check upon its presentment which
check when presented for payment within ninety (90) days from the date thereof, was subsequently dishonored
by the drawee bank for the reason "ACCOUNT CLOSED" and despite receipt of notice of such dishonor, the said
accused failed to pay said payee the face amount of said checks or to make arrangement for full payment thereof
within five (5) banking days after receiving notice.

CONTRARY TO LAW.7
Petitioner pleaded not guilty when arraigned, and trial proceeded.8

THE RULING OF THE MeTC

The MeTC found that the prosecution had indeed proved the first two elements of cases involving violation of BP
22: i.e. the accused makes, draws or issues any check to apply to account or for value, and the check is
subsequently dishonored by the drawee bank for insufficiency of funds or credit; or the check would have been
dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment.
The trial court pointed out, though, that the prosecution failed to prove the third element; i.e. at the time of the
issuance of the check to the payee, the latter did not have sufficient funds in, or credit with, the drawee bank for
payment of the check in full upon its presentment.9 In the instant case, the court held that while prosecution
witness Alexander G. Yu declared that the lawyer had sent a demand letter to Evangelista, Yu failed to prove that
the letter had actually been received by addressee. Because there was no way to determine when the five-day
period should start to toll, there was a failure to establish prima facie evidence of knowledge of the insufficiency
of funds on the part of Evangelista.10 Hence, the court acquitted him of the criminal charges.

Ruling on the civil aspect of the cases, the court held that while Evangelista admitted to having issued and
delivered the checks to Gotuaco and to having fully paid the amounts indicated therein, no evidence of payment
was presented.11 It further held that the creditor's possession of the instrument of credit was sufficient evidence
that the debt claimed had not yet been paid.12 In the end, Evangelista was declared liable for the corresponding
civil obligation.13

The dispositive portion of the Decision14 reads:

WHEREFORE, judgment is rendered acquitting the accused BENJAMIN EVANGELISTA for failure of the
prosecution to establish all the elements constituting the offense of Violation of B.P. 22 for two (2) counts.
However, accused is hereby ordered to pay his civil obligation to the private complainant in the total amount of
ONE MILLION FIVE HUNDRED THOUSAND PESOS (P1,500,000) plus twelve (12%) percent interest per annum
from the date of the filing of the two sets of Information until fully paid and to pay the costs of suit.

SO ORDERED.15

THE RULING OF THE RTC

Evangelista filed a timely Notice of Appeal16 and raised two errors of the MeTC before the Regional Trial Court
(RTC) of Makati City, Branch 147. Docketed therein as Criminal Case Nos. 08-1723 and 08-1724, the appeal posed
the following issues: (1) the lower court erred in not appreciating the fact that the prosecution failed to prove the
civil liability of Evangelista to private complainant; and (2) any civil liability attributable to Evangelista had been
extinguished and/or was barred by prescription.17

After the parties submitted their respective Memoranda,18 the RTC ruled that the checks should be taken as
evidence of Evangelista's indebtedness to Gotuaco, such that even if the criminal aspect of the charge had not
been established, the obligation subsisted.19 Also, the alleged payment by Evangelista was an affirmative defense
that he had the burden of proving, but that he failed to discharge.20 With respect to the defense of prescription,
the RTC ruled in this wise:

As to the defense of prescription, the same cannot be successfully invoked in this appeal. The 10-year prescriptive
period of the action under Art. 1144 of the New Civil Code is computed from the time the right of action accrues.
The terms and conditions of the loan obligation have not been shown, as only the checks evidence the same. It
has not been shown when the loan obligation was to mature such that there is no basis to show or from which to
infer, when the cause of action (non-payment of the loan) which would give the obligee the right to seek redress
for the non-payment of the obligation, accrued. In other words, the reckoning point of prescription has not been
established.
Prosecution witness Alexander G. Yu was not competent to state that the loan was contracted in 1991 as in fact,
Yu admitted that it was a few months before his father-in-law (Philip Gotuaco) died when the latter told him
about accused's failure to pay his obligation. That was a few months before November 19, 2004, date of death of
his father-in-law.

At any rate, the right of action in this case is not upon a written contract, for which reason, Art. 1144, New Civil
Code, on prescription does not apply.21

In a Decision22 dated 18 December 2008, the RTC dismissed the appeal and affirmed the MeTC decision in
toto.23 The Motion for Reconsideration24 was likewise denied in an Order25 dated 19 August 2009.

THE RULING OF THE CA

Evangelista filed a petition for review26 before the CA insisting that the lower court erred in finding him liable to
pay the sum with interest at 12% per annum from the date of filing until full payment. He further alleged that
witness Yu was not competent to testify on the loan transaction; that the insertion of the date on the checks
without the knowledge of the accused was an alteration that avoided the checks; and that the obligation had
been extinguished by prescription.27

Screenex, Inc., represented by Yu, filed its Comment.28 Yu claimed that he had testified on the basis of his
personal dealings with his father-in law, whom Evangelista dealt with in obtaining the loan. He further claimed
that during the trial, petitioner never raised the competence of the witness as an issue.29 Moreover, Yu argued
that prescription set in from the accrual of the obligation; hence, while the loan was transacted in 1991, the
demand was made in February 2005, which was within the 10-year prescriptive period.30 Yu also argued that
while Evangelista claimed under oath that the loan had been paid in 1992, he was not able to present any proof of
payment.31 Meanwhile, Yu insisted that the material alteration invoked by Evangelista was unavailing, since the
checks were undated; hence, nothing had been altered.32 Finally, Yu argued that Evangelista should not be
allowed to invoke prescription, which he was raising for the first time on appeal, and for which no evidence was
adduced in the court of origin.33

The CA denied the petition.34 It held that (1) the reckoning time for the prescriptive period began when the
instrument was issued and the corresponding check returned by the bank to its depositor;35 (2) the issue of
prescription was raised for the first time on appeal with the RTC;36 (3) the writing of the date on the check
cannot be considered as an alteration, as the checks were undated, so there was nothing to change to begin
with;37 (4) the loan obligation was never denied by petitioner, who claimed that it was settled in 1992, but failed
to show any proof of payment.38 Quoting the MeTC Decision, the CA declared:

[t]he mere possession of a document evidencing an obligation by the person in whose favor it was executed,
merely raises a presumption of nonpayment which may be overcome by proof of payment, or by satisfactory
explanation of the fact that the instrument is found in the hands of the original creditor not inconsistent with
the fact of payment.39

The dispositive portion reads:

WHEREFORE, premises considered, the petition is DENIED. The assailed August 19, 2009 Order of the Regional
Trial Court, Branch 147, Makati City, denying petitioner's Motion for Reconsideration of the Court's December 18,
2008 Decision in Crim. Case Nos. 08-1723 and 08-1724 are AFFIRMED.

SO ORDERED.40

Petitioner filed a Motion for Reconsideration,41 which was similarly denied in a Resolution42 dated 27 February
2014.
Hence, this Petition,43 in which petitioner contends that the lower court erred in ordering the accused to pay his
alleged civil obligation to private complainant. In particular, he argues that the court did not consider the
prosecution's failure to prove his civil liability to respondent, and that any civil liability there might have been
was already extinguished and/or barred by prescription.44

Meanwhile, respondent filed its Comment,45 arguing that the date of prescription was reckoned from the date of
the check, 22 December 2004. So when the complaint was filed on 25 August 2005, it was supposedly well within
the prescriptive period of ten (10) years under Article 1144 of the New Civil Code.46

OUR RULING

With petitioner's acquittal of the criminal charges for violation of BP 22, the only issue to be resolved in this
petition is whether the CA committed a reversible error in holding that petitioner is still liable for the total
amount of P1.5 million indicated in the two checks.

We rule in favor of petitioner.

A check is discharged by any other act which will discharge a simple contract for the payment of
money.

In BP 22 cases, the action for the corresponding civil obligation is deemed instituted with the criminal
action.47 The criminal action for violation of BP 22 necessarily includes the corresponding civil action, and no
reservation to file such civil action separately shall be allowed or recognized.48

The rationale for this rule has been elucidated in this wise:

Generally, no filing fees are required for criminal cases, but because of the inclusion of the civil action in
complaints for violation of B.P. 22, the Rules require the payment of docket fees upon the filing of the complaint.
This rule was enacted to help declog court dockets which are filled with B.P. 22 cases as creditors actually use the
courts as collectors. Because ordinarily no filing fee is charged in criminal cases for actual damages, the payee
uses the intimidating effect of a criminal charge to collect his credit gratis and sometimes, upon being paid, the
trial court is not even informed thereof. The inclusion of the civil action in the criminal case is expected to
significantly lower the number of cases filed before the courts for collection based on dishonored checks. It is
also expected to expedite the disposition of these cases. Instead of instituting two separate cases, one for criminal
and another for civil, only a single suit shall be filed and tried. It should be stressed that the policy laid down by
the Rules is to discourage the separate filing of the civil action. The Rules even prohibit the reservation of a
separate civil action, which means that one can no longer file a separate civil case after the criminal complaint is
filed in court. The only instance when separate proceedings are allowed is when the civil action is filed ahead of
the criminal case. Even then, the Rules encourage the consolidation of the civil and criminal cases. We have
previously observed that a separate civil action for the purpose of recovering the amount of the dishonored
checks would only prove to be costly, burdensome and time-consuming for both parties and would further delay
the final disposition of the case. This multiplicity of suits must be avoided.49 (Citations omitted)

This notwithstanding, the civil action deemed instituted with the criminal action is treated as an "independent
civil liability based on contract."50

By definition, a check is a bill of exchange drawn on a bank 'payable on demand.51 It is a negotiable instrument -
written and signed by a drawer containing an unconditional order to pay on demand a sum certain in money.52 It
is an undertaking that the drawer will pay the amount indicated thereon. Section 119 of the NIL, however, states
that a negotiable instrument like a check may be discharged by any other act which will discharge a simple
contract for the payment of money, to wit:
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the instrument is made or accepted for his
accommodation;

(c) By the intentional cancellation thereof by the holder;

(d) By any other act which will discharge a simple contract for the payment of money;

(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.
(Emphasis supplied)

A check therefore is subject to prescription of actions upon a written contract. Article 1144 of the Civil Code
provides:

Article 1144. The following actions must be brought within ten years from the time the right of action accrues:

1) Upon a written contract;

2) Upon an obligation created by law;
3) Upon a judgment. (Emphasis supplied)

Barring any extrajudicial or judicial demand that may toll the 10-year prescription period and any evidence which
may indicate any other time when the obligation to pay is due, the cause of action based on a check is reckoned
from the date indicated on the check.

If the check is undated, however, as in the present petition, the cause of action is reckoned from the date of the
issuance of the check. This is so because regardless of the omission of the date indicated on the check, Section
1753 of the Negotiable Instruments Law instructs that an undated check is presumed dated as of the time of its
issuance.

While the space for the date on a check may also be filled, it must, however, be filled up strictly in accordance
with the authority given and within a reasonable time.54 Assuming that Yu had authority to insert the dates in
the checks, the fact that he did so after a lapse of more than 10 years from their issuance certainly cannot qualify
as changes made within a reasonable time.

Given the foregoing, the cause of action on the checks has become stale, hence, time-barred. No written
extrajudicial or judicial demand was shown to have been made within 10 years which could have tolled the
period. Prescription has indeed set in.

Prescription allows the court to dismiss the case motu proprio.

We therefore have no other recourse but to grant the instant petition on the ground of prescription. Even if that
defense was belatedly raised before the RTC for the first time on appeal from the ruling of the MeTC, we
nonetheless dismiss the complaint, seeking to enforce the civil liability of Evangelista based on the undated
checks, by applying Section 1 of Rule 9 of the Rules of Court, to wit:

Section 1. Defenses and objections not pleaded. - Defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, that there is another action pending between
the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations,
the court shall dismiss the claim.

While it was on appeal before the RTC that petitioner invoked the defense of prescription, we find that the
pleadings and the evidence on record indubitably establish that the action to hold petitioner liable for the two
checks has already prescribed.

The delivery of the check produces the effect of payment when through the fault of the creditor they
have been impaired

It is a settled rule that the creditor's possession of the evidence of debt is proof that the debt has not been
discharged by payment.55 It is likewise an established tenet that a negotiable instrument is only a substitute for
money and not money, and the delivery of such an instrument does not, by itself, operate as payment.56 Thus,
in BPI v. Spouses Royeca,57 we ruled that despite the lapse of three years from the time the checks were issued,
the obligation still subsisted and was merely suspended until the payment by commercial document could
actually be realized.58

However, payment is deemed effected and the obligation for which the check was given as conditional payment
is treated discharged, if a period of 10 years or more has elapsed from the date indicated on the check until the
date of encashment or presentment for payment. The failure to encash the checks within a reasonable time after
issue, or more than 1 0 years in this instance, not only results in the checks becoming stale but also in the
obligation to pay being deemed fulfilled by operation of law.

Art. 1249 of the Civil Code specifically provides that checks should be presented for payment within a reasonable
period after their issuance, to wit:

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance. (Emphasis
supplied)

This rule is similarly stated in the Negotiable Instruments Law as follows:

Sec. 186. Within what time a check must be presented. — A check must be presented for payment within a
reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of
the loss caused by the delay. (Emphasis supplied)

These provisions were the very same ones we cited when we discharged a check by reason of the creditor's
unreasonable or unexplained delay in encashing it. In Papa v. Valencia,59 the respondents supposedly paid the
petitioner the purchase price of the lots in cash and in check. The latter disputed this claim and argued that he
had never encashed the checks, and that he could no longer recall the transaction that happened 10 years earlier.
This Court ruled:

Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to
Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in
presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for
payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to
operate as actual payment of the debt or obligation for which it was given. It has, likewise, been held that
if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless
presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment
by way of check or other negotiable instrument is conditioned on its being cashed, except when through the
fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under this provision
and if its no-payment is caused by his negligence, payment will be deemed effected and the obligation for which
the check was given as conditional payment will be discharged.60 (Citations omitted and emphasis supplied)

Similarly in this case, we find that the delivery of the checks, despite the subsequent failure to encash them
within a period of 10 years or more, had the effect of payment. Petitioner is considered discharged from his
obligation to pay and can no longer be pronounced civilly liable for the amounts indicated thereon.

WHEREFORE, the instant Petition is GRANTED. The Decision dated 1 October 2013 and Resolution dated 27
February 2014 in CA-G.R. SP No. 110680 are SET ASIDE. The Complaint against petitioner is hereby DISMISSED.

SO ORDERED.

 [G.R. NO. 157836 : May 26, 2005]

NOEMI M. CORONEL, Petitioner, v. ENCARNACION C. CAPATI, Respondent.

D E C I S I O N

PUNO, J.:

On appeal is the Court of Appeals' May 31, 2001 Decision1 in CA-G.R. CV No. 58060 and April 8, 2003
Resolution,2 affirming the April 30, 1997 Decision3 of the Regional Trial Court of Guagua, Pampanga in Civil Case
No. G-2549 which found petitioner liable to pay respondent its loan obligation, plus attorney's fees and costs of
suit.

The facts are as follows:

Petitioner contracted two loans from respondent on September 4, 1992 and October 25, 1992. The first amounted
to P121,000.00 payable on or before February 4, 1993 and the second amounted to P363,000.00 payable on or
before March 25, 1993. In return, petitioner issued respondent two checks: Metrobank Check No. 1146784 dated
September 4, 1992 for the first loan and Metrobank Check No. 1146795 dated October 25, 1992 for the second loan.
The two loans are embodied in two handwritten instruments. The first one reads:

P121,000. 00/xx

Received the amount of one hundred twenty one thousand pesos only P121,000. 00/xx from Mrs. Encarnacion C.
Capati & payable in 5 months from Sept. 4, 1992 & said loan is secured by Metrobank (Guagua Branch) and with
check # 114678.

(signed)
Noemi M. Coronel6

The second instrument, in like tenor, reads as follows:

Received the amount of three hundred sixty three thousand pesos only P363,000. 00/xx from Mrs. Encarnacion C.
Capati & payable from Oct. 25, 1992 (5 months) & said loan is secured with Metrobank check # 114679 (Guagua
Branch).

(signed)
Noemi M. Coronel7

Petitioner failed to pay her loans upon maturity despite repeated demands from respondent. The two checks she
issued were dishonored when presented for payment on February 16, 1993 and April 7, 1993. Hence, on
September 14, 1993, respondent filed a complaint for sum of money and damages with attachment against
petitioner before the Regional Trial Court of Guagua, Pampanga.

On April 30, 1997, the trial court ruled in favor of respondent, ordering petitioner to pay, as follows:

WHEREFORE, premises considered, judgment is rendered ordering defendant:

1. To pay plaintiff the amount of P484,000.00 as principal obligation plus 12% interest per annum computed from
the time of the filing of this case up to the time it is fully paid;

2. To pay plaintiff 10% of the principal obligation of P484,000.00 as attorney's fees;

3. To pay the costs of the suit.

SO ORDERED.

On appeal to the Court of Appeals, petitioner was unsuccessful as the appellate court affirmed the ruling of the
trial court.

Petitioner's Motion for Reconsideration8 was denied.

Hence, this appeal.9

Petitioner denied contracting the two loans in the amounts of P121,000.00 and P363,000.00 from respondent. She
alleged that the Metrobank checks representing the foregoing amounts were two of several checks she issued in
favor of respondent for a loan amounting to P1.101 million which she has fully paid. She claimed that despite full
payment, respondent still deposited the two checks because of a dispute between them arising from respondent's
demand for exorbitant and additional interest on the P1.101 million loan.

Petitioner alleged further that there were instances when respondent asked her to affix her signature on blank
sheets of paper' thereby implying that the contents of Exhibits "A-1" and "B-1," containing the loan agreements
were written by respondent on sheets of paper signed in advance by petitioner.

In detail, petitioner contended that on May 20, 1992, respondent informed her that her loan obligation added
to P980,000.00 plus interest of P121,000.00, totaling P1,101,000.00, to which computation petitioner agreed. At
the same time, respondent also asked her to sign a document entitled "Pacto de Retro Sale"10 with the assurance
that it will serve only as "security." On June 18, 1992, petitioner paid respondent P66,000.00 in cash.11 Before the
end of the redemption period under the pacto de retro sale which was on August 20, 1992, petitioner, expecting
that she will be unable to pay the full amount on due date, issued respondent two checks: Metrobank check no.
11466812 in the amount of P980,000.00 dated August 20, 1992 and Metrobank check no. 11466913 in the amount
of P121,000.00 dated September 4, 1992. Later, respondent returned these two Metrobank checks numbered
114668 and 114669 to petitioner. Petitioner replaced these checks with Metrobank check no. 11467514 in the same
amount of P980,000.00 and likewise dated August 20, 1992, and Metrobank check no. 114678,15 again in the same
amount of P121,000.00 and likewise dated September 4, 1992.

On September 7, 1992, petitioner paid respondent another P40,000.00 in the form of Metrobank check no.
114700.16 And on November 13, 1992, petitioner paid respondent P1M, evidenced by a handwritten receipt17 signed
by respondent. The receipt reads as follows:

Received from Miss Noemi M. Coronel the Bank of Philippine Island Cashier's Check No. 019877 dated Nov. 13,
1992 for ONE MILLION (P1,000,000.00) pesos as partial payment of the loan from Mrs. Encarnacion C. Capati, &
the balance will be paid on or before Dec. 15, 1992.

