G.R. No.

L-20240

December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs. JOSE GRIJALDO, defendant-appellant.
ZALDIVAR, J.:
In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan, Ltd. in
Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These
loans are evidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as
follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on August 9,
1943,P300.00; on August 13, 1943, P200.00, all notes without due dates, but because the loans were due one year
after they were incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the
standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading with
the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government
of the United States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets, including the
loans in question, were subsequently transferred to the Republic of the Philippines by the Government of the United
States under Transfer Agreement dated July 20, 1954. These assets were among the properties that were placed
under the administration of the Board of Liquidators created under Executive Order No. 372, dated November 24,
1950, and in accordance with Republic Acts Nos. 8 and 477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the Board of
Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in question. The
record shows that the appellant had actually received the written demand for payment, but he failed to pay.
The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale of values
as of the time that the loans were incurred in 1943, was P889.64; and the interest due thereon at the rate of 6% per
annum compounded quarterly, computed as of December 31, 1959 was P2,377.23.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros
Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace Of Hinigaran, after
hearing, dismissed the case on the ground that the action had prescribed. The appellee appealed to the Court of First
Instance of Negros Occidental and on March 26, 1962 the court a quo rendered a decision ordering the appellant to
pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum
compounded quarterly from the date of the filing of the complaint until full payment was made. The appellant was also
ordered to pay the sum equivalent to 10% of the amount due as attorney's fees and costs.
The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose Grijaldo died.
Upon motion by the Solicitor General this Court, in a resolution of May 13, 1963, required Manuel Lagtapon, Jacinto
Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to appear and be substituted
as appellants in accordance with Section 17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no cause of action against the appellant; (2)
that if the appellee has a cause of action at all, that action had prescribed; and