(signed)

ENCARNACION CAPATI
LENDER-MORTGAGEE

November 13, 1992

Respondent returned to petitioner check no. 11467518 in the amount of P980,000.00 dated August 20, 1992, upon
payment of petitioner to respondent of the cashier's check worth P1M. Petitioner also issued another postdated
check - Metrobank Check No. 11467919 in the amount of P363,000.00 dated October 25, 1992 allegedly for interest
of her obligation.20
Based on petitioner's own computation, her remaining balance amounted to only P50,000.00. Thus, on
December 1, 1992, petitioner issued respondent a Metrobank Check No. 147653 in the amount of P50,000.00.21 On
January 4, 1993, she allegedly ordered Metrobank Guagua, through a letter,22 to stop payment of the checks she
issued respondent for P121,000.00 and P363,000.00. According to petitioner, these two checks were not returned
by respondent because the latter claimed that she has not completed the payment of interest yet.

In sum, petitioner alleged that her total obligation is computed, as follows:

P 980,000.00 principal obligation

176,000.00 3% monthly interest from

P1,156,000.00 May to Nov 1992

which she claimed to have paid, as follows:

P 66,000.00 June 18, 1992

40,000.00 September 7, 1992

1,000,000.00 November 13, 1992

50,000.00 December 1, 1992

P1,156,000.00

We find petitioner's contentions unmeritorious.

The existence of petitioner's obligation is supported by documentary evidence. Exhibits "A-1" and "B-1" are
written instruments containing the loan agreements. The signature of petitioner as debtor appears in both
instruments. Petitioner does not deny she owns these signatures. These exhibits are the best evidence of the
subject obligation. Petitioner's contrary evidence has no leg to stand on. At first, she claims that her total loan
obligation amounted to P1.101 million, the amount of consideration stated in the document entitled "Pacto de
Retro Sale." At the end, however, she came up with a different computation of her obligation as totaling P1.156
million, without any document to support her allegation. The discrepancy between the two computations is not
explained. The age old rule of evidence is that oral testimony as to a certain fact, depending as it does on human
memory that is most often than not, momentary and fleeting, is not as reliable as written or documentary
evidence.23 We are, thus, more convinced that Exhibits "A-1" and "B-1" express the true agreement of the parties,
contrary to the oral testimony of petitioner that those amounts are part of a loan amounting to P1.101 million
which she has fully paid. The latter appears to be another loan, distinct from the one involved in the case at
bar.24 Incidentally, the pacto de retro sale referred to by petitioner, is the subject matter of another litigation
between the same parties pending with the same court.25

Petitioner tries to escape responsibility by testifying that it has been respondent's practice to ask her to sign
blank sheets of paper. She wants the court to believe that she did not know of the contents of Exhibits "A-1" and
"B-1," and that these documentary evidence could have been one of those blank sheets of paper that respondent
has asked her to sign. We find this tale unacceptable, absent any form of duress or intimidation from
respondent, which petitioner does not even allege. Time and again, we have held that one who is of age and a
businesswise is presumed to have acted with due care and to have signed the documents in question with full
knowledge of its contents and consequences.26 Petitioner is not one ignorant, illiterate person who could be
easily duped into signing blank sheets of papers. She has borrowed large sums of money from respondent. In
fact, petitioner's total loan obligation to respondent has reached over millions of pesos. Petitioner has transacted
business with respondent several times. Among others, they include transactions involving a pacto de retro sale
which is the subject of another pending case between the parties and loans amounting to P2M and P1M, secured
by deeds of real estate mortgage and chattel mortgage, respectively. As the lower court correctly pointed out,
petitioner apparently knows how to take care of her business dealings. Thus, on October 21, 1992 and February
22, 1993, she caused the execution of two documents entitled "Discharge of Real Estate Mortgage"27 and
"Discharge of Chattel Mortgage,"28 respectively, when she paid respondent the full consideration of the
promissory notes of P2M and P1M, wherein the mortgages served as security for the payment of said
notes.29 Similarly, petitioner, upon payment of P1M to respondent on November 13, 1992, retrieved the
Metrobank Check No. 11467530 dated August 20, 1992 which she issued as security to respondent. Interestingly, in
the case of the two checks subject matter of this litigation, petitioner did not even demand their return from
respondent, notwithstanding her claim that she has paid in full her loan obligation. All she presented was a
letter31 ordering Metrobank Guagua to stop payment of the checks without proof that it has been received by, nor
actually sent to Metrobank Guagua.

Again, we reiterate the rule that when the existence of a debt is fully established by the evidence contained in the
record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers
such defense to the claim of the creditor.32 Even where respondent-creditor who was plaintiff in the lower court,
alleges non-payment, the general rule is that the onus rests on the petitioner-debtor who was defendant in the
lower court, to prove payment, rather than on the plaintiff-creditor to prove non-payment.33 The debtor has the
burden of showing with legal certainty that the obligation has been discharged by payment.34 This, petitioner
failed to do.

IN VIEW THEREOF, petitioner's appeal is DENIED. The Court of Appeals' May 31, 2001 Decision in CA-G.R. CV
No. 58060 and April 8, 2003 Resolution, affirming the April 30, 1997 Decision of the Regional Trial Court of
Guagua, Pampanga in Civil Case No. G-2549, are AFFIRMED.

SO ORDERED.

 G.R. No. 124554 December 9, 1997

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
COURT OF APPEALS and NORTH PHILIPPINE UNION MISSION OF THE SEVENTH DAY
ADVENTIST, respondents.

KAPUNAN, J.

This case if the derivative of G.R. No. 73794, which was decided by the Second Division of this Court on
September 19, 1988.1

The antecedents are as follows:2

Petitioner EGMPC and private respondent NPUM entered into a Land Development Agreement dated October 6,
1976. Under the agreement, EGMPC was to develop a parcel of land owned by NPUM into a memorial park
subdivided into lots. The parties further agreed —

(d) THAT the FIRST PARTY shall receive forty (40%) percent of the gross collection less Perpetual Care
Fees (which in no case shall exceed 10% of the price per lot unless otherwise agreed upon by both parties
in writing) or Net Gross Collection (NGC) from this project. This shall be remitted monthly by the
SECOND PARTY in the following manner: (i) Forty (40%) percent of the NGC, plus (ii) if it becomes
necessary for the FIRST PARTY to vacate the property earlier than two years from the date of this
agreement, at the option of the FIRST PARTY, an additional amount equivalent to twenty (20%) percent
of the NGC as cash advance for the first four (4) years with interest at twelve (12%) percent per
annum which cash advance shall be deductible out of the proceeds from the FIRST PARTY's 40% from
the 5th year onward. The SECOND PARTY further agrees that if the FIRST PARTY shall desire to have its
projected receivables collected at the 5th year, the SECOND PARTY shall assist in having the same
discounted in advance.

The P1.5 million initial payment mentioned in the Deed of Absolute Sale, covering the first phase of the
project, shall be deducted out of the proceeds from the FIRST PARTY's 40% at the end of the 5th year.
Subsequent payments made by the SECOND PARTY on account of the stated purchase price in said Deed
of Absolute Sale shall be charged against what is due to the FIRST PARTY under this LAND
DEVELOPMENT AGREEMENT.3

Later, two claimants of the parcel of land surfaced — Maysilo Estate and the heirs of a certain Vicente Singson
Encarnacion. EGMPC thus filed an action for interpleader against Maysilo Estate and NPUM, docketed as Civil
Case No. 9556 before the Regional Trial Court of Kalookan City, Branch 120. The Singson heirs in turn filed an
action for quieting of title against EGMPC and NPUM, docketed as Civil Case No. C-11836 before Branch 122 of
the same court.

From these two cases, several proceedings ensued. One such case, from the interpleader action, culminated in
the filing and subsequent resolution of G.R. No. 73794. In G.R. No 73794, EGMPC assailed the appellate court's
resolution requiring "petitioner Eternal Gardens [to] deposit whatever amounts are due from it under the Land
Development Agreement with a reputable bank to be designated by the respondent court."4

In the Decision of September 19, 1988, the court ruled thus:

PREMISES CONSIDERED, (a) the petition is DISMISSED for lack of merit: (b) this case (together with all
the claims of the intervenors on the merits) is REMANDED to the lower court for further proceedings;
and (c) the Resolution of the Third Division of this Court of July 8, 1987 requiring the deposit by the
petitioner (see footnote 6)5 of the amounts contested in a depository bank STANDS (the Motion for
 Reconsideration thereof being hereby DENIED for reasons already discussed) until after the decision on
the merits shall have become final and executory. Entry of judgment was made on April 24, 1989.6

Sometime thereafter, the trial court rendered decisions in Civil Case Nos. 9556 (interpleader) and C-11836
(quieting of title). These decisions were appealed to the Court of Appeals, and the appeals were consolidated.

The appellate court rendered judgment in the consolidated case on December 17, 1991 as follows: (a) the trial
court's decision in Civil Case No. 9556 was affirmed insofar as it dismissed the claims of the intervenors,
including the Maysilo Estate, and the titles of NPUM to the subject parcel of land were declared valid; and (b)
the trial court's decision in Civil Case No. C-11836 in favor of the Singson heirs was reversed and set aside.7

From the consolidated decision, the Singson heirs, Maysilo Estate and EGMPC each filed with this Court their
petitions for review on certiorari. The petition filed by the Singson heirs docketed as G.R. No. 103247-48 was
denied for failure to comply with Circular No. 28-91,8 and entry of judgment made on July 27, 1992 G.R. No.
105159 filed by the Maysilo Estate was denied for failure of petitioner to raise substantial legal issues,9 and entry
of judgment made on August 19, 1992. G.R. Nos. 103230-31 filed by EGMPC was denied for failure to comply with
Circular No. 19-91,10 and entry of judgment made on July 20, 1993. EGMPC's other petition, this time under Rule
65, docketed as G.R. Nos. 107646-47 was dismissed for having been filed out of time and for lack of merit.

Following these, the Court, through the Third Division, issued a Resolution dated December 1, 1993 in G.R. No.
73794, thus:

WHEREFORE, considering that the ownership of the property in dispute has now been settled with
finality, the Court sees no further legal obstacle in carrying out the respective covenants of the parties to
the Land Development Agreement. . . In respect to the mutual accounting required to determine the
remaining accrued rights and liabilities of said parties, the case is hereby remanded to the Court of
Appeals for proper determination and disposition.

All other incidental motions involving G.R. No. 73794, still pending with this Court, are hereby, declared
MOOT and are NOTED WITHOUT ACTION.11

In compliance with the Supreme Court resolution, the Court of Appeals proceeded with the disposition of the
case, docketed therein as CA G.R. SP No. 04869, and required the parties to appear at a scheduled hearing on
June 16, 1994, "with counsel and accountants, as well as books of accounts and related records,' to determine the
remaining accrued rights and liabilities of said
parties."12

Citing the following provision of the land development agreement:

(e) THAT the SECOND PARTY shall keep proper books and accounting records of all transactions
affecting the sale of said memorial lots, which records shall be open for inspection by the FIRST PARTY at
any time during usual office hours. The SECOND PARTY shall also render to the FIRST PARTY a monthly
accounting report of all sales and cash collections effected the preceding month. It is also understood
that all financial statements shall be subject to annual audit by a reputable external accounting firm
which should be acceptable to the FIRST PARTY.13

the appellate court required EGMPC to produce at the scheduled hearings the following documents:

(a) statements of monthly gross income from the year 1981, supported by copies of the
contracts/agreements of the sale of lots to buyers/customers; and

(b) summary statements, by month, of the forty per cent (40%) share in the "net gross" income under the
land development agreement between the parties.14
The accounting of the parties' respective obligations was referred to the Court's Accountant, Mrs. Carmencita
Angelo, with the concurrence of the parties, to whom the documents were to be submitted.15

NPUM prepared and submitted a Summary of Sales and Total Amounts Due based on the following documents it
likewise submitted to the court.16

A-1 Land Development Agreement executed between NPUM and EGMPC on October 6,
1976.

A-2 Submittal of requirements filed by EGMPC to the Securities and Exchange

Commission dated July 26, 1976 re: its application to develop, sell and maintain a first class
private cemetery part situated in Baesa, Kalookan City on the 23 has. property of PUC of
NPUM. EGMPC's application calls for the development of 31,326 lawn type memorial lots
for underground and above ground interment, and 20,808 garden and family/estates
memorial lots for above ground interment, or a total of 52,134 memorial lots.

A-3 EGMPC Daily Sales Report which shows that from 1978, 1979, 1980 and 1981 EGMPC
has sold 19,237 memorial lots with gross sales amounting to P52,421,879.70.

A-3a Machine copy of EGMPC Daily Sales Report dated December 29, 1979 showing that
in 1978 it sold 2,805 memorial lots valued at P5591,716.40 and in 1979 it sold 5,503
memorial lots valued at P11,943,631.00.

A-3a-1 Weekly Sales Report of EGMPC corresponding to the period December 26 to 31,
1979, showing cumulatively as of said date it has sold a total of 5,503 memorial lots from
January 1 to December 29, 1979.

A-3a-2 Sales Report of EGMPC for the period February 12 to 18, 1980.

A-3a-4 Letter of Gabriel O. Vida, Executive Vice President and General Manager of
EGMPC, dated April 9, 1980, to Pastor Bienvenido Capuli stating among others that for the
year 1978, EGMPC has sold 2,805 memorial lots and in the first quarter of 1980 from
January 1 to April 2, it has sold 2,418 memorial lots, for a total gross sales of 10,730
memorial lots.

A-3b EGMPC Daily Sales Report which show that from 1978 up to December 9, 1980 it has
sold a total of 15,253 memorial lots with sales value of P38,085,299.40.

A-3b-1 Are supporting sales records and/or weekly sales report of EGMPC

A-3b-2 in relation to Exhibit "A-3b."

A-3b-3

A-3b-4

A-3b-5

A-3b-6

A-3b-7
A-4 Audited Financial Statement of EGMPC for 1985 which it filed with the Securities and
Exchange Commission on April 16, 1986 pursuant to the reportorial requirements of the
SEC, with accompanying balance sheet and statement of income and expenses, consisting
of five (5) pages.

A-5 Actual Gross Profit Rate of EGMPC for the year 1985 which shows that it sold 3,623
memorial lots valued at P25,299,601.20.

A-6 Machine copy of Assumptions to Projected Cash Flow and Income Statements
prepared by EGMPC with assumptions that the 52,000 memorial lots would be sold and
that 15% of total sales per year are cash sales and 85% are on installment and that
installment sales are payable over a period of 60 moths at 12% interest per annum.

A-7 Formula for Computation of Interest Income for Lots Sold on Installment.

A-8 Sales Price Analysis based on Lawn Class Memorial Lots for the period 1978 to 1988,
inclusive.

A-8a Price list issued by EGMPC effective December 1, 1977.

A-9 Computation of interest due for the use of NPUM share.

A-9a Letter dated April 11, 1983 of Alfonso P. Roda, President of PUC of NPUM showing
summary of gross collections from memorial lots sales starting January 1978 up to June
1982, inclusive, per computation given to PUC by EGMPC.

A-9b Are validating documents consisting of accounting ledgers

A-9c in support of the computations given by EGMPC to PUC

A-9d as mentioned in Dr. Roda's Letter dated April 11, 1983.

A-10 Promissory Note of EGMPC dated April 6, 1976 issued to NPUM for a loan of
P720,000 for which EGMPC agreed to pay 12% interest per annum.

B Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

B-1 effective February 3, 1981.

C Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

C-1 effective March 15, 1982.

C-2

D- Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

D-1 effective February 18, 1983.

D-2

E Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

E-1 effective January 23, 1984.

E-2

F Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

F-1 effective July 9, 1984.

F-2

G Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

G-1 effective March 1, 1985.

G-2

H Price List of Memorial Lots of HIMLAYANG PILIPINO, INC. effective July 1, 1987.

I Price List of Memorial Lots of HIMLAYANG PILIPINO, INC. effective January 4, 1989.

J Price List of Memorial Lots of HIMLAYANG PILIPINO, INC. effective August 2, 1989.

K Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

K-1 effective February 4, 1990.

L Price List of Memorial Lots of HIMLAYANG PILIPINO, INC. effective February 2, 1991.

M Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

M-1 effective October 2, 1991.

N Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

N-1 effective February 5, 1992.

O Price List of Memorial Lots of HIMLAYANG PILIPINO, INC. effective October 9, 1992.

P Price List of Memorial Lots of HIMLAYANG PILIPINO, INC. effective January 15, 1993.

Q Price List of Memorial Lots of HIMLAYANG PILIPINO, INC. effective February 16, 1993.

R Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

R-1 effective March 16, 1993.

S Price List of Memorial Lots of HIMLAYANG PILIPINO, INC.

S-1 effective September 15, 1993.

T Price List of Memorial Lots of MANILA MEMORIAL PARK

 T-1 effective January 1, 1985.

T-2

T-3

T-4

U Price List of Memorial Lots of MANILA MEMORIAL PARK

U-1 effective June 1, 1991.

U-2

U-3

U-4

V Price List of Memorial Lots of MANILA MEMORIAL PARK

V-1 effective November 2, 1991.

V-2

V-3

V-4

W Price List of Memorial Lots of HOLY CROSS MEMORIAL

W-1 PARK effective December 1, 1987.

W-2

W-3

It appears that EGMPC did not submit any document whatsoever to aid the appellate court in its mandated task.
Thus, in a Resolution dated January 19, 1995, the appellate court declared.

. . . (1) that Eternal Gardens Memorial Park Corporation has waived its right to present the records and
documents necessarily for accounting, which records they were specifically required to preserve under
the parties' Land Development Agreement, and (2) that it will now proceed "to the mutual accounting
required to determine the remaining accrued rights and liabilities of the said parties . . ." ordered by the
Supreme Court in its Resolution of December 1, 1993 (p. 7, rec.), and that the Court will proceed to do
what it is required to do on the basis of the documents submitted by the North Philippine Union Mission
of the Seventh Day Adventists only.17

Ms. Angelo submitted her Report dated January 31, 1995, to which the appellate court required the parties to
comment on.18

EGMPC took exception to the appellate court's having considered it to have waived its right to present
documents.19 Considering EGMPC's arguments, the court set a hearing date where NPUM would present its
documents "according to the Rules [of Court], and giving the private respondent [EGMPC] the opportunity to
object thereto."20

Subsequently, NPUM asked for and the appellate court issued a subpoena duces tecum and subpoena ad
testificandum to EGMPC's President, Mr. Gabriel O. Vida requiring him to produce the following documents.

1. Copies of Deeds of Sale corresponding to each memorial lot sold subject of the Land Development
Agreement between the parties;

2. Lists of all memorial lots sold under or affecting the said Land Development Agreement with an
indication of the types/kinds of memorial lots and the corresponding prices at which each was sold and
the dates when each lot was sold;

3. Lists of all the owners of the memorial lots affected by the Land Development Agreement;

4. Copies of all the annual audits made by the external accounting firm pursuant to provision (a) of the
Land Development Agreement.

5. Copies of all audited financial statements of ETERNAL from 1978 to the present;

6. Copies of all monthly accounting reports of all sales and cash collections regarding all the memorial
lots sold under the Land Development Agreement pursuant to provision (e) of the said Land
Development Agreement;

7. The name/s of the Depository/Trustee Bank/s which acted as the depository/trustee of funds collected
by ETERNAL pursuant to provision (f) of the subject Land Development Agreement.

8. All other accounting books and records on all transactions affecting all the memorial lots covered
under the Land Development Agreement.

9. List of all the corporate officers and employees of ETERNAL from 1975 up to the present whose duties
and responsibilities involved the recording of all sales and other transactions and the safekeeping of such
records relating to the sale of the memorial lots subject of the Land Development Agreement.21

NPUM also filed a Request for Admission of the documents it had earlier submitted to the Court annexed to the
Summary of Sales and Total Amounts Due, addressed to Mr. Vida.22 EGMPC, however, filed a Denial to the
Request for Admission, alleging that it was without knowledge or information of the documents, except for the
Land Development Agreement of October 6, 1976.23

NPUM then reiterated its request for and was granted by the appellate court, a subpoena duces tecum and
subpoena ad testificandum, this time addressed to the Chief of the Records Division of EGMPC.24 NPUM further
filed a Motion for Production, Inspection and Photocopying of Documents and Books of Accounts of EGMPC, in
particular:

1. Master Development and/or Operational Plan of Eternal Gardens for Memorial Park at Baesa, Metro
Manila subject of the Land Development Agreement.

2. Inventory of memorial lots developed and sold by Eternal under the Land Development Agreement
and the type of memorial lots developed and sold, i.e., whether lawn type, family estate type, garden
estate type and the number of each type developed and sold.
 3. List of buyers and owners of memorial lots sold under the Land Development Agreement and the
corresponding sales contracts.

4. Records of number of memorial lots sold on installment terms, and those sold on cash basis.

5. Sales and marketing records as to the number of memorial lots effected by the Land Development
Agreement sold in each of the following years: 1978, 1979, 1980, 1981, 1982, 1983, 1984, 1985, 1986, 1987,
1988, 1989, 1990, 1991, 1992, 1993, 1994 and 1995.

6. Monthly accounting records of collections from sales of memorial lots under the Land Development
Agreement from 1978 to 1995, inclusive.

7. Year-end audited financial statements of Eternal Gardens Memorial Park Corporation from 1977 to
1995, inclusive.

8. Price list of Eternal's memorial plot lots affected by the Land Development Agreement covering the
period 1977 to 1995.

9. List of accredited and/or authorized agents, brokers, salesmen, and sales counselors of Eternal from
1977 to 1995 and their addresses.

10. Records of collections representing 10% of the gross collections on each memorial lot sold under the
Land Development Agreement, for perpetual care fees and constituting a trust fund to secure perpetual
care of the memorial park affected by the Land Development Agreement.25

Later, NPUM filed a second Request for Admissions addressed to Mr. Vida. He was asked to make the following
admissions:

1. That the auditor retained by Eternal Gardens Memorial Park Corp. to audit and examine its financial
position, and which prepared Eternal's audited financial statements, for the years 1982, 1983 and 1984 was
the auditing and accounting firms of Josue, Arceo & Co., CPAs, with office at the 2nd Floor, Roman R.
Santos Building, Plaza Goeti, Manila.

2. That the auditor retained by Eternal Gardens Memorial Park Corp. to audit and examine its financial
position, and which prepared Eternal's audited financial statement for the Fiscal years 1985 and 1986 was
Roseller A. Ditangco, CPA, with offices at No. 6, Plata Street, Tugatog, Malabon, Metro Manila.

3. That the auditor retained by Eternal Gardens Memorial Park Corp. to audit and examine its financial
position, and which prepared Eternal's audited financial statements for the Fiscal years 1987, 1988, 1989,
1990, 1991, 1992 and 1993, was Bernardino T. Dela Cruz, CPA with offices at No. 9, Interior II, K-8th Street,
Kamuning, Quezon City.

4. That true and faithful copies of the audited financial statements of Eternal Gardens Memorial Park
Corp. for the Fiscal years 1981 to 1993, inclusive, specifically those referred to in paragraphs 1, 2 and 3 of
this Request, were submitted to and filed with the Bureau of Internal Revenue as an integral part of
Eternal's Income Tax Returns, as well as with the Securities and Exchange Commission in compliance
with the reportorial requirements of the said Securities and Exchange Commission.

5. That each of the following documents, exhibited with and attached to this request, are true and faithful
copies of the original and genuine documents, thus:
 a. Annex "A" (inclusive of sub-markings from Annexes "A-1" to "A-9") is the audit report
prepared by the accounting firm of Josue, Arceo & Co., (CPAs), of the financial position of
Eternal Gardens Memorial Park Corp. at 31 December 1982;

b. Annex "B" (inclusive of sub-markings from Annexes "B-1" to "B-3") is the audit report
prepared by the accounting firm of Josue, Arceo & Co., (CPAs) of the financial position of
Eternal Gardens Memorial Park Corp. at 31 December 1983;

c. Annex "C" (inclusive of sub-markings from Annexes "C-1" to "C-6") is the audit report
prepared by the accounting firm of Josue, Arceo & Co. (CPAs) of the financial position of
Eternal Gardens Memorial Park Corp. at 31 December 1984;

d. Annex "D" (inclusive of sub-markings from Annexes "D-1" to "D-3") is the audit report
prepared by Roseller A Ditangco, CPA of the financial position of Eternal Gardens
Memorial Park Corp. at 31 December 1985;

e. Annex "E" (inclusive of sub-markings from Annexes "E-1" to "E-8") is the audit report
prepared by Bernardino T. Dela Cruz, CPA; of the financial position of Eternal Gardens
Memorial Park Corp. at 31 December 1987;

f. Annex "F" (inclusive of sub-markings from Annexes "F-1" to "F-7") is the audit report
prepared by Bernardino T. Dela Cruz, CPA, of the financial position of Eternal Gardens
Memorial Park Corp. at 31 December 1989;

g. Annex "G" (inclusive of sub-markings from Annexes "G-1" to "G-9") is the audit report
prepared by Bernardino T. Dela Cruz, CPA, of the financial position of Eternal Gardens
Memorial Park Corp., at 31 December 1990;

h. Annex "H" (inclusive of sub-markings from Annexes "H-1" to "H-13") is the audit report
prepared by Bernardino T. Dela Cruz, CPA, of the financial position of Eternal Gardens
Memorial Park Corp. at 31 December 1991;

i. Annex "I" (inclusive of sub-markings from Annexes "I-1'' to "I-8") is the audit report
prepared by Bernardino T. Dela Cruz, CPA, of the financial position of Eternal Gardens
Memorial Park Corp. at 31 December 1992.

j. Annex "J" (inclusive of sub-markings from Annexes "J-1" to "J-7") is the audit report
prepared by Bernardino T. Dela Cruz, CPA, of the financial position of Eternal Gardens
Memorial Park Corp. at 31 December 1993.26

Meanwhile, EGMPC failed to present the documents required by the subpoena. It further filed a Denial and/or
Objection to the Requests for Admission on the ground that it could not make comparison of the documents
with the originals thereof.27

On November 10, 1995, Ms. Angelo submitted her Report.28

In a Resolution dated January 15, 1996, the Court of Appeals approved the report of Ms. Angelo, finding this "to
be a just and fair account of what Eternal Gardens and Memorial Park owes to the petitioner North Philippine
Union Mission of the Seventh-Day Adventists, and accordingly orders the former to pay and turn over to the
latter the amounts of P167,065,195.00 as principal and P167,235,451.00 in interest . . ."29

EGMPC filed a Motion for Reconsideration, which was denied for lack of merit by the appellate court in a
Resolution dated April 12, 1996.30
On April 29, 1996, EGMPC filed a Motion for Extension of Time to File Petition for Certiorari and Prohibition
with this Court, docketed as G.R. No. 124554, seeking the review of the appellate court's Resolutions dated
January 15, 1996 and April 12, 1996.31 The Court granted this motion for extension,32 and on May 27, 1996, EGMPC
filed the instant petition.33

It appears, however, that in a Report dated May 31, 1996 in CA-G.R. SP No. 04869, the Court of Appeals informed
the parties that its January 15, 1996 Resolution had attained finality considering the following:

The respondent Eternal Gardens Memorial Park received copy of the [January 15, 1996] resolution on
January 22, 1996 and, after twelve (12) days from its receipt or on February 2, 1996, filed a motion for
reconsideration thereof. This Court denied Eternal Garden's motion for reconsideration in a resolution
promulgated April 12, 1996, a copy of which it received on April 18, 1996. After eleven (11) days from
receipt of the resolution denying its motion for reconsideration, or on April 12, 1996 (sic), it filed a motion
for extension to file a petition for review with the Supreme Court.

It is quite clear that after the denial of its motion for reconsideration, Eternal Gardens had only three (3)
days left of the reglementary period to file a petition for review, or only up to April 12, 1996, but Eternal
Gardens allowed that period to lapse, and then filed its motion to extend to file its petition on April 29,
1996 — which is eight (8) days beyond the period of finality of the resolution sought to be reviewed by
the Supreme Court. Consequently, the resolution of January 15, 1996 had attained finality before Eternal
Gardens filed its motion to extend before this Honorable Court.34

Entry of judgment was made on June 6, 1996.35

Following the above incidents, on June 20, 1996, EGMPC filed in G.R. No. 73794 an "Opposition and/or Comment
to the Report of the Court of Appeals dated 31 May 1996" with the prayer:

. . . to disregard and nullify the Report of the Court of Appeals dated May 31, 1996 and at the same time
allow or tolerate the First Division of the Honorable Supreme Court to resolved (sic) the petitioner
Eternal Gardens Petition for Certiorari against the Court of Appeals and NPUM with G.R. No. 124554.36

In retort to EGMPC's opposition, also in G.R. No. 73794, NPUM filed on June 11, 1996 an Omnibus Motion (a) to
dismiss the petition in G.R. No. 124554, or (b) to consolidate the two petitions, and (c) for the issuance of a writ
of execution. NPUM contended that as a consequence of the appellate court's resolutions in CA G.R. SP No.
04869 having attained finality, a writ of execution may be issued under G.R. No. 73794, and EGMPC could no
longer file a separate petition such as that docketed as G.R. No. 124554.37

In its Comment filed on July 17, 1996, in G.R. No. 124554, NPUM prayed for the denial of the petition for "being
frivolous and dilatory", citing EGMPC's violation of Circular No. 04-94 on forum shopping, in reference to its
(EGMPC's) pleadings filed in G.R. No. 73794. NPUM pointed out that the reliefs sought by EGMPC in G.R. No.
124554 were "identical" to those in its Opposition And/Or Comment to the Report of the Court of Appeals dated
31 May 1996 filed in G.R. No. 73794.38

On December 26, 1996, the Regional Trial Court of Kalookan City, Branch 120, issued an Order in the case of
origin, Civil Case No. 9556, granting NPUM's motion for execution of judgment.39 A writ of execution was
subsequently issued by that trial court on January 7, 1997.40

Because of the trial court's issuance of the writ of execution, on January 10, 1997, EGMPC filed in G.R. No. 124554
an Urgent Motion for Restraining Order And/Or Injunction and Motion for Contempt of Court. EGMPC prayed
that "pending resolution of the petition to promptly issue a restraining order and/or injunction against Judge
Jaime Discaya of the RTC Br. 120 of Kalookan City in Civil Case No. 9556 . . ."41
EGMPC also filed in G.R. No. 73794 on January 17, 1997 an Urgent Motion for Restraining Order And/Or
Injunctive Relief with the same prayer as in its Urgent Motion filed in G.R. No. 124554.42

In G.R. No. 124554, the Court granted EGMPC's motion and issued a temporary restraining order against the trial
court's order dated December 16, 1996 and writ of execution dated January 7, 1997.43

In a Resolution dated January 27, 1997 issued in G.R. No. 73794, the Court denied for lack of merit EGMPC's
Urgent Motion.44

The threshold question here is whether Eternal Gardens timely filed its petition for review from the Court of
Appeals' January 15, 1996 and April 12, 1996 Resolutions.

We restate the material dates thus:

EGMPC received a copy of the January 15, 1996 Resolution on January 22, 1996. Twelve days from such receipt, or
on February 2, 1996, EGMPC filed its Motion for Reconsideration. On April 18, 1996, EGMPC received the
appellate court's Resolution of April 12, 1996 denying its Motion for Reconsideration. On April 29, 1996, or eleven
days from its receipt of the denial of its motion for reconsideration, EGMPC filed a motion for extension of time
to file its "Petition for Certiorari and Prohibition" and concurrently paid the legal fees.

We find that EGMPC's Motion for Extension of Time to File a Petition for Review was timely filed on April 29,
1996, such motion having been filed eleven days from receipt of the appellate court's denial of its motion for
reconsideration Supreme Court Circular No. 10 dated August 28, 1986 on modes and periods of appeal provides
thus.

(5) APPEALS BY CERTIORARI TO THE SUPREME COURT

In an appeal by certiorari to this Court under Rule 45 of the Rules of Court, Section 25 of the Interim
Rules and Section 7 of PD 1606, a party may file a petition for review on certiorari of the judgment of a
regional trial court, the Court of Appeals or the Sandiganbayan within fifteen days from notice of
judgment or of the denial of his motion for reconsideration filed in due time, and paying at the same time
the corresponding docket fee (Section 1 of Rule 45). In other words, in the event a motion for
reconsideration is filed and denied, the period of fifteen days begins to run again from notice of denial
(See Codilla vs. Estenzo, 97 SCRA 351; Turingan vs. Cacdad, 122 SCRA 634).

A motion for extension of time to file a petition for review on certiorari may be filed with the Supreme
Court within the reglementary period, paying at the same time the corresponding docket fee.45

While the petition filed by EGMPC purports to be one of certiorari under Rule 65 of the Revised Rules of Court,
we shall treat it as having been filed under Rule 45, considering that it was filed within the 15-day reglementary
period for the filing of a petition for review on certiorari. As the Court stated in Delsan Transport Lines,
Inc. vs. Court of Appeals, where the Court was liberal in its application of the Rules of Court in the interest of
justice: "It cannot . . . be claimed that this petition is being used as a substitute for appeal after that remedy has
been lost through the fault of petitioner. Moreover, stripped of allegations of 'grave abuse of discretion,' the
petition actually avers errors of judgment rather than of jurisdiction, which are the subject of a petition for
review."46

The May 31, 1996 Report of the Court of Appeals informed the parties that the January 15, 1996 Resolution had
attained finality, erroneously applying the rule applicable to petitions for review filed with the Court of Appeals
from a final judgment or order of the regional trial court.47
We cannot and do not in the instant case vacate and set aside the May 31, 1996 Report. The report is not before
this Court on review. We must however, within the milieu of this case, regard the report impertinent by the fact
of EGMPC having timely filed its motion for extension of time to file its petition on April 29, 1996.

We also consider that the consequences of the issuance of the report, that is, the entry of judgment in the
appellate court and the writ of execution issued by the trial court in the case of origin, inextricably affect the
resolution of the instant case. Hence, the rationale for our restraining order of January 15, 1997.

We next consider whether, as asserted by NPUM, EGMPC's petition must be summarily dismissed on the ground
of forum shopping. NPUM points to EGMPC's Opposition and/or Comment to the Report of the Court of
Appeals dated May 31, 1996 filed in G.R. No. 73794 vis-a-vis its Petition for Review in the instant case, and the two
Urgent Motions for the Issuance of a Temporary Restraining Order filed in G.R. No. 73794 and in the instant
case.

NPUM asserts that the reliefs sought by EGMPC in its opposition and in its petition are "identical" We disagree.
The petition here seeks the setting aside of the Court of Appeals' January 1, 1996 and April 12, 1996 Resolutions.

The Opposition in G.R. No. 73794, on the other hand, sought the nullification of the May 31, 1996 Report and as a
corollary, for the instant case to be "allowed or tolerated".

The opposition and the petition do not seek to provoke from this Court the resolution of a same issue, the evil
which Revised Circular No. 28-91 and its companion Administrative Circular No. 04-94 address. We read the
opposition in G.R. No. 73794 as a complement to the petition here, to which it makes categorical and express
reference.48 We consider it as merely a matter of discourse and emphasis that Eternal Gardens reiterated its case
in the later pleading.

Regarding the motions for the issuance of a temporary restraining order filed by EGMPC on January 10, 1997 in
the instant case and on January 17, 1997 in G.R. No. 73794, we consider the exigency which may have prompted
EGMPC to file the motions in both cases. The trial court in the case of origin, acted favorably on NPUM's motion
for the issuance of a writ of execution, the basis of which is the alleged finality of the appellate court's January 15,
1996 Resolution. The trial court ruled that the instant case denominated as an original action for certiorari "does
not interrupt the course of the principal action [G.R No. 73794] nor the running of the period in the
proceeding."49 To not stay the execution considering the trial court's ratiocination would render moot EGMPC's
remedy in the instant case.

NPUM also contends that EGMPC has committed perjury, pointing to the certification under oath filed by
EGMPC, through its President Gabriel O. Vida, where he states "that there is no other case pending in any court
or tribunal in the Philippines, with the same issues in this case . . ."50

Again, we disagree. It does not appear that EGMPC was to pursue the two cases concurrently. EGMPC filed this
new petition, and did not assail the appellate court's resolution under G.R. No. 73794, as in fact the Court has
informed the parties that no further pleadings were to be entertained in G.R. No. 73794 after remand to the
Court of Appeals.51

EGMPC next asserts that the Resolution of the Third Division dated December 1, 1993 ordering the remand to the
Court of Appeals of the case for accounting "changed, modified and reversed" the September 19, 1988 Decision of
the Second Division which ordered the remand of the case to the trial court. EGMPC contends that the Third
Division "is in violation of the constitution which provides that no doctrine or principle of law laid down in a
decision en banc or in division may be changed modified or revised by the Court except when sitting en banc."52

EGMPC had raised the very same issue in its Motion for Reconsideration53 of the December 1, 1993 Resolution.
The Court, in its Resolution dated February 14, 1994 had denied the motion with finality for lack of merit.
Needless to say, the argument raised by EGMPC is utterly without consequence. At the time the September 19,
1988 Decision was rendered, the two civil cases — interpleader and quieting of title — were still pending. What
was brought before the appellate courts and subject of G.R. No. 73794 were mere incidents, and not the
judgment of the trial court; thus, the remand to the trial court for further proceedings on the merits of the case.
The December 1, 1993 Resolution was issued after the issue of ownership of the subject parcel of land was already
resolved with finality. What was left for the courts to do was to have an accounting done of the rights and
liabilities of EGMPC and NPUM, thus, the remand to the Court of Appeals.

We now consider the merits of the case.

The gist of EGMPCs' contention is that it owes the amount of only P35,000,000.00 less advances and not
P167,065,195.00 as principal and P167,235,451.00 in interest as computed by Court Accountant Carmencita C.
Angelo.54

EGMPC first contends that the appellate court, in appointing an accountant to make the computations,
delegated judicial function, such as to determine the admissibility of evidence.55

Under the Revised Internal Rules of the Court of Appeals, that court has the —

d. Authority to receive evidence and perform any and all acts necessary for the resolution of factual issues
raised in cases falling within its original jurisdiction.

For the proper disposition of the case, the appellate court, under the above-quoted authority, designated an
accountant "to receive, collate and analyze the documents to be filed by the parties."56

No judicial function was exercised by Ms. Angelo. She was not asked to rule on the admissibility of the evidence.
The documents were duly marked during the hearing of July 19, 1995, for the consideration of the appellate court,
which alone had the power to decide. Ms. Angelo's role in the proceedings was to prepare a report, which she
did, culling from the documents submitted to her. While it may be true that the report, when adopted by the
appellant court, became part of its decision, judicial power lies, not with the official who prepared the report, but
with the court itself which wields the power of approval or rejection. Under American jurisprudence, the rule is
thus —

It would seem on principle that a commissioner, master or referee appointed by a court to aid it in the
adjudication of a particular case is not a court when performing the functions assigned to him, although
the court may adopt his conclusions in its decision . . . It has, for instance, been held that a statute giving
the supreme court of a state the power to appoint commissioners thereof whose duty shall be, under such
rules and regulations as the court may adopt, to assist it in the performance of its functions, and in
disposing of undetermined cases before it, is not unconstitutional or open to the objection that the
commissioners are vested with judicial power, since the commissioners merely report facts found and
conclusions reached, and the court retains the power to decide which is the only judicial power. It has
also been pointed out that a chancellor does not, by referring a matter to a commissioner, delegate his
judicial function to him. The commissioner is appointed for the purpose of assisting the chancellor, not
to supplant or replace him, and the findings of a commissioner are merely advisory and not binding on
the court.57

EGMPC also contends that it was deprived of due process because it "was not given reasonable opportunity to
know and meet the claim of [NPUM] as its counsel was not able to cross-examine the American Accountant of
[NPUM].58

The contention is without merit.

Contrary to EGMPC's claim, it was given every opportunity to present its case. At the outset, the parties were
asked by the appellate court to submit documents for accounting. NPUM made full utilization of the modes of
discovery, asking the appellate court to subpoena documents and testimonies, and requesting admissions from
EGMPC regarding documents it (EGMPC) had in its possession, documents which emanated from the
corporation itself, and either sent to NPUM as communiques, such as the Letter of Mr. Vida dated April 4, 1980
to Pastor Bienvenido Capule of NPUM stating inter alia that for 1978, EGMPC sold 2,805 memorial lots and that
during the first quarter of 1980 the corporation sold 2,418 lots, totalling 10,730,59 or documents available to the
general public, as in the Price Lists, or filed with government offices, specifically the Securities and Exchange
Commission and the Bureau of Internal Revenue.

EGMPC cannot claim that it was denied the forum to confer with NPUM and NPUM's accountant. The appellate
court had arranged conferences for the parties and their accountants to allow them to discuss with each other
and with Ms. Angelo. Even Ms. Angelo, in her Letter dated November 10, 1995 covering her second and final
report spoke of such a conference, to wit:

In compliance with your instructions in the last conference-meeting with the party-litigants in Case CA-
G.R. No. SP No. 04869 held last August 30, 1995, the undersigned together with the representatives of the
North Philippine Union Mission (NPUM) and the Eternal Gardens Memorial, Inc. had a discussion on the
computations made by each of the party of the amount due to the North Philippine Union Mission which
were submitted to the Court.60

It was not even imperative that EGMPC cross-examine the accountant who prepared EGMPC's computation, and
there was no denial of due process without such cross-examination. This computation was merely to aid Ms.
Angelo, who was to make her own independent computation from the documents submitted to her.

EGMPC also asserts that "substantially if not all records, documents and papers submitted by the private
respondent NPUM to the Court's Accountant which eventually became the basis of the report and Resolution of
January 15, 1996 of the public respondent Court, were not genuine and not properly identified by the persons
who were supposed to have executed the same including the alleged financial statement of Eternal Gardens
allegedly issued by the Securities and Exchange Commission (SEC)."61

From the transcript of stenographic notes of the proceedings in the appellate court, we find that EGMPC
acquiesced to the use of the documents submitted by NPUM, including the financial statements, even actively
participating in the discussion of the contents of such documents. EGMPC's main objection was only on how the
entries in these documents were to be interpreted, for example, on how payments towards the perpetual care
fund would be credited.62 EGMPC did not object even when counsel for NPUM read into the records the
contents of the documents.63

It even appears that after Ms. Angelo came up with her first report, EGMPC's counsel expressed that it was
"amenable to that computation."64 In that report, Ms. Angelo had stressed that "[s]ince the Eternal Gardens
Memorial Park, Inc. did not submit to the Court any documents pertaining to the computations of the 40% share
of the North Philippine Union Mission of the Seventh Day Adventists, then we have no other recourse but to
base the computation on the available figures and on the other documents as presented by the petitioner
[NPUM]."65

EGMPC lastly contends that it is not liable for interest. It claims that it was justified in withholding payment as
there was still the unresolved issue of ownership over the property subject of the Land Development Agreement
of October 6, 1976.66

The argument is without merit EGMPC under the agreement had the obligation to remit monthly to NPUM forty
percent (40%) of its net gross collection from the development of a memorial park on property owned by NPUM.
The same agreement provided for the designation of a depository/trustee bank to act as the depository/trustee
for all funds collected by EGMPC.67 There was no obstacle, legal or otherwise, to the compliance by EGMPC of
this provision in the contract, even on the affectation that it did not know to whom payment was to be made.

Even disregarding the agreement, EGMPC cannot "suspend" payment on the pretext that it did not know who
among the subject property's claimants was the rightful owner. It had a remedy under the New Civil Code of the
Philippines — to give in consignation the amounts due, as these fell due.68 Consignation produces the effect of
payment.69

The rationale for consignation is to avoid the performance of an obligation becoming more onerous to the debtor
by reason of causes not imputable to
him.70 For its failure to consign the amounts due, Eternal Gardens' obligation to NPUM necessarily became more
onerous as it became liable for interest on the amounts it failed to remit.

Notably, EGMPC filed an interpleader action, "the essence of which, aside from the disavowal of interest in the
property in litigation on the part of the petitioner, is the deposit of the property or funds in controversy with the
court." Yet from the outset, EGMPC had assailed any court ruling ordering the deposit with a reputable bank of
the amounts due from it under the Land Development Agreement. In G.R. No. 73794,71 the Court made the
following discourse on the disavowal of EGMPC of its obligations, thus:

In the case at bar, a careful analysis of the records will show that petitioner admitted among others in its
complaint in Interpleader that it is still obligated to pay certain amount to private respondent; that it
claims no interest in such amounts due and is willing to pay whoever is declared entitled to said
amounts. Such admissions in the complaint were reaffirmed in open court before the Court of Appeals as
stated in the latter court's resolution dated September 5, 1985 in C.A. G.R. No. 04869 which states:

The private respondent (MEMORIAL) then reaffirms before the Court its original position
that it is a disinterested party with respect to the property now the subject of the
interpleader case.

In the light of the willingness, expressly made before the court, affirming the complaint
filed below, that the private respondent (MEMORIAL) will pay whatever is due on the
Land Development Agreement to the rightful owner/owners, there is no reason why the
amount due on subject agreement has not been placed in the custody of the Court.

Under the circumstances, there appears to be no plausible reason for petitioner's objections to the
deposit of the amounts in litigation after having asked for the assistance of the lower court by filing a
complaint for interpleader where the deposit of aforesaid amounts is not only required by the nature of
the action but is a contractual obligation of the petitioner under the Land Development Program.

As correctly observed by the Court of Appeals, the essence of an interpleader, aside from the disavowal of
interest in the property in litigation on the part of the petitioner, is the deposit of the property or funds in
controversy with the court, it is a rule founded on justice and equity: "that the plaintiff may not continue
to benefit from the property or funds in litigation during pendency of the suit at the expense of whoever
will ultimately be decided as entitled thereto."

The case at bar was elevated to the Court of Appeals on certiorari with prohibitory and mandatory
injunction. Said appellate court found that more than twenty million pesos are involved; so that on
interest alone for savings or time deposit would be considerable, now accruing in favor of the Eternal
Gardens. Finding that such is violative of the very essence of the complaint for interpleader as it clearly
runs against the interest of justice in this case, the Court of Appeals cannot be faulted for finding that the
lower court committed a grave abuse of discretion which requires correction by the requirement that a
deposit of said amounts should be made to a bank approved by the Court.
 Petitioner would now compound the issue by its obvious turnabout, presently claiming in its
memorandum that there is a novation of contract so that the amounts due under the Land Development
Agreement were allegedly extinguished, and the requirement to make a deposit of said amounts in a
depository bank should be held in abeyance until after the conflicting claims of ownership now on trial
before Branch CXXII RTC-Caloocan City, has finally been resolved.

All these notwithstanding, the need for the deposit in question has been established, not only in the
lower courts and in the Court of Appeals but also in the Supreme Court where such deposit was required
in the resolution of July 8, 1987 to avoid wastage of funds.

Even during the pendency of G.R. No. 73794, EGMPC was required to deposit the accruing interests with a
reputable commercial bank "to avoid possible wastage of funds" when the case was given due course.72 Yet,
EGMPC hedged in depositing the amounts due and made obvious attempts to stay payment by filing sundry
motions and pleadings.

We thus find that the Court of Appeals correctly held Eternal Gardens liable for interest at the rate of twelve
percent (12%). The withholding of the amounts due under the agreement was tantamount to a forbearance of
money.73

CONSIDERING THE FOREGOING, the Court Resolved to DENY the petition. The Resolutions dated January 15,
1996 and April 12, 1996 are AFFIRMED. The temporary restraining order issued by this Court on January 15, 1997
is LIFTED.

SO ORDERED.

 March 13, 2017

G.R. No. 206037

PHILIPPINE NATIONAL BANK, Petitioner

vs
LILIBETH S. CHAN, Respondent

D E C I S I O N

DEL CASTILLO, J.:

We resolve the Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the May 28, 2012
Decision1 and the February 21, 2013 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 98112.

The Antecedent Facts

Respondent Lilibeth S. Chan owns a three-story commercial building located along A. Linao Street, Paco, Manila
covered by Transfer Certificate of Title (TCT) No. 208782.3 On May 10, 2000, she leased said commercial building
to petitioner Philippine National Bank (PNB) for a period of five years from December 15, 1999 to December 14,
2004, with a monthly rental of ₱76,160.00.4 When the lease expired, PNB continued to occupy the property on a
month-to-month basis with a monthly rental of ₱116,788.44. PNB vacated the premises on March 23, 2006.5

Meanwhile, on January 22, 2002, respondent obtained a ₱l,500,000.00 loan from PNB which was secured by a
Real Estate Mortgage constituted over the leased property.6 In addition, respondent executed a Deed of
Assignment7 over the rental payments in favor of PNB.

The amount of the respondent's loan was subsequently increased to ₱7,500,000.00. Consequently, PNB and the
respondent executed an "Amendment to the Real Estate Mortgage by Substitution of Collateral" on March 31,
2004, where the mortgage over the leased property was released and substituted by a mortgage over a parcel of
land located in Paco, Manila, covered by TCT No. 209631.8

On August 26, 2005, respondent filed a Complaint for Unlawful Detainer before the Metropolitan Trial Court
(MeTC), Branch 7, Manila against PNB, alleging that the latter failed to pay its monthly rentals from October
2004 until August 2005:9

In its defense, PNB claimed that it applied the rental proceeds from October 2004 to January 15, 2005 as payment
for respondent's outstanding loan which became due and demandable in October 2004.10 As for the monthly
rentals from January 16, 2005 to February 2006, PNB explained that it received a demand letter11 from a certain
Lamberto Chua (Chua) who claimed to be the new owner of the leased property and requested that the rentals
be paid directly to him, reckoned from January 15, 2005 until PNB decides to vacate the premises or a new lease
contract with Chua is executed. PNB thus deposited the rentals in a separate non-drawing savings account for
the benefit of the rightful party.12

The MeTC held a hearing on April 25, 2006 where the parties agreed to apply the rental proceeds from October
2004 to January 15, 2005 to the respondent's outstanding loan.13 PNB, too, consigned the amount of
₱l,348,643.92, representing ti1ie rentals due from January 16, 2005 to February 2006, with the court on May 31,
2006.14

Ruling of the Metropolitan Trial Court

In its August 9, 2006 Decision,15 the MeTC ordered PNB to pay respondent accrued rentals in the amount of
₱l,348,643.92,16 with interest at 6% per annum from January 16, 2005 up to March 23, 2006, when PNB finally
vacated the leased propeity.17 The MeTC likewise directed PNB to pay attorney's fees in the amount of ₱20,000.00
and the cost of suit.

PNB appealed the August 9, 2006 MeTC Decision to the Regional Trial Court (RTC), Branch 14, Manila, insisting
that respondent is not entitled to the disputed rental proceeds amounting to ₱l,348,643.92. According to PNB,
the money should be applied to offset respondent's outstanding loan pursuant to the

Deed of Assignment the latter executed in its favor. PNB also argued that it is not liable to pay any interest on
the lease rentals since it did not incur any delay in the payment of rent.18

While the appeal was pending before the RTC, PNB initiated foreclosure proceedings on the mortgaged property
covered by TCT No. 209631.19 The property was sold on October 31, 2006 for ₱l5,311,000.00 to PNB as the highest
bidder. Notably, the Certificate of Sale provides that respondent's indebtedness amounted to ₱ll,211,283.53 as of
May 15, 2005, "exclusive of penalties, expenses, charges and the ten (10) percent attorney's fees, plus sheriff fees
and other lawful expenses of foreclosure and sale."20

In light of this development, respondent filed a Memorandum21 before the RTC, claiming that PNB had no right
to retain foe ₱l,348,643.92 consigned with the court. She insisted that her loan was fully paid when PNB bought
the mortgaged property at ₱15,3ll,000.00.22

PNB filed a Rejoinder23 and argued that respondent's outstanding obligation as of October 31, 2006 was
₱18,016,300.71 while the bid price was only ₱l5,31l,000.00. Thus, PNB claimed that it is entitled to a deficiency
claim amounting to ₱2,705,300.71 to which the rental proceeds of ₱l,348,643.92 can be applied.24

Ruling of the Regional Trial Court

The RTC affirmed the MeTC ruling in its December 7, 2006 Decision.25 It found that respondent's obligation to
PNB "has already been paid, notwithstanding the belated claim of [the latter] that there remains a
deficiency."26 The RTC noted that the ₱11,211,283.53 amount of indebtedness stated in the Notice of Extra-Judicial
Sale27 dated August 9, 2006 as of May 15, 2006 plus penalties, expenses, charges, attorney's fees and expenses
could have been easily covered by the ₱l5,31l,000.00 bid price.28

In addition, the RTC held that PNB incurred delay "when despite demand, it refused to pay and vacate the
premises.29 " As such, the RTC ruled that the respondent is entitled to legal interest at 6% per annum and
attorney's fees for having been compelled to litigate to protect her interests.30

The respondent then moved for the issuance of a Writ of Execution which was granted by the HTC in its
December 18, 2006 Order.31 According to the Sheriff's Report of Execution32 dated January 2, 2007, the amount of
₱l,348,643.92, representing the monthly rentals from January 16, 2005 up to March 23, 2006, was turned over to
the respondent on December 20, 2006.33

PNB filed a motion for reconsideration of the December 7, 2006 Decision and for the quashal of the Writ of
Execution, but the RTC denied the motion in its Order dated February 6, 2007.34 Following the denial, PNB filed
a Petition for Review under Rule 42 of the Rules of Court before the CA, challenging the RTC's December 7, 2006
Decision and February 6, 2007 Order.

Ruling of the Court of Appeals

The CA pointed out that PNB' s entitlement to the rental proceeds in the amount of ₱1,348,643.92 is dependent
on whether there is a deficiency in payment after the foreclosure sale.35 It, however, found no sufficient evidence
on record that the amount of respondent's liability as of October 31, 2006 is indeed ₱18,016,300.71, as PNB
claims.36 Consequently, the CA remanded the case the MeTC for the proper reception of evidence and
determination, if any, of the deficiency on the foreclosure sale with the following guidelines:37
(1) From October 2004 to January 15, 2005: Principal+ Interest+ Penalties - Monthly Rentals (from October 2004
to January 15, 2005 by virtue of the Deed of Assignment) =New Principal

(2) From January 16, 2005 to October 31, 2006: New Principal + Interest + Penalties - Interest Earned by PN'B
from the Savings Account = Outstanding Obligation as of October 31, 2006

(3) Outstanding Obligation as of October 31, 2006 – ₱15,311,000.00 = Deficiency38

As regards the payment of legal interest, the CA noted that PNB merely opened a non-drawing savings account
wherein it deposited the monthly rentals from January 16, 2005 to February 2006. Such deposit of the rentals in a
savings account, however, is not the consignation contemplated by law. Thus, the CA found PNB liable to pay
the 6% legal interest rate prescribed under Article 2209 of the Civil Code for having defaulted in the payment of
its monthly rentals to the respondent.39

Finally, the CA deleted the award of atton1ey's fees, pursuant to the general rule that attorney's fees cannot be
recovered as part of damages because of the public policy that no premium should be placed on the right to
litigate.40

PNB filed a partial Motion for Reconsideration, but the CA denied the motion in its Resolution dated February
21, 2013. As a consequence, PNB filed the present Petition for Review on Certiorari before the Court, assailing the
CA's May 28, 2012 Decision and February 21, 2013 Resolution.

Issues

In the present Petition, PNB raises the following issues for the Court's resolution: first, whether PNB properly
consigned the disputed rental payments in the amount of ₱l,348,643.92 with the Office of the Clerk of Court of
the MeTC of Manila;41 second, whether PNB incurred delay in the payment of rentals to the respondent, making
it liable to pay legal interest to the latter;42 and third, whether PNB is entitled to the disputed rental proceeds in
order to cover the alleged deficiency in payment of the respondent's liability after the foreclosure proceedings.43

The Court's Ruling

We DENY the Petition for Review on Certiorari as we find no reversible error committed by the CA in issuing its
assailed Decision and Resolution.

"Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment. [ I]t generally requires a prior tender of payment."44

Under Article 1256 of the Civil Code, consignation alone is sufficient even without a prior tender of payment a)
when the creditor is absent or unknown or does not appear at the place of payment; b) when he is incapacitated
to receive the payment at the time it is due; c) when, without just cause, he refuses to give a receipt; d) when two
or more persons claim the same right to collect; and e) when the title of the obligation has been lost.

For consignation to be valid, the debtor must comply with the following requirements under the law:

1) there was a debt due;

2) valid prior tender of payment, unless the consignation was made because of some legal cause provided in
Article 1256;

3) previous notice of the consignation has been given to the persons interested in the performance of the
obligation;
4) the amount or thing due was placed at the disposal of the court; and,

5) after the consignation had been made, the persons interested were notified thereof:45

"Failure in any of the requirements is enough ground to render a consignation ineffective."46

In the present case, the records show that: first, PNB had the obligation to pay respondent a monthly rental of
₱l16,788.44, amounting to ₱l,348,643.92, from January 16, 2005 to March 23, 2006;47 second, PNB had the option
to pay the monthly rentals to respondent or to apply the same as payment for respondent's loan with the bank,
but PNB did neither;48 third, PNB instead opened a non-drawing savings account at its Paco Branch under
Account No. 202- 565327-3, where it deposited the subject monthly rentals, due to the claim of Chua of the same
right to collect the rent;49 and fourth, PNB consigned the amount of Pl,348,643.92 with the Office of the Clerk of
Court of the MeTC of Manila on

May 31, 2006.50

Note that PNB's deposit of the subject monthly rentals in a non-drawing savings account is not the consignation
contemplated by law, precisely because it does not place the same at the disposal of the court.51 Consignation
is necessarily judicial; it is not allowed in venues other than the courts.52 Consequently, PNB's obligation to pay
rent for the period of January 16, 2005 up to March 23, 2006 remained subsisting, as the deposit of the rentals
cannot be considered to have the effect of payment.

It is important to point out that PNB's obligation to pay the subject monthly rentals had already fallen due and
demandable before PNB consigned the rental proceeds with the MeTC on May 31, 2006. Although it is true that
consignment has a retroactive effect, such payment is deemed to have been made only at the time of the
deposit of the thing in court or when it was placed at the disposal of the judicial authority.53 Based on these
premises, PNB's payment of the monthly rentals can only be considered to have been made not earlier than May
31, 2006.

Given its belated consignment of the rental proceeds in court, PNB clearly defaulted in the payment of monthly
rentals to the respondent for the period January 16, 2005 up to March 23, 2006, when it finally vacated the leased
property, As such, it is liable to pay interest in accordance with Article 2209 of the Civil Code.1âwphi1

Article 2209 provides that if the debtor incurs delay in the performance of an obligation consisting of the
payment of a sum of money, he shall be liable to pay the interest agreed upon, and in the absence of stipulation,
the legal interest at 6% per annum. There being no stipulated interest in this case, PNB is liable to pay legal
interest at 6% per annum, from January 16, 2005 up to May 30, 2006

As for the issue on PNB' s entitlement to the subject rental proceeds to cover the deficiency in payment after the
foreclosure sale of the mortgaged property, we agree with the CA's finding that there is no sufficient evidence on
record to show that such a deficiency exists.54 Unfortunately, the Statement of Account55 submitted by PNB is
not enough to prove this claim, considering that it is unsupported by any corroborating evidence. Besides, the
copy of the document in our records, both in the CA rollo and the Supreme Court rollo,56 consists of illegible
pages.

We likewise agree with the CA's conclusion that the RTC seriously erred when it categorically stated that the
loan was folly paid by virtue of the foreclosure sale without determining the extent of the respondent's liability as
of October 1, 2006, the date of the foreclosure sale.57 Specifically, the RTC held that:

x x x In this regard, the amount of the indebtedness was clearly stated in the Notice of Extra-Judicial Sale dated
August 9, 2006 as ₱l1,211,283.53, as of May 15, [2006], exclusive of penalties, expenses, charges, attorney's fees and
expenses. And since the property was sold to the bank as the winning bidder at ₱15,311,000,00, obviously, the
difference could have easily covered the said penalties, etc."58
This is clearly an error. It is settled that a mortgagee has the light to recover the deficiency resulting from the
difference between the amount obtained in the sale at public auction and the outstanding obligation of the
mortgagor at the time of the foreclosure proceedings.59 The RTC failed to consider that the amount of
indebtedness indicated in the Notice of Extra-Judicial Sale60 dated August 9, 2006 was computed by PNB as of
May 15, 2006. Surely, the respondent's liability would have significantly increased by the time the foreclosure sale
was held on October 31, 2006.

It also appears that the RTC merely assumed that the bid price would cover the deficiency in payment, without
actually making a determination of whether such a deficiency exists and how much it really is.

In these lights, we uphold the CA's ruling remanding the case to the MeTC for the proper reception of evidence
and computation of respondent's total indebtedness as of October 31, 2006, in order to determine whether there
exists a deficiency in payment as PNB insists.

WHEREFORE, we DENY the Petition for Review on Certiorari and AFFIRM the Decision dated May 28, 2012
and the Resolution dated February 21, 2013 of the Court of Appeals in CA-G.R. SP No. 98112.

SO ORDERED.

 G.R. No. 107112 February 24, 1994

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,

vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO
II), respondents.

NOCON, J.:

The case of Reyes v. Caltex (Philippines), Inc.1 enunciated the doctrine that where a person by his contract
charges himself with an obligation possible to be performed, he must perform it, unless its performance is
rendered impossible by the act of God, by the law, or by the other party, it being the rule that in case the party
desires to be excused from performance in the event of contingencies arising thereto, it is his duty to provide the
basis therefor in his contract.

With the enactment of the New Civil Code, a new provision was included therein, namely, Article 1267 which
provides:

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

In the report of the Code Commission, the rationale behind this innovation was explained, thus:

The general rule is that impossibility of performance releases the obligor. However, it is
submitted that when the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to release the obligor in whole or in
part. The intention of the parties should govern and if it appears that the service turns out to be
so difficult as to have been beyond their contemplation, it would be doing violence to that
intention to hold their contemplation, it would be doing violence to that intention to hold the
obligor still responsible.2

In other words, fair and square consideration underscores the legal precept therein.

Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of Appeals of Article 1267 in
favor of Camarines Sur II Electric Cooperative, Inc. in the case before us. Stated differently, the former insists
that the complaint should have been dismissed for failure to state a cause of action.

The antecedent facts, as narrated by respondent Court of Appeals are, as follows:

Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance
telephone service in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO
II) is a private corporation established for the purpose of operating an electric power service in the same city.

On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the operation of
its telephone service the electric light posts of private respondent in Naga City. In consideration therefor,
petitioners agreed to install, free of charge, ten (10) telephone connections for the use by private respondent in
the following places:

(a) 3 units — The Main Office of (private respondent);

(b) 2 Units — The Warehouse of (private respondent);

 (c) 1 Unit — The Sub-Station of (private respondent) at Concepcion Pequeña;

(d) 1 Unit — The Residence of (private respondent's) President;

(e) 1 Unit — The Residence of (private respondent's) Acting General Manager; &

(f) 2 Units — To be determined by the General Manager.3

Said contract also provided:

(a) That the term or period of this contract shall be as long as the party of the first part has need
for the electric light posts of the party of the second part it being understood that this contract
shall terminate when for any reason whatsoever, the party of the second part is forced to stop,
abandoned [sic] its operation as a public service and it becomes necessary to remove the electric
lightpost; (sic)4

It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay, then a member of the
Board of Directors of private respondent and at the same time the legal counsel of petitioner.

After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989 with the
Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners for reformation of the contract
with damages, on the ground that it is too one-sided in favor of petitioners; that it is not in conformity with the
guidelines of the National Electrification Administration (NEA) which direct that the reasonable compensation
for the use of the posts is P10.00 per post, per month; that after eleven (11) years of petitioners' use of the posts,
the telephone cables strung by them thereon have become much heavier with the increase in the volume of their
subscribers, worsened by the fact that their linemen bore holes through the posts at which points those posts
were broken during typhoons; that a post now costs as much as P2,630.00; so that justice and equity demand
that the contract be reformed to abolish the inequities thereon.

As second cause of action, private respondent alleged that starting with the year 1981, petitioners have used 319
posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside Naga City, without any
contract with it; that at the rate of P10.00 per post, petitioners should pay private respondent for the use thereof
the total amount of P267,960.00 from 1981 up to the filing of its complaint; and that petitioners had refused to
pay private respondent said amount despite demands.

And as third cause of action, private respondent complained about the poor servicing by petitioners of the ten
(10) telephone units which had caused it great inconvenience and damages to the tune of not less than
P100,000.00

In petitioners' answer to the first cause of action, they averred that it should be dismissed because (1) it does not
sufficiently state a cause of action for reformation of contract; (2) it is barred by prescription, the same having
been filed more than ten (10) years after the execution of the contract; and (3) it is barred by estoppel, since
private respondent seeks to enforce the contract in the same action. Petitioners further alleged that their
utilization of private respondent's posts could not have caused their deterioration because they have already
been in use for eleven (11) years; and that the value of their expenses for the ten (10) telephone lines long enjoyed
by private respondent free of charge are far in excess of the amounts claimed by the latter for the use of the
posts, so that if there was any inequity, it was suffered by them.

Regarding the second cause of action, petitioners claimed that private respondent had asked for telephone lines
in areas outside Naga City for which its posts were used by them; and that if petitioners had refused to comply
with private respondent's demands for payment for the use of the posts outside Naga City, it was probably
because what is due to them from private respondent is more than its claim against them.
And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone service had
been categorized by the National Telecommunication Corporation (NTC) as "very high" and of "superior quality."

During the trial, private respondent presented the following witnesses:

(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf, declared that it was
petitioner Maggay who prepared the contract; that the understanding between private respondent and
petitioners was that the latter would only use the posts in Naga City because at that time, petitioners' capability
was very limited and they had no expectation of expansion because of legal squabbles within the company; that
private respondent agreed to allow petitioners to use its posts in Naga City because there were many subscribers
therein who could not be served by them because of lack of facilities; and that while the telephone lines strung to
the posts were very light in 1977, said posts have become heavily loaded in 1989.

(2) Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance Department, declared
that the posts being used by petitioners totalled 1,403 as of April 17, 1989, 192 of which were in the towns of Pili,
Canaman, and Magarao, all outside Naga City (Exhs. "B" and "B-1"); that petitioners' cables strung to the posts in
1989 are much bigger than those in November, 1977; that in 1987, almost 100 posts were destroyed by typhoon
Sisang: around 20 posts were located between Naga City and the town of Pili while the posts in barangay
Concepcion, Naga City were broken at the middle which had been bored by petitioner's linemen to enable them
to string bigger telephone lines; that while the cost per post in 1977 was only from P700.00 to P1,000.00, their
costs in 1989 went up from P1,500.00 to P2,000.00, depending on the size; that some lines that were strung to the
posts did not follow the minimum vertical clearance required by the National Building Code, so that there were
cases in 1988 where, because of the low clearance of the cables, passing trucks would accidentally touch said
cables causing the posts to fall and resulting in brown-outs until the electric lines were repaired.

(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and Manager of
Region V of NEA, declared that according to NEA guidelines in 1985 (Exh. "C"), for the use by private telephone
systems of electric cooperatives' posts, they should pay a minimum monthly rental of P4.00 per post, and
considering the escalation of prices since 1985, electric cooperatives have been charging from P10.00 to P15.00 per
post, which is what petitioners should pay for the use of the posts.

(4) Engineer Antonio Macandog, Department Head of the Office of Services of private respondent, testified on
the poor service rendered by petitioner's telephone lines, like the telephone in their Complaints Section which
was usually out of order such that they could not respond to the calls of their customers. In case of disruption of
their telephone lines, it would take two to three hours for petitioners to reactivate them notwithstanding their
calls on the emergency line.

(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board of Directors asked him to
study the contract sometime during the latter part of 1982 or in 1983, as it had appeared very disadvantageous to
private respondent. Notwithstanding his recommendation for the filing of a court action to reform the contract,
the former general managers of private respondent wanted to adopt a soft approach with petitioners about the
matter until the term of General Manager Henry Pascual who, after failing to settle the matter amicably with
petitioners, finally agreed for him to file the present action for reformation of contract.

On the other hand, petitioner Maggay testified to the following effect:

(1) It is true that he was a member of the Board of Directors of private respondent and at the same time the
lawyer of petitioner when the contract was executed, but Atty. Gaudioso Tena, who was also a member of the
Board of Directors of private respondent, was the one who saw to it that the contract was fair to both parties.

(2) With regard to the first cause of action:

(a) Private respondent has the right under the contract to use ten (10) telephone units of petitioners for as long
as it wishes without paying anything therefor except for long distance calls through PLDT out of which the latter
get only 10% of the charges.

(b) In most cases, only drop wires and not telephone cables have been strung to the posts, which posts have
remained erect up to the present;

(c) Petitioner's linemen have strung only small messenger wires to many of the posts and they need only small
holes to pass through; and

(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga City are according to
standard and comparable to those of PLDT. The accidents mentioned by private respondent involved trucks that
were either overloaded or had loads that protruded upwards, causing them to hit the cables.

(3) Concerning the second cause of action, the intention of the parties when they entered into the contract was
that the coverage thereof would include the whole area serviced by petitioners because at that time, they already
had subscribers outside Naga City. Private respondent, in fact, had asked for telephone connections outside Naga
City for its officers and employees residing there in addition to the ten (10) telephone units mentioned in the
contract. Petitioners have not been charging private respondent for the installation, transfers and re-connections
of said telephones so that naturally, they use the posts for those telephone lines.

(4) With respect to the third cause of action, the NTC has found petitioners' cable installations to be in
accordance with engineering standards and practice and comparable to the best in the country.

On the basis of the foregoing countervailing evidence of the parties, the trial court found, as regards private
respondent's first cause of action, that while the contract appeared to be fair to both parties when it was entered
into by them during the first year of private respondent's operation and when its Board of Directors did not yet
have any experience in that business, it had become disadvantageous and unfair to private respondent because of
subsequent events and conditions, particularly the increase in the volume of the subscribers of petitioners for
more than ten (10) years without the corresponding increase in the number of telephone connections to private
respondent free of charge. The trial court concluded that while in an action for reformation of contract, it cannot
make another contract for the parties, it can, however, for reasons of justice and equity, order that the contract
be reformed to abolish the inequities therein. Thus, said court ruled that the contract should be reformed by
ordering petitioners to pay private respondent compensation for the use of their posts in Naga City, while private
respondent should also be ordered to pay the monthly bills for the use of the telephones also in Naga City. And
taking into consideration the guidelines of the NEA on the rental of posts by telephone companies and the
increase in the costs of such posts, the trial court opined that a monthly rental of P10.00 for each post of private
respondent used by petitioners is reasonable, which rental it should pay from the filing of the complaint in this
case on January 2, 1989. And in like manner, private respondent should pay petitioners from the same date its
monthly bills for the use and transfers of its telephones in Naga City at the same rate that the public are paying.

On private respondent's second cause of action, the trial court found that the contract does not mention
anything about the use by petitioners of private respondent's posts outside Naga City. Therefore, the trial court
held that for reason of equity, the contract should be reformed by including therein the provision that for the use
of private respondent's posts outside Naga City, petitioners should pay a monthly rental of P10.00 per post, the
payment to start on the date this case was filed, or on January 2, 1989, and private respondent should also pay
petitioners the monthly dues on its telephone connections located outside Naga City beginning January, 1989.

And with respect to private respondent's third cause of action, the trial court found the claim not sufficiently
proved.

Thus, the following decretal portion of the trial court's decision dated July 20, 1990:
 WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering the reformation
of the agreement (Exh. A); ordering the defendants to pay plaintiff's electric poles in Naga City
and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places where
defendant NATELCO uses plaintiff's electric poles, the sum of TEN (P10.00) PESOS per plaintiff's
pole, per month beginning January, 1989 and ordering also the plaintiff to pay defendant
NATELCO the monthly dues of all its telephones including those installed at the residence of its
officers, namely; Engr. Joventino Cruz, Engr. Antonio Borja, Engr. Antonio Macandog, Mr. Jesus
Opiana and Atty. Luis General, Jr. beginning January, 1989. Plaintiff's claim for attorney's fees and
expenses of litigation and defendants' counterclaim are both hereby ordered dismissed. Without
pronouncement as to costs.

Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals. In the decision
dated May 28, 1992, respondent court affirmed the decision of the trial court,5 but based on different grounds to
wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the contract was subject to a potestative
condition which rendered said condition void. The motion for reconsideration was denied in the resolution
dated September 10, 1992.6 Hence, the present petition.

Petitioners assign the following pertinent errors committed by respondent court:

1) in making a contract for the parties by invoking Article 1267 of the New Civil Code;

2) in ruling that prescription of the action for reformation of the contract in this case commenced
from the time it became disadvantageous to private respondent; and

3) in ruling that the contract was subject to a potestative condition in favor of petitioners.

Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily because the
contract does not involve the rendition of service or a personal prestation and it is not for future service with
future unusual change. Instead, the ruling in the case of Occeña, et al. v. Jabson, etc., et al.,7 which interpreted the
article, should be followed in resolving this case. Besides, said article was never raised by the parties in their
pleadings and was never the subject of trial and evidence.

In applying Article 1267, respondent court rationalized:

We agree with appellant that in order that an action for reformation of contract would lie and
may prosper, there must be sufficient allegations as well as proof that the contract in question
failed to express the true intention of the parties due to error or mistake, accident, or fraud.
Indeed, in embodying the equitable remedy of reformation of instruments in the New Civil Code,
the Code Commission gave its reasons as follows:

Equity dictates the reformation of an instrument in order that the true intention of
the contracting parties may be expressed. The courts by the reformation do not
attempt to make a new contract for the parties, but to make the instrument
express their real agreement. The rationale of the doctrine is that it would be
unjust and inequitable to allow the enforcement of a written instrument which
does not reflect or disclose the real meeting of the minds of the parties. The rigor
of the legalistic rule that a written instrument should be the final and inflexible
criterion and measure of the rights and obligations of the contracting parties is
thus tempered to forestall the effects of mistake, fraud, inequitable conduct, or
accident. (pp. 55-56, Report of Code Commission)

Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code provide in essence that where
through mistake or accident on the part of either or both of the parties or mistake or fraud on the
part of the clerk or typist who prepared the instrument, the true intention of the parties is not
expressed therein, then the instrument may be reformed at the instance of either party if there
was mutual mistake on their part, or by the injured party if only he was mistaken.

Here, plaintiff-appellee did not allege in its complaint, nor does its evidence prove, that there was
a mistake on its part or mutual mistake on the part of both parties when they entered into the
agreement Exh. "A", and that because of this mistake, said agreement failed to express their true
intention. Rather, plaintiff's evidence shows that said agreement was prepared by Atty. Luciano
Maggay, then a member of plaintiff's Board of Directors and its legal counsel at that time, who
was also the legal counsel for defendant-appellant, so that as legal counsel for both companies
and presumably with the interests of both companies in mind when he prepared the aforesaid
agreement, Atty. Maggay must have considered the same fair and equitable to both sides, and this
was affirmed by the lower court when it found said contract to have been fair to both parties at
the time of its execution. In fact, there were no complaints on the part of both sides at the time of
and after the execution of said contract, and according to 73-year old Justino de Jesus, Vice
President and General manager of appellant at the time who signed the agreement Exh. "A" in its
behalf and who was one of the witnesses for the plaintiff (sic), both parties complied with said
contract "from the very beginning" (p. 5, tsn, April 17, 1989).

That the aforesaid contract has become inequitous or unfavorable or disadvantageous to the
plaintiff with the expansion of the business of appellant and the increase in the volume of its
subscribers in Naga City and environs through the years, necessitating the stringing of more and
bigger telephone cable wires by appellant to plaintiff's electric posts without a corresponding
increase in the ten (10) telephone connections given by appellant to plaintiff free of charge in the
agreement Exh. "A" as consideration for its use of the latter's electric posts in Naga City, appear,
however, undisputed from the totality of the evidence on record and the lower court so found.
And it was for this reason that in the later (sic) part of 1982 or 1983 (or five or six years after the
subject agreement was entered into by the parties), plaintiff's Board of Directors already asked
Atty. Luis General who had become their legal counsel in 1982, to study said agreement which
they believed had become disadvantageous to their company and to make the proper
recommendation, which study Atty. General did, and thereafter, he already recommended to the
Board the filing of a court action to reform said contract, but no action was taken on Atty.
General's recommendation because the former general managers of plaintiff wanted to adopt a
soft approach in discussing the matter with appellant, until, during the term of General Manager
Henry Pascual, the latter, after failing to settle the problem with Atty. Luciano Maggay who had
become the president and general manager of appellant, already agreed for Atty. General's filing
of the present action. The fact that said contract has become inequitous or disadvantageous to
plaintiff as the years went by did not, however, give plaintiff a cause of action for reformation of
said contract, for the reasons already pointed out earlier. But this does not mean that plaintiff is
completely without a remedy, for we believe that the allegations of its complaint herein and the
evidence it has presented sufficiently make out a cause of action under Art. 1267 of the New Civil
Code for its release from the agreement in question.

xxx xxx xxx

The understanding of the parties when they entered into the Agreement Exh. "A" on November 1,
1977 and the prevailing circumstances and conditions at the time, were described by Dioscoro
Ragragio, the President of plaintiff in 1977 and one of its two officials who signed said agreement
in its behalf, as follows:

Our understanding at that time is that we will allow NATELCO to utilize the posts
of CASURECO II only in the City of Naga because at that time the capability of
NATELCO was very limited, as a matter of fact we do [sic] not expect to be able to
 expand because of the legal squabbles going on in the NATELCO. So, even at that
time there were so many subscribers in Naga City that cannot be served by the
NATELCO, so as a mater of public service we allowed them to sue (sic) our posts
within the Naga City. (p. 8, tsn April 3, 1989)

Ragragio also declared that while the telephone wires strung to the electric posts of plaintiff were
very light and that very few telephone lines were attached to the posts of CASURECO II in 1977,
said posts have become "heavily loaded" in 1989 (tsn, id.).

In truth, as also correctly found by the lower court, despite the increase in the volume of
appellant's subscribers and the corresponding increase in the telephone cables and wires strung
by it to plaintiff's electric posts in Naga City for the more 10 years that the agreement Exh. "A" of
the parties has been in effect, there has been no corresponding increase in the ten (10) telephone
units connected by appellant free of charge to plaintiff's offices and other places chosen by
plaintiff's general manager which was the only consideration provided for in said agreement for
appellant's use of plaintiffs electric posts. Not only that, appellant even started using plaintiff's
electric posts outside Naga City although this was not provided for in the agreement Exh. "A" as it
extended and expanded its telephone services to towns outside said city. Hence, while very few of
plaintiff's electric posts were being used by appellant in 1977 and they were all in the City of Naga,
the number of plaintiff's electric posts that appellant was using in 1989 had jumped to 1,403,192 of
which are outside Naga City (Exh. "B"). Add to this the destruction of some of plaintiff's poles
during typhoons like the strong typhoon Sisang in 1987 because of the heavy telephone cables
attached thereto, and the escalation of the costs of electric poles from 1977 to 1989, and the
conclusion is indeed ineluctable that the agreement Exh. "A" has already become too one-sided in
favor of appellant to the great disadvantage of plaintiff, in short, the continued enforcement of
said contract has manifestly gone far beyond the contemplation of plaintiff, so much so that it
should now be released therefrom under Art. 1267 of the New Civil Code to avoid appellant's
unjust enrichment at its (plaintiff's) expense. As stated by Tolentino in his commentaries on the
Civil Code citing foreign civilist Ruggiero, "equity demands a certain economic equilibrium between
the prestation and the counter-prestation, and does not permit the unlimited impoverishment of one
party for the benefit of the other by the excessive rigidity of the principle of the obligatory force of
contracts (IV Tolentino, Civil Code of the Philippines, 1986 ed.,
pp. 247-248).

We therefore, find nothing wrong with the ruling of the trial court, although based on a different
and wrong premise (i.e., reformation of contract), that from the date of the filing of this case,
appellant must pay for the use of plaintiff's electric posts in Naga City at the reasonable monthly
rental of P10.00 per post, while plaintiff should pay appellant for the telephones in the same City
that it was formerly using free of charge under the terms of the agreement Exh. "A" at the same
rate being paid by the general public. In affirming said ruling, we are not making a new contract
for the parties herein, but we find it necessary to do so in order not to disrupt the basic and
essential services being rendered by both parties herein to the public and to avoid unjust
enrichment by appellant at the expense of plaintiff, said arrangement to continue only until such
time as said parties can re-negotiate another agreement over the same
subject-matter covered by the agreement Exh. "A". Once said agreement is reached and executed
by the parties, the aforesaid ruling of the lower court and affirmed by us shall cease to exist and
shall be substituted and superseded by their new agreement. . . ..8

Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale behind this
provision,9 the term "service" should be understood as referring to the "performance" of the obligation. In the
present case, the obligation of private respondent consists in allowing petitioners to use its posts in Naga City,
which is the service contemplated in said article. Furthermore, a bare reading of this article reveals that it is not a
requirement thereunder that the contract be for future service with future unusual change. According to Senator
Arturo M. Tolentino,10 Article 1267 states in our law the doctrine of unforseen events. This is said to be based on
the discredited theory of rebus sic stantibus in public international law; under this theory, the parties stipulate in
the light of certain prevailing conditions, and once these conditions cease to exist the contract also ceases to
exist. Considering practical needs and the demands of equity and good faith, the disappearance of the basis of a
contract gives rise to a right to relief in favor of the party prejudiced.

In a nutshell, private respondent in the Occeña case filed a complaint against petitioner before the trial court
praying for modification of the terms and conditions of the contract that they entered into by fixing the proper
shares that should pertain to them out of the gross proceeds from the sales of subdivided lots. We ordered the
dismissal of the complaint therein for failure to state a sufficient cause of action. We rationalized that the Court
of Appeals misapplied Article 1267 because:

. . . respondent's complaint seeks not release from the subdivision contract but that the court
"render judgment modifying the terms and conditions of the contract . . . by fixing the proper
shares that should pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subject subdivision". The cited article (Article 1267) does not grant the courts
(the) authority to remake, modify or revise the contract or to fix the division of shares between
the parties as contractually stipulated with the force of law between the parties, so as to substitute
its own terms for those covenanted by the parties themselves. Respondent's complaint for
modification of contract manifestly has no basis in law and therefore states no cause of action.
Under the particular allegations of respondent's complaint and the circumstances therein averred,
the courts cannot even in equity grant the relief sought.11

The ruling in the Occeña case is not applicable because we agree with respondent court that the allegations in
private respondent's complaint and the evidence it has presented sufficiently made out a cause of action under
Article 1267. We, therefore, release the parties from their correlative obligations under the contract. However,
our disposition of the present controversy does not end here. We have to take into account the possible
consequences of merely releasing the parties therefrom: petitioners will remove the telephone wires/cables in the
posts of private respondent, resulting in disruption of their service to the public; while private respondent, in
consonance with the contract12 will return all the telephone units to petitioners, causing prejudice to its business.
We shall not allow such eventuality. Rather, we require, as ordered by the trial court: 1) petitioners to pay private
respondent for the use of its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili,
Camarines Sur and in other places where petitioners use private respondent's posts, the sum of ten (P10.00)
pesos per post, per month, beginning January, 1989; and 2) private respondent to pay petitioner the monthly
dues of all its telephones at the same rate being paid by the public beginning January, 1989. The peculiar
circumstances of the present case, as distinguished further from the Occeña case, necessitates exercise of our
equity jurisdiction.13 By way of emphasis, we reiterate the rationalization of respondent court that:

. . . In affirming said ruling, we are not making a new contract for the parties herein, but we find it
necessary to do so in order not to disrupt the basic and essential services being rendered by both
parties herein to the public and to avoid unjust enrichment by appellant at the expense of plaintiff
. . . .14

Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was never the
subject of trial and evidence has been passed upon by respondent court in its well reasoned resolution, which we
hereunder quote as our own:

First, we do not agree with defendant-appellant that in applying Art. 1267 of the New Civil Code
to this case, we have changed its theory and decided the same on an issue not invoked by plaintiff
in the lower court. For basically, the main and pivotal issue in this case is whether the continued
enforcement of the contract Exh. "A" between the parties has, through the years (since 1977),
become too inequitous or disadvantageous to the plaintiff and too one-sided in favor of
defendant-appellant, so that a solution must be found to relieve plaintiff from the continued
operation of said agreement and to prevent defendant-appellant from further unjustly enriching
itself at plaintiff's expense. It is indeed unfortunate that defendant had turned deaf ears to
plaintiffs requests for renegotiation, constraining the latter to go to court. But although plaintiff
cannot, as we have held, correctly invoke reformation of contract as a proper remedy (there
having been no showing of a mistake or error in said contract on the part of any of the parties so
as to result in its failure to express their true intent), this does not mean that plaintiff is absolutely
without a remedy in order to relieve itself from a contract that has gone far beyond its
contemplation and has become so highly inequitous and disadvantageous to it through the years
because of the expansion of defendant-appellant's business and the increase in the volume of its
subscribers. And as it is the duty of the Court to administer justice, it must do so in this case in
the best way and manner it can in the light of the proven facts and the law or laws applicable
thereto.

It is settled that when the trial court decides a case in favor of a party on a certain ground, the
appellant court may uphold the decision below upon some other point which was ignored or
erroneously decided by the trial court (Garcia Valdez v. Tuazon, 40 Phil. 943; Relativo v. Castro,
76 Phil. 563; Carillo v. Salak de Paz, 18 SCRA 467). Furthermore, the appellate court has the
discretion to consider an unassigned error that is closely related to an error properly assigned
(Paterno v. Jao Yan, 1 SCRA 631; Hernandez v. Andal, 78 Phil. 196). It has also been held that the
Supreme Court (and this Court as well) has the authority to review matters, even if they are not
assigned as errors in the appeal, if it is found that their consideration is necessary in arriving at a
just decision of the case (Saura Import & Export Co., Inc. v. Phil. International Surety Co. and
PNB, 8 SCRA 143). For it is the material allegations of fact in the complaint, not the legal
conclusion made therein or the prayer, that determines the relief to which the plaintiff is entitled,
and the plaintiff is entitled to as much relief as the facts warrant although that relief is not
specifically prayed for in the complaint (Rosales v. Reyes and Ordoveza, 25 Phil. 495; Cabigao v.
Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To quote an old but very illuminating decision
of our Supreme Court through the pen of American jurist Adam C. Carson:

"Under our system of pleading it is the duty of the courts to grant the relief to
which the parties are shown to be entitled by the allegations in their pleadings and
the facts proven at the trial, and the mere fact that they themselves misconstrue
the legal effect of the facts thus alleged and proven will not prevent the court from
placing the just construction thereon and adjudicating the issues accordingly."
(Alzua v. Johnson, 21 Phil. 308)

And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741, the Honorable Supreme
Court also held:

We rule that the respondent court did not commit any error in taking cognizance
of the aforesaid issues, although not raised before the trial court. The presence of
strong consideration of substantial justice has led this Court to relax the well-
entrenched rule that, except questions on jurisdiction, no question will be
entertained on appeal unless it has been raised in the court below and it is within
the issues made by the parties in their pleadings (Cordero v. Cabral, L-36789, July
25, 1983, 123 SCRA 532). . . .

We believe that the above authorities suffice to show that this Court did not err in applying Art.
1267 of the New Civil Code to this case. Defendant-appellant stresses that the applicability of said
provision is a question of fact, and that it should have been given the opportunity to present
evidence on said question. But defendant-appellant cannot honestly and truthfully claim that it
(did) not (have) the opportunity to present evidence on the issue of whether the continued
operation of the contract Exh. "A" has now become too one-sided in its favor and too inequitous,
 unfair, and disadvantageous to plaintiff. As held in our decision, the abundant and copious
evidence presented by both parties in this case and summarized in said decision established the
following essential and vital facts which led us to apply Art. 1267 of the New Civil Code to this
case:

xxx xxx xxx 15

On the issue of prescription of private respondent's action for reformation of contract, petitioners allege that
respondent court's ruling that the right of action "arose only after said contract had already become
disadvantageous and unfair to it due to subsequent events and conditions, which must be sometime during the
latter part of 1982 or in 1983 . . ." 16 is erroneous. In reformation of contracts, what is reformed is not the contract
itself, but the instrument embodying the contract. It follows that whether the contract is disadvantageous or not
is irrelevant to reformation and therefore, cannot be an element in the determination of the period for
prescription of the action to reform.

Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be brought
within ten (10) years from the time the right of action accrues. Clearly, the ten (10) year period is to be
reckoned from the time the right of action accrues which is not necessarily the date of execution of the contract.
As correctly ruled by respondent court, private respondent's right of action arose "sometime during the latter
part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . ., he was asked by (private respondent's) Board
of Directors to study said contract as it already appeared disadvantageous to (private respondent) (p. 31, tsn, May
8, 1989). (Private respondent's) cause of action to ask for reformation of said contract should thus be considered
to have arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was filed,
ten (10) years had not yet elapsed." 17

Regarding the last issue, petitioners allege that there is nothing purely potestative about the prestations of either
party because petitioner's permission for free use of telephones is not made to depend purely on their will,
neither is private respondent's permission for free use of its posts dependent purely on its will.

Apart from applying Article 1267, respondent court cited another legal remedy available to private respondent
under the allegations of its complaint and the preponderant evidence presented by it:

. . . we believe that the provision in said agreement —

(a) That the term or period of this contract shall be as long as the party of the first
part [herein appellant] has need for the electric light posts of the party of the
second part [herein plaintiff] it being understood that this contract shall terminate
when for any reason whatsoever, the party of the second part is forced to stop,
abandoned [sic] its operation as a public service and it becomes necessary to
remove the electric light post [sic]"; (Emphasis supplied)

is invalid for being purely potestative on the part of appellant as it leaves the continued effectivity
of the aforesaid agreement to the latter's sole and exclusive will as long as plaintiff is in operation.
A similar provision in a contract of lease wherein the parties agreed that the lessee could stay on
the leased premises "for as long as the defendant needed the premises and can meet and pay said
increases" was recently held by the Supreme Court in Lim v. C.A., 191 SCRA 150, citing the much
earlier case of Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being "a purely potestative
condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and
exclusive will of the lessee." Further held the High Court in the Lim case:

The continuance, effectivity and fulfillment of a contract of lease cannot be made

to depend exclusively upon the free and uncontrolled choice of the lessee between
continuing the payment of the rentals or not, completely depriving the owner of
 any say in the matter. Mutuality does not obtain in such a contract of lease of no
equality exists between the lessor and the lessee since the life of the contract is
dictated solely by the lessee.

The above can also be said of the agreement Exh. "A" between the parties in this case. There is no
mutuality and equality between them under the afore-quoted provision thereof since the life and
continuity of said agreement is made to depend as long as appellant needs plaintiff's electric
posts. And this is precisely why, since 1977 when said agreement was executed and up to 1989
when this case was finally filed by plaintiff, it could do nothing to be released from or terminate
said agreement notwithstanding that its continued effectivity has become very disadvantageous
and inequitous to it due to the expansion and increase of appellant's telephone services within
Naga City and even outside the same, without a corresponding increase in the ten (10) telephone
units being used by plaintiff free of charge, as well as the bad and inefficient service of said
telephones to the prejudice and inconvenience of plaintiff and its customers. . . . 18

Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the fulfillment of
which depends upon the sole will of the debtor, in which case, the conditional obligation is void. 19 Based on this
definition, respondent court's finding that the provision in the contract, to wit:

(a) That the term or period of this contract shall be as long as the party of the first part
(petitioner) has need for the electric light posts of the party of the second part (private
respondent) . . ..

is a potestative condition, is correct. However, it must have overlooked the other conditions in the same
provision, to wit:

. . . it being understood that this contract shall terminate when for any reason whatsoever, the
party of the second part (private respondent) is forced to stop, abandoned (sic) its operation as a
public service and it becomes necessary to remove the electric light post (sic);

which are casual conditions since they depend on chance, hazard, or the will of a third person. 20 In sum, the
contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and partly on chance,
hazard or the will of a third person, which do not invalidate the aforementioned provision. 21 Nevertheless, in
view of our discussions under the first and second issues raised by petitioners, there is no reason to set aside the
questioned decision and resolution of respondent court.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May 28, 1992 and its
resolution dated September 10, 1992 are AFFIRMED.

SO ORDERED.

 G.R. No. 202989, March 25, 2015

COMGLASCO CORPORATION/AGUILA GLASS, Petitioner, v. SANTOS CAR CHECK CENTER

CORPORATION, Respondent.

D E C I S I O N

REYES, J.:

On August 16, 2000, respondent Santos Car Check Center Corporation (Santos), owner of a showroom located at
75 Delgado Street, in Iloilo City, leased out the said space to petitioner Comglasco Corporation (Comglasco), an
entity engaged in the sale, replacement and repair of automobile windshields, for a period of five years at a
monthly rental of P60,000.00 for the first year, P66,000.00 on the second year, and P72,600.00 on the third
through fifth years.1

On October 4, 2001, Comglasco advised Santos through a letter2 that it was pre-terminating their lease contract
effective December 1, 2001. Santos refused to accede to the pre-termination, reminding Comglasco that their
contract was for five years. On January 15, 2002, Comglasco vacated the leased premises and stopped paying any
further rentals. Santos sent several demand letters, which Comglasco completely ignored. On September 15,
2003, Santos sent its final demand letter,3 which Comglasco again ignored. On October 20, 2003, Santos filed
suit for breach of contract.4

Summons and a copy of the complaint, along with the annexes, were served on Comglasco on January 21, 2004,
but it moved to dismiss the complaint for improper service. The Regional Trial Court (RTC) of Iloilo City,
Branch 37, dismissed the motion and ordered the summons served anew. On June 28, 2004, Comglasco filed its
Answer.5 Santos moved for a judgment on the pleadings, which the RTC granted. On August 18, 2004, the trial
court rendered its judgment,6 the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of [Santos] and against [Comglasco]:

1. Ordering [Comglasco] to faithfully comply with [its] obligation under the Contract of Lease and pay its unpaid
rentals starting January 16, 2002 to August 15, 2003 in the total amount of Php1,333,200.00, plus 12% interest per
annum until fully paid;

2. To pay [Santos]:
a) Php200,000.00 as attorney’s fees;
b) [Php]50,000.00 as litigation expenses;
c) [Php]400,000.00 as exemplary damages.
3. Costs of the suit.

SO ORDERED.7

On February 14, 2005, Santos moved for execution pending Comglasco’s appeal, which the trial court granted on
May 12, 2005. In its appeal, Comglasco interposed the following issues for resolution:

1. Whether or not judgment on the pleadings was properly invoked by the trial court as basis for
rendering its decision;
2. Whether or not material issues were raised in [Comglasco’s] Answer;
3. Whether or not damages may be granted by the trial court without proof and legal basis.8

In its Decision9 dated August 10, 2011, the Court of Appeals (CA) affirmed the judgment of the RTC but reduced
the award of attorney’s fees to P100,000.00 and deleted the award of litigation expenses and exemplary damages.
 Petition for Review to the Supreme Court

In this petition, Comglasco raises the following issues:

1. Whether or not judgment on the pleadings was properly invoked by the trial court as basis for
rendering its decision?
2. Whether or not material issues were raised in [Comglasco’s] answer?
3. Whether or not summary judgment or judgment on the pleadings is the proper remedy for
[Santos] under the circumstances of the present case?
4. Whether or not the amount deposited for advance rental and deposit should be credited to
[Comglasco’s] account?
5. Whether or not attorney’s fees may be granted by the trial court without proof and legal basis?10

Paragraph 15 of the parties’ lease contract11 permits pre-termination with cause in the first three years and
without cause after the third year. Citing business reverses which it ascribed to the 1997 Asian financial crisis,
Comglasco insists that under Article 1267 of the Civil Code it is exempted from its obligation under the contract,
because its business setback is the “cause” contemplated in their lease which authorized it to pre-terminate the
same. Article 1267 provides:

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

Comglasco argues that it cannot be said to have admitted in its Answer the material allegations of the complaint
precisely because it invoked therein a valid cause for its decision to pre-terminate the lease before the lapse of
three years; that therefore, in view of its pleaded “cause” for reneging on its rentals (the 1997 Asian financial
crisis), the RTC should have ordered the reception of evidence for this purpose, after which a summary judgment
would then have been proper, not a judgment on the pleadings. After all, Santos has claimed in its Motion for
Summary Judgment that Comglasco’s cited “cause” for pre-termination was fictitious or a sham, whereas in truth
the prevailing business climate which ensued after the 1997 currency crisis resulted in great difficulty on its part
to comply with the terms of the lease “as to be manifestly beyond the contemplation of the parties”; thus,
Comglasco should be deemed released from the lease.

Next, Comglasco insists that its advance rentals and deposit totaling P309,000.00 should be deducted from any
sum awarded to Santos while it also insists that there is no factual and legal basis for the award of damages.

Ruling of the Court

The petition is denied.

The first three issues being related will be discussed together.

Comglasco maintains that the RTC was wrong to rule that its answer to Santos’ complaint tendered no issue, or
admitted the material allegations therein; that the court should have heard it out on the reason it invoked to
justify its action to pre-terminate the parties’ lease; that therefore a summary judgment would have been the
proper recourse, after a hearing.

In Philippine National Construction Corporation v. CA12 (PNCC), which also involves the termination of a lease of
property by the lessee “due to financial, as well as technical, difficulties,”13 the Court ruled:

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

The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory, the parties
stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the contract also
ceases to exist. This theory is said to be the basis of Article 1267 of the Civil Code, which provides:
Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties,
the obligor may also be released therefrom, in whole or in part.
This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute application of the
principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the
contract must be presumed to have assumed the risks of unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances that equity demands assistance for the debtor.

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

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

x x x x

Anent petitioner’s alleged poor financial condition, the same will neither release petitioner from the binding
effect of the contract of lease. As held in Central Bank v. Court of Appeals, cited by private respondents, mere
pecuniary inability to fulfill an engagement does not discharge a contractual obligation, nor does it constitute a
defense to an action for specific performance.14

Relying on Article 1267 of the Civil Code to justify its decision to pre-terminate its lease with Santos,
Comglasco invokes the 1997 Asian currency crisis as causing it much difficulty in meeting its obligations. But
in PNCC,15 the Court held that the payment of lease rentals does not involve a prestation “to do” envisaged in
Articles 1266 and 1267 which has been rendered legally or physically impossible without the fault of the
obligor-lessor. Article 1267 speaks of a prestation involving service which has been rendered so difficult by
unforeseen subsequent events as to be manifestly beyond the contemplation of the parties. To be sure, the Asian
currency crisis befell the region from July 1997 and for sometime thereafter, but Comglasco cannot be permitted
to blame its difficulties on the said regional economic phenomenon because it entered into the subject lease only
on August 16, 2000, more than three years after it began, and by then Comglasco had known what business risks
it assumed when it opened a new shop in Iloilo City.

This situation is no different from the Court’s finding in PNCC wherein PNCC cited the assassination of Senator
Benigno Aquino Jr. (Senator Aquino) on August 21, 1983 and the ensuing national political and economic crises as
putting it in such a difficult business climate that it should be deemed released from its lease contract. The
Court held that the political upheavals, turmoils, almost daily mass demonstrations, unprecedented inflation,
and peace and order deterioration which followed Senator Aquino’s death were a matter of judicial notice, yet
despite this business climate, PNCC knowingly entered into a lease with therein respondents on November 18,
1985, doing so with open eyes of the deteriorating conditions of the country. The Court rules now, as in PNCC,
that there are no “absolutely exceptional changes of circumstances that equity demands assistance for the
debtor.”16

As found by the CA, Comglasco’s Answer admitted the material allegations in the complaint, to wit: a) that
Santos holds absolute title to a showroom space; b) that Comglasco leased the said showroom from Santos; c)
that after a little over a year, Comglasco pre-terminated the lease; d) that, disregarding Santos’ rejection of the
pre-termination of their lease, Comglasco vacated the leased premises on January 15, 2002; e) that Comglasco
never denied the existence and validity of the parties’ lease contract. Specifically, the CA noted that Paragraph 2
of the Answer admitted the allegations in Paragraphs 2, 3 and 4 of the complaint that the lease was for five years,
starting on August 16, 2000 and to expire on August 15, 2005, at a monthly rental of P60,000.00 on the first year,
P66,000.00 on the second year, and P72,600.00 on the third up to the fifth year.

The RTC acted correctly in resorting to Section 1 of Rule 34, on Judgment on the Pleadings, to cut short a
needless trial. This Court agrees with the CA that Comglasco cannot cite Article 1267 of the Civil Code, and that
it must be deemed to have admitted the material allegations in the complaint. Section 1, Rule 34 reads:

Sec. 1. Judgment on the pleadings. - Where an answer fails to tender an issue, or otherwise admits the material
allegations of the adverse party’s pleading, the court may, on motion of that party, direct judgment on such
pleading. However, in actions for declaration of nullity or annulment of marriage or for legal separation, the
material facts alleged in the complaint shall always be proved.

A judgment on the pleadings is a judgment on the facts as pleaded,17 and is based exclusively upon the
allegations appearing in the pleadings of the parties and the accompanying annexes.18 It is settled that the trial
court has the discretion to grant a motion for judgment on the pleadings filed by a party if there is no
controverted matter in the case after the answer is filed.19 A genuine issue of fact is that which requires the
presentation of evidence, as distinguished from a sham, fictitious, contrived or false issue.20 Come to think of it,
under Rule 35, on Summary Judgments, Comglasco had recourse to move for summary judgment, wherein it
could have adduced supporting evidence to justify its action on the parties’ lease, but it did not do so. Section 2
of Rule 35 provides:

Sec. 2. Summary judgment for defending party. - A party against whom a claim, counterclaim, or cross-claim is
asserted or a declaratory relief is sought may, at any time, move with supporting affidavits, depositions or
admissions for a summary judgment in his favor as to all or any part thereof.

Concerning, now, whether Comglasco’s alleged rental deposit and advance rentals of P309,000.00 should be
credited to Comglasco’s account, let it suffice to state that it never raised this matter in its answer to the
complaint, nor in its appeal to the CA. Certainly, it cannot do so now.

Finally, as to whether attorney’s fees may be recovered by Santos, Article 2208(2) of the Civil Code justifies the
award thereof, in the absence of stipulation, where the defendant’s act or omission has compelled the plaintiff to
incur expenses to protect his interest. The pre-termination of the lease by Comglasco was not due to any fault of
Santos, and Comglasco completely ignored all four demands of Santos to pay the rentals due from January 16,
2002 to August 15, 2003, thereby compelling Santos to sue to obtain relief. It is true that the policy of the Court is
that no premium should be placed on the right to litigate,21 but it is also true that attorney’s fees are in the nature
of actual damages, the reason being that litigation costs money.22 But the Court agrees with the CA that the
lesser amount of P100,000.00 it awarded to Santos instead of P200,000.00 adjudged by the RTC, is more
reasonable.

WHEREFORE, premises considered, the petition is DENIED for lack of merit.

SO ORDERED.










 G.R. No. 160033, July 01, 2015

TAGAYTAY REALTY CO., INC., Petitioner, v. ARTURO G. GACUTAN, Respondent.

D E C I S I O N

BERSAMIN, J.:

The Court reiterates the right of the installment buyer of a subdivision lot to withhold payment of his
amortizations for the duration that the subdivision developer has not complied with its contractual undertaking
to build the promised amenities in the subdivision.

The Case

On appeal by the subdivision developer is the decision promulgated on May 29, 2003,1 whereby the Court of
Appeals (CA) upheld the ruling in favor of the installment buyer issued on December 6, 2001 by the Office of the
President (OP).2 By such ruling, the OP affirmed the July 14, 1997 decision3 rendered by the Housing and Land
Use Regulatory Board (HLURB) Board of Commissioners adopting the HLURB Arbiter's decision dated March 22,
1995.4cralawrednad

Antecedents

On September 6, 1976, the respondent entered into a contract to sell with the petitioner for the purchase on
installment of a residential lot with an area of 308 square meters situated in the Foggy Heights Subdivision then
being developed by the petitioner.5 Earlier, on June 30, 1976, the petitioner executed an express undertaking in
favor of the respondent, as follows:6
We hereby undertake to complete the development of the roads, curbs, gutters, drainage system, water and
electrical systems, as well as all the amenities to be introduced in FOGGY HEIGHTS SUBDIVISION, such as,
swimming pool, pelota court, tennis and/or basketball court, bath house, children's playground and a clubhouse
within a period of two years from 15 July 1976, on the understanding that failure on their part to complete such
development within the stipulated period shall give the VENDEE the option to suspend payment of the monthly
amortization on the lot/s he/she purchased until completion of such development without incurring penalty
interest.

It is clearly understood, however, that the period or periods during which we cannot pursue said development by
reason of any act of God, any act or event constituting force majeure or fortuitous event, or any restriction,
regulation, or prohibition by the government or any of its branches or instrumentalities, shall suspend the
running of said 2-year period and the running thereof shall resume upon the cessation of the cause of the
stoppage or suspension of said development.
In his letter dated November 12, 1979,7 the respondent notified the petitioner that he was suspending his
amortizations because the amenities had not been constructed in accordance with the undertaking. Despite
receipt of the respondent's other communications requesting updates on the progress of the construction of the
amenities so that he could resume his amortization,8 the petitioner did not reply. Instead, on June 10, 1985, the
petitioner sent to him a statement of account demanding the balance of the price, plus interest and penalty.9 He
refused to pay the interest and penalty.

On October 4, 1990, the respondent sued the petitioner for specific performance in the HLURB, praying that the
petitioner be ordered to accept his payment of the balance of the contract without interest and penalty, and to
deliver to him the title of the property.10cralawrednad

In its answer,11 the petitioner sought to be excused from performing its obligations under the contract, invoking
Article 1267 of the Civil Code as its basis. It contended that the depreciation of the Philippine Peso since the time
of the execution of the contract, the increase in the cost of labor and construction materials, and the increase in
the value of the lot in question were valid justifications for its release from the obligation to construct the
amenities.

In its positiOn paper,12 the petitiOner stated that it had purposely suspended the construction of the amenities
which would have deteriorated at any rate because its lot buyers had not constructed their houses in the
subdivision.

On March 22, 1995, the HLURB Arbiter ruled m favor of the respondent,13 to wit:cralawlawlibrary
WHEREFORE, premises considered, respondents are hereby ordered to accept the payment of the balance of the
contract price in the amount of Eight Thousand Five Hundred Eighty Seven and 80/100 Pesos (P8,587.80)
without regular and penalty interest and, thereafter, to execute and deliver to complainant the absolute deed of
sale covering the sale of property subj,ct of this complaint, together with the valid title over the said lot.14
The petitioner appealed, but the HLURB Board of Commissioners affirmed the ruling of the HLURB Arbiter on
July 14, 1997.15 Upon the denial of its motion for reconsideration, the petitioner appealed to the
OP.16cralawrednad

On December 6, 2001, the OP upheld the decision of the HLURB Board of Commissioners.17 The OP later denied
the petitioner's motion for reconsideration.18cralawrednad

On appeal, the CA affirmed the OP through the assailed decision promulgated on May 29,
2003,19 disposing:cralawlawlibrary
WHEREFORE, premises considered and finding no reversible error in the challenged Decision and Order dated
December 6, 2001, and July 1, 2002, respectively, of the Office of the President in OP Case No. 98-C-8261 said
Decision and Order are AFFIRMED and UPHELD, and the petition is DISMISSED for lack of merit.

SO ORDERED.20
The CA denied the petitioner's motion for reconsideration.21cralawrednad

Issues

In this appeal by petition for review on certiorari, the petitioner contends that the CA erred in affirming the
incorrect findings of the OP in a way probably not in accord with law; and in declaring that the respondent was
not guilty of laches.

The petitioner submits that the CA, by observing that the petitioner did not fulfill its obligation to finish the
subdivision project and that it had itself admitted not having finished the project, did not consider that it must
be discharged because extraordinary and unforeseeable circumstances had rendered its duty to perform its
obligation so onerous that to insist on the performance would have resulted in its economic ruin; that the Court
should consider the practical circumstances surrounding the construction of the luxurious amenities of the
project; that the luxurious amenities of the project would only be exposed to the elements, resulting in wastage
and loss of resources, because none of the lot buyers had constructed any house in the subdivision; that delaying
the construction for that reason was reasonable on its part considering that no one would have benefited from
the amenities anyway, and was also a sound business practice because the construction would be at great cost to
it as the developer; that another justification for the non-construction was its having suffered extreme economic
hardships during the political and economic turmoil of the 1980s that the parties did not foresee at the time they
entered into their contract; that under Article 1267 of the Civil Code, equity demanded a certain economic
equilibrium between the prestation and the counter-prestation, and did not permit the unlimited
impoverishment of one party for the benefit of the other by the excessive rigidity of the principle of the
obligatory force of contracts; that as the debtor, it should be partially excused or altogether released from its
obligations due to the extraordinary obstacles to the prestation, which could be overcome only by a sacrifice that
would be absolutely disproportionate, or with very grave risks, or by violating some important duties; and that
the CA thereby erred in closing its eyes to the realities, and in opting not to apply the principles of equity in favor
of applying the terms of the agreement even if doing so would cause the economic ruin of one of the parties.

The petitioner further submits that the CA erred in declaring that it was apparent that there was no
"unreasonable failure" on the part of the respondent because he had made timely written demands on November
12, 1979, February 11, 1983, March 20, 1984, June 24, 1985 and November 16, 1988. It urges that the CA's error
consisted in its confusing laches as the failure to assert a right, notwithstanding that jurisprudence has
considered laches to be the unreasonable failure to assert a claim that, by exercising due diligence, could or
should be done earlier; that laches was not, in legal significance, mere delay, but a delay that worked a
disadvantage to another; that the letters of the respondent could hardly be construed as motivated by prudence
and good faith; that the economy had worsened between 1979 and 1988, and such worsening became a factor
that raised the cost of real estate development by leaps and bounds; and that the respondent, whose actuations
smacked of bad faith and opportunism at its expense, had then appeared out of nowhere to seize the opportunity
presented by the real estate boom of the early 1990s, despite having been silent and having failed to act for a long
time, evincing his belief of not having any right at all.

In his comment, the respondent asserts that the submissions of the petitioner did not warrant the non-
construction of the amemt1es; that Article 1159 of the Civil Code provides that obligations arising from contracts
have the force of law between the contracting parties and should be complied with in good faith; that neither
party could unilaterally and upon his own exclusive volition escape his obligations under the contract unless for
causes sufficient in law and pronounced adequate by a competent tribunal; that correlative to Article 1159 is
Article 1308 of the Civil Code which holds that the validity or compliance of a contract cannot be left to the will of
one party; that a party could not revoke or renounce a contract without the consent of the other, nor could a
party have a contract set aside on the ground that he had made a bad bargain; that he was not liable for the
interest because it was not expressly stipulated in the contract pursuant to Article 1956 of the Civil Code; that no
penalty should be imposed on him by virtue of the undertaking clearly stating that the two-year period for the
completion of the amenities would be suspended only if the development could not be pursued "by reason of any
act God, any act or event constituting force majeure or fortuitous event; or any restriction, regulation, or
prohibition by the government or any of its branches or instrumentalities;" that the reason given by the
petitioner that "the contemplated amenities could not be constructed as they would have only been left exposed
to the elements and would have come to naught on account of the fact that there are no persons residing
thereat" did not justify or excuse the non construction of the amenities; that the petitioner could not seek refuge
in Article 1267 of the Civil Code by merely alleging inflation without laying down the legal and factual basis to
justify the release from its obligation; that his written extrajudicial demands negated the defense of laches; that
he did not fail to assert his right, or abandon it; and that his written extrajudicial demands wiped out the period
that had already lapsed and started the prescriptive period anew.

In short, was the petitioner released from its obligation to construct the amenities in the Foggy Heights
Subdivision?

Ruling of the Court

The appeal is partly meritorious.

1.

Petitioner was not relieved from its statutory and contractual obligations to complete the amenities

The arguments of the petitioner to be released from its obligation to construct the amenities lack persuasion.

To start with, the law is not on the side of the petitioner.

Under Section 20 of Presidential Decree No. 957, all developers, including the petitioner, are mandated to
complete their subdivision projects, including the amenities, within one year from the issuance of their licenses.
The provision reads:cralawlawlibrary
Section 20. Time of Completion. - Every owner or developer shall construct and provide the facilities,
improvements, infrastructures and other forms of development, including water supply and lighting facilities,
which are offered and indicated in the approved subdivision or condominium plans, brochures, prospectus,
printed matters, letters or in any form of advertisement, within one year from the date of the issuance of the
license for the subdivision or condominium project or such other period of time as maybe fixed by the Authority.
Pursuant to Section 30 of Presidential Decree No. 957,22 the amenities, once constructed, are to be maintained by
the developer like the petitioner until a homeowners' association has been organized to manage the amenities.

There is no question that the petitioner did not comply with its legal obligation to complete the construction of
the subdivision project, including the amenities, within one year from the issuance of the license. Instead, it
unilaterally opted to suspend the construction of the amenities to avoid incurring maintenance expenses. In so
opting, it was not driven by any extremely difficult situation that would place it at any disadvantage, but by its
desire to benefit from cost savings. Such cost-saving strategy dissuaded the lot buyers from constructing their
houses in the subdivision, and from residing therein.

Considering that the petitioner's unilateral suspension of the construction of the amenities was intended to save
itself from costs, its plea for relief from its contractual obligations was properly rejected because it would thereby
gain a position of advantage at the expense of the lot owners like the respondent. Its invocation of Article 1267 of
the Civil Code, which provides that "(w)hen the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom in whole or in part," was factually
unfounded. For Article 1267 to apply, the following conditions should concur, namely: (a) the event or change in
circumstances could not have been foreseen at the time of the execution of the contract; (b) it makes the
performance of the contract extremely difficult but not impossible; (c) it must not be due to the act of any of the
parties; and (d) the contract is for a future prestation.23 The requisites did not concur herein because the
difficulty of performance under Article 1267 of the Civil Code should be such that one party would be placed at a
disadvantage by the unforeseen event.24 Mere inconvenience, or unexepected impediments, or increased
expenses did not suffice to relieve the debtor from a bad bargain.25cralawredcralawrednad

And, secondly, the unilateral suspension of the construction had preceded the worsening of economic conditions
in 1983; hence, the latter could not reasonably justify the petitioner's plea for release from its statutory and
contractual obligations to its lot buyers, particularly the respondent. Besides, the petitioner had the legal
obligation to complete the amenities within one year from the issuance of the license (under Section 20 of
Presidential Decree No. 957), or within two years from July 15, 1976 (under the express undertaking of the
petitioner). Hence, it should have complied with its obligation by July 15, 1978 at the latest, long before the
worsening of the economy in 1983.

2.

Respondent as instalment buyer should pay the annual interest but not the penalty

The respondent insists that his unpaid obligation was only the balance of the contract price amounting to
P8,587.80.26 He declines to pay the interest and the penalty on the ground that the petitioner had not
constructed the amenities as promised under the undertaking.

The Court holds that the respondent was liable for the stipulated annual interest of 12% but not the penalty.

Paragraph 2.b, first sentence, of the contract to sell stipulated the 12% annual interest, as follows:cralawlawlibrary
x x x x

2.) The VENDEE/S hereby agree/s to pay the purchase price of TWENTY SEVEN THOUSAND SEVEN
HUNDRED TWENTY ONLY PESOS (P27,720.00), Philippine Currency, at the office of the VENDOR at Makati,
Rizal, without necessity of demand or the services of a collector in the following
manner:ChanRoblesvirtualLawlibrary

a.) As downpayment, the amount of FOUR THOUSAND ONE HUNDRED FIFTY EIGHT ONLY PESOS
(P4,158.00) upon the execution of the contract.

b.) The balance of TWENTY THREE THOUSAND FIVE HUNDRED SIXTY TWO ONLY PESOS (P23,562.00) in
eighty four (84) consecutive monthly installments of FOUR HUNDRED FIFTEEN & 95/100 PESOS (P415.95) each
installment, including interest at the rate of twelve (12%) percent per annum on all outstanding
balances, the first of such monthly installment to be paid on or before the 6th day of each month,
beginning October, 1976. It is understood that unpaid installments or installments in arrears shall earn a
penalty interest of one (1%) percent per month until fully paid.27 (Bold underscoring supplied for emphasis of the
relevant portion)

x x x x
Accordingly, the parties agreed to an 84-month or seven-year term of installment on the net contract price of
P23,562.00 at the monthly rate of P415.95, the monthly rate being inclusive of the 12% interest per annum. Such
monthly installment of P415.95 included the principal and the annual interest, the latter being legally termed the
amortization interest. The annual interest was designed to compensate the petitioner for waiting seven years
before receiving the total principal amount. As such, the total cost of the lot purchased by the respondent for the
seven-year term would be P39,097.80, which amount would be inclusive of the contract price of the lot and the
amortization interest.28cralawrednad

The imposition of the annual or amortization interest on the price for the purchase of a lot on installment was
valid and enforceable. As the Court has explained in Relucio v. Brillante-Garfin:29
x x x The contract price of P10,800.00 may thus be seen to be the cash price of the subdivision lots, that is, the
amount payable if the price of the lots were to be paid in cash and in full at the execution of the contract; it
is not the amount that the vendor will have received in the aggregate after fifteen (15) years if the vendee shall
have religiously paid the monthly installments. The installment price, upon the other hand, of the subdivision
lots-the sum total of the monthly installments (i.e., P16,101.00) typically, as in the instant case, has an interest
component which compensates the vendor for waiting fifteen (15) years before receiving the total principal
amount of P10,600.00. Economically or financially, P10,600.00 delivered in full today is simply worth much more
than a long series of small payments totalling, after fifteen (15) years, P10,600.00. For the vendor, upon receiving
the full cash price, could have deposited that amount in a bank, for instance, and earned interest income which
at six percent (6%) per year and for fifteen (15) years, would precisely total P5,501.00 (the difference between the
installment price of P16,101.00 and the cash price of P10,600.00) To suppose, as private respondent argues, that
mere prompt payment of the monthly installments as they fell due would obviate application of the interest
charge of six percent (6%) per annum, is to ignore that simple economic fact. That economic fact is, of course,
recognized by law, which authorizes the payment of interest when contractually stipulated for by the parties or
when implied in recognized commercial custom or usage.

Vendor and vendee are legally free to stipulate for the payment of either the cash price of a subdivision lot or its
installment price. Should the vendee opt to purchase a subdivision lot via the installment payment system, he is
in effect paying interest on the cash price, whether the fact and rate of such interest payment is disclosed in the
contract or not. The contract for the purchase and sale of a piece of land on the installment payment system in
the case at bar is not only quite lawful; it also reflects a very wide spread usage or custom in our present day
commercial life.30
In view of the foregoing, the respondent's insistence on condoning his liability for the contractually-stipulated
12% annual amortization interest is unwarranted. The condonation will impose a harsh burden upon the
petitioner, even as it will result in the unjust enrichment of the respondent. We cannot ignore that the former
has waited for a very long period of time before it would be able to use the proceeds of the lot sold to the
respondent.

The 1% monthly penalty sought to be charged on the arrears for failure to pay the amortizations on time until the
arrears would be fully paid was also stipulated in paragraph 2.b, second sentence, of the contract to sell, supra.
But such stipulation could not be enforced against the respondent because the petitioner waived the penalty
should the subdivision development not be completed by July 15, 1978. The waiver should stand considering that
the suspension of the amortization payment in 1979 was excusable on account of the failure to construct the
amenities by July 15, 1978, and considering further that the petitioner did not contest the suspension of payment
of the monthly amortization.31cralawrednad

Under Tamayo v. Huang,32 the buyer has the option to demand the reimbursement of the total amounts paid, or
to await the further development of the subdivision; when the buyer opts for the latter alternative, he may
suspend the payment of his installments until the time when the developer has fulfilled its obligation to him;
should the developer persist in refusing to complete the facilities, the National Housing Authority may take over
or cause the development and completion of the subdivision at the expense of the developer.33cralawrednad

In this case, the respondent initially opted to suspend the payment of his amortizations, but then offered to
complete the payment upon realizing that the petitioner did not anymore intend to build the amenities. His
payments from October 6, 1976 to October 6, 1979 corresponded to 36 monthly amortizations totaling
P14,974.20, leaving 48 installments unpaid totaling P19,965.60.34cralawrednad

3.

Claim of respondent was not barred by laches

Laches is the failure of or neglect for an unreasonable and unexplained length of time to do that which by
exercising due diligence could or should have been done earlier, or to assert a right within a reasonable time. It
warrants a presumption that the party entitled thereto has either abandoned it or declined to assert
it.35cralawrednad

The CA correctly declared that laches did not set in to bar the claim of the respondent because he had made
periodic written demands upon the petitioner that indicated that he had not abandoned or declined to assert the
claim. In 1979, he manifested the intention to avail himself of his right to suspend the payment of his
amortizations pursuant to the undertaking. Since then until 1984, he had continuously requested the petitioner
for updates on the progress of the construction of the amenities so that he could resume his amortizations. The
petitioner did not respond to his requests. His efforts to have the petitioner construct the amenities so that he
would already pay for the lot demonstrated his prudence and alacrity in insisting on his rights, negating any hint
of bad faith or of lack of diligence on his part.

WHEREFORE, the Court AFFIRMS the judgment promulgated on May 29, 2003 subject to
the MODIFICATIONS, as follows: (1) the respondent shall pay to the petitioner the amount of P19,965.60; (2)
the petitioner shall execute the deed of absolute sale covering the property, and shall deliver the property to the
respondent together with the pertinent certificate of title in accordance with the terms of their contract; and (3)
the petitioner shall pay the costs of suit.

SO ORDERED.










 G.R. No. 109172 August 19, 1994

TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC., petitioner,

vs.
The COURT OF APPEALS and ASSOCIATED BANK, respondents.

BIDIN, J.:

In this petition for review on certiorari, petitioner Trans-Pacific Industrial Supplies, Inc. seeks the reversal of the
decision of respondent court, the decretal portion of which reads:

WHEREFORE, the decision of June 11, 1991 is SET ASIDE and NULLIFIED; the complaint is
dismissed, and on the counterclaim, Transpacific is ordered to pay Associated attorney's fees of
P15,000.00.

Costs against Transpacific.

SO ORDERED. (Rollo, p. 47)

Sometime in 1979, petitioner applied for and was granted several financial accommodations amounting to
P1,300,000.00 by respondent Associated Bank. The loans were evidenced and secured by four (4) promissory
notes, a real estate mortgage covering three parcels of land and a chattel mortgage over petitioner's stock and
inventories.

Unable to settle its obligation in full, petitioner requested for, and was granted by respondent bank, a
restructuring of the remaining indebtedness which then amounted to P1,057,500.00, as all the previous payments
made were applied to penalties and interests.

To secure the re-structured loan of P1,213,400.00, three new promissory notes were executed by Trans-Pacific as
follows: (1) Promissory Note No. TL-9077-82 for the amount of P1,050,000.00 denominated as working capital; (2)
Promissory Note No. TL-9078-82 for the amount of P121,166.00 denominated as restructured interest; (3)
Promissory Note No. TL-9079-82 for the amount of P42,234.00 denominated similarly as restructured interest
(Rollo. pp. 113-115).

The mortgaged parcels of land were substituted by another mortgage covering two other parcels of land and a
chattel mortgage on petitioner's stock inventory. The released parcels of land were then sold and the proceeds
amounting to P1,386,614.20, according to petitioner, were turned over to the bank and applied to Trans-Pacific's
restructured loan. Subsequently, respondent bank returned the duplicate original copies of the three promissory
notes to Trans-Pacific with the word "PAID" stamped thereon.

Despite the return of the notes, or on December 12, 1985, Associated Bank demanded from Trans-Pacific payment
of the amount of P492,100.00 representing accrued interest on PN No. TL-9077-82. According to the bank, the
promissory notes were erroneously released.

Initially, Trans-Pacific expressed its willingness to pay the amount demanded by respondent bank. Later, it had a
change of heart and instead initiated an action before the Regional Trial Court of Makati, Br. 146, for specific
performance and damages. There it prayed that the mortgage over the two parcels of land be released and its
stock inventory be lifted and that its obligation to the bank be declared as having been fully paid.

After trial, the court a quo rendered judgment in favor of Trans-Pacific, to wit:

WHEREFORE, premises considered and upon a clear preponderance of evidence in support of the
stated causes of action, the Court finds for the plaintiffs and against defendant, and
 (a) declares plaintiff's obligations to defendant to have been already fully paid;

(b) orders defendant to execute and deliver to plaintiffs a release on

the i September 11, 1981 mortgage over TCT (50858)
S-10086 and TCT (50859) S-109087, and ii December 20, 1983 chattel mortgage,
within fifteen (15) days from the finality hereof;

(c) orders defendant to pay plaintiffs Romeo Javier and Romana Bataclan-Javier the
sum of P50,000.00 as and for moral damages; and

(d) orders defendant to pay plaintiffs the sum of P30,000.00 as attorney's fees, plus
expenses of the suit.

Defendant's counterclaims are dismissed for lack of merit.

With costs against defendant.

SO ORDERED. (Rollo, p. 101)

Respondent bank elevated the case to the appellate court which, as aforesaid, reversed the decision of the trial
court. In this appeal, petitioner raises four errors allegedly committed by the respondent court, namely:

RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT THE ACCRUED INTEREST IN

THE AMOUNT OF 492,100.00 HAS NOT BEEN PAID WHEN ARTICLE 1176 OF THE CIVIL CODE
PROVIDES THAT SUCH CLAIM FOR INTEREST UPON RECEIPT OF PAYMENT OF THE
PRINCIPAL MUST BE RESERVED OTHERWISE IT IS DEEMED PAID.

II

RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT WITH THE DELIVERY OF

THE DOCUMENTS EVIDENCING THE PRINCIPAL OBLIGATION, THE ANCILLARY
OBLIGATION OF PAYING INTEREST WAS NOT RENOUNCED CONTRARY TO THE
PROVISIONS OF ART. 1273 OF THE CIVIL CODE AND THE UNDISPUTED EVIDENCE ON
RECORD.

III

RESPONDENT APPELLATE COURT ERRED IN NOT HOLDING THAT PETITIONER HAS FULLY
PAID ITS OBLIGATION CONFORMABLY WITH ARTICLE 1234 OF THE CIVIL CODE.

IV

RESPONDENT APPELLATE COURT ERRED IN AWARDING ATTORNEY'S FEES IN FAVOR OF

ASSOCIATED BANK (Rollo, p. 15).

The first three assigned errors will be treated jointly since their resolution border on the common issue, i.e.,
whether or not petitioner has indeed paid in full its obligation to respondent bank.

Applying the legal presumption provided by Art. 1271 of the Civil Code, the trial court ruled that petitioner has
fully discharged its obligation by virtue of its possession of the documents (stamped "PAID") evidencing its
indebtedness. Respondent court disagreed and held, among others, that the documents found in possession of
Trans-Pacific are mere duplicates and cannot be the basis of petitioner's claim that its obligation has been fully
paid. Accordingly, since the promissory notes submitted by petitioner were duplicates and not the originals, the
delivery thereof by respondent bank to the petitioner does not merit the application of Article 1271 (1st par.) of
the Civil Code which reads:

Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor
to the debtor, implies the renunciation of the action which the former had against the latter.

Respondent court is of the view that the above provision must be construed to mean the original copy of the
document evidencing the credit and not its duplicate, thus:

. . . [W]hen the law speaks of the delivery of the private document evidencing a credit, it must be
construed as referring to the original. In this case, appellees (Trans-Pacific) presented, not the
originals but the duplicates of the three promissory notes." (Rollo, p. 42)

The above pronouncement of respondent court is manifestly groundless. It is undisputed that the documents
presented were duplicate originals and are therefore admissible as evidence. Further, it must be noted that
respondent bank itself did not bother to challenge the authenticity of the duplicate copies submitted by
petitioner. In People vs. Tan, (105 Phil. 1242 [1959]), we said:

When carbon sheets are inserted between two or more sheets of writing paper so that the writing
of a contract upon the outside sheet, including the signature of the party to be charged thereby,
produces a facsimile upon the sheets beneath, such signature being thus reproduced by the same
stroke of pen which made the surface or exposed impression, all of the sheets so written on are
regarded as duplicate originals and either of them may be introduced in evidence as such without
accounting for the nonproduction of the others.

A duplicate copy of the original may be admitted in evidence when the original is in the possession of the party
against whom the evidence is offered, and the latter fails to produce it after reasonable notice (Sec. 2[b], Rule
130), as in the case of respondent bank.

This notwithstanding, we find no reversible error committed by the respondent court in disposing of the
appealed decision. As gleaned from the decision of the court a quo, judgment was rendered in favor of petitioner
on the basis of presumptions, to wit:

The surrender and return to plaintiffs of the promissory notes evidencing the consolidated
obligation as restructured, produces a legal presumption that Associated had thereby renounced
its actionable claim against plaintiffs (Art. 1271, NCC). The presumption is fortified by a showing
that said promissory notes all bear the stamp "PAID", and has not been otherwise overcome.
Upon a clear perception that Associated's record keeping has been less than exemplary . . ., a
proffer of bank copies of the promissory notes without the "PAID" stamps thereon does not
impress the Court as sufficient to overcome presumed remission of the obligation vis-a-vis the
return of said promissory notes. Indeed, applicable law is supportive of a finding that in interest
bearing obligations-as is the case here, payment of principal (sic) shall not be deemed to have
been made until the interests have been covered (Art. 1253, NCC). Conversely, competent showing
that the principal has been paid, militates against postured entitlement to unpaid interests.

In fine. the Court is satisfied that plaintiffs must be found to have settled their obligations in full.

As corollary, a finding is accordingly compelled that plaintiffs (sic) accessory obligations under
the real estate mortgage over two (2) substituted lots as well as the chattel mortgage, have been
extinguished by the renunciation of the principal debt (Art. 1273, NCC), following the time-
 honored axiom that the accessory follows the principal. There is, therefore, compelling warrant
(sic) to find in favor of plaintiffs insofar as specific performance for the release of the mortgages
on the substituted lots and chattel is concerned. (Rollo, p. 100)

premised by:

Records show that Associated's Salvador M. Mesina is on record as having testified that all three
(3) December 8, 1990 promissory notes for the consolidated principal obligation, interest and
penalties had been fully paid (TSN, July 18, 1990, p. 18). It is, moreover, admitted that said
promissory notes were accordingly returned to Romeo Javier. (Ibid.)

The above disquisition finds no factual support, however, per review of the records. The presumption created by
the Art. 1271 of the Civil Code is not conclusive but merely prima facie. If there be no evidence to the contrary,
the presumption stands. Conversely, the presumption loses its legal efficacy in the face of proof or evidence to
the contrary. In the case before us, we find sufficient justification to overthrow the presumption of payment
generated by the delivery of the documents evidencing petitioners indebtedness.

It may not be amiss to add that Article 1271 of the Civil Code raises a presumption, not of payment, but of the
renunciation of the credit where more convincing evidence would be required than what normally would be
called for to prove payment. The rationale for allowing the presumption of renunciation in the delivery of
a private instrument is that, unlike that of a public instrument, there could be just one copy of the evidence of
credit. Where several originals are made out of a private document, the intendment of the law would thus be to
refer to the delivery only of the original original rather than to the original duplicate of which the debtor would
normally retain a copy. It would thus be absurd if Article 1271 were to be applied differently.

While it has been consistently held that findings of facts are not reviewable by this Court, this rule does not find
application where both the trial and the appellate courts differ thereon (Asia Brewery, Inc. v. CA, 224 SCRA 437
[1993]).

Petitioner maintains that the findings of the trial court should be sustained because of its advantage in observing
the demeanor of the witnesses while testifying (citing Crisostomo v. Court of Appeals, 197 SCRA 833) more so
where it is supported by the records (Roman Catholic Bishop of Malolos v. Court of Appeals, 192 SCRA 169).

This case, however, does not concern itself with the demeanor of witnesses. As for the records, there is actually
none submitted by petitioner to prove that the contested amount, i.e., the interest, has been paid in full. In civil
cases, the party that alleges a fact has the burden of proving it (Imperial Victory Shipping Agency v. NLRC 200
SCRA 178 [1991]). Petitioner could have easily adduced the receipts corresponding to the amounts paid inclusive
of the interest to prove that it has fully discharged its obligation but it did not.

There is likewise nothing on the records relied upon by the trial court to support its claim, by empirical evidence,
that the amount corresponding to the interest has indeed been paid. The trial court totally relied on a disputable
presumption that the obligation of petitioner as regards interest has been fully liquidated by the respondent's act
of delivering the instrument evidencing the principal obligation. Rebuttable as they are, the court a quo chose to
ignore an earlier testimony of Mr. Mesina anent the outstanding balance pertaining to interest, as follows:

Court:

Q Notwithstanding, let us go now specifically to promissory note No. 9077-82 in

the amount of consolidated principal of P1,050,000.00. Does the Court get it
correctly that this consolidated balance has been fully paid?

A Yes, the principal, yes, sir.

 Q Fully settled?

A Fully settled, but the interest of that promissory note has not been paid, Your
Honor.

Q In other words, you are saying, fully settled but not truly fully settled?

A The interest was not paid.

Q Not fully settled?

A The interest was not paid, but the principal obligation was removed from our
books, Your Honor.

Q And you returned the promissory note?

A We returned the promissory note. (TSN, July 18, 1990, p. 22)

That petitioner has not fully liquidated its financial obligation to the Associated Bank finds more than ample
confirmation and self-defeating posture in its letter dated December 16, 1985, addressed to respondent bank, viz.:

. . . that because of the prevailing unhealthy economic conditions, the business is unable to
generate sufficient resources for debt servicing.

Fundamentally on account of this, we propose that you permit us to fully liquidate the remaining
obligations to you of P492,100 through a payment in kind (dacion en pago) arrangement by way of
the equipments (sic) and spare parts under chattel mortgage to you to the extent of their latest
appraised values." (Rollo, pp. 153-154; Emphasis supplied)

Followed by its August 20, 1986 letter which reads:

We have had a series of communications with your bank regarding our proposal for the eventual
settlement of our remaining obligations . . .

As you may be able to glean from these letters and from your credit files, we have always been
conscious of our obligation to you which had not been faithfully serviced on account of
unfortunate business reverses. Notwithstanding these however, total payments thus far remitted
to you already exceede (sic) the original principal amount of our obligation. But because of
interest and other charges, we find ourselves still obligated to you by P492,100.00. . . .

. . . We continue to find ourselves in a very fluid (sic) situation in as much as the overall outlook
of the industry has not substantially improved. Principally for this reason, we had proposed to
settle our remaining obligations to you by way of dacion en pago of the equipments (sic) and spare
parts mortgaged to you to (the) extent of their applicable loan values. (Rollo, p. 155; Emphasis
supplied)

Petitioner claims that the above offer of settlement or compromise is not an admission that anything is due and
is inadmissible against the party making the offer (Sec. 24, Rule 130, Rules of Court). Unfortunately, this is not an
iron-clad rule.

To determine the admissibility or non-admissibility of an offer to compromise, the circumstances of the case and
the intent of the party making the offer should be considered. Thus, if a party denies the existence of a debt but
offers to pay the same for the purpose of buying peace and avoiding litigation, the offer of settlement is
inadmissible. If in the course thereof, the party making the offer admits the existence of an indebtedness
combined with a proposal to settle the claim amicably, then, the admission is admissible to prove such
indebtedness (Moran, Comments on the Rules of Court, Vol. 5, p. 233 [1980 ed.); Francisco, Rules of Court, Vol.
VII, p. 325 [1973 ed.] citing McNiel v. Holbrook, 12 Pac. (US) 84, 9 L.ed. 1009). Indeed, an offer of settlement is an
effective admission of a borrower's loan balance (L.M. Handicraft Manufacturing Corp. v. Court of Appeals, 186
SCRA 640 [1990]). Exactly, this is what petitioner did in the case before us for review.

Finally, respondent court is faulted in awarding attorney's fees in favor of Associated Bank. True, attorney's fees
may be awarded in a case of clearly unfounded civil action (Art. 2208 [4], CC). However, petitioner claims that it
was compelled to file the suit for damages in the honest belief that it has fully discharged its obligations in favor
of respondent bank and therefore not unfounded.

We believe otherwise. As petitioner would rather vehemently deny, undisputed is the fact of its admission
regarding the unpaid balance of P492,100.00 representing interests. It cannot also be denied that petitioner
opted to sue for specific performance and damages after consultation with a lawyer (Rollo, p. 99) who advised
that not even the claim for interests could be recovered; hence, petitioner's attempt to seek refuge under Art. 1271
(CC). As previously discussed, the presumption generated by Art. 1271 is not conclusive and was successfully
rebutted by private respondent. Under the circumstances, i.e., outright and honest letters of admission vis-a-
vis counsel-induced recalcitrance, there could hardly be honest belief. In this regard, we quote with approval
respondent court's observation:

The countervailing evidence against the claim of full payment emanated from Transpacific itself.
It cannot profess ignorance of the existence of the two letters, Exhs. 3 & 4, or of the import of
what they contain. Notwithstanding the letters, Transpacific opted to file suit and insist(ed) that
its liabilities had already been paid. There was thus an
ill-advised attempt on the part of Transpacific to capitalize on the delivery of the duplicates of the
promissory notes, in complete disregard of what its own records show. In the circumstances, Art.
2208 (4) and (11) justify the award of attorney's fees. The sum of P15,000.00 is fair and equitable.
(Rollo, pp. 46-47)

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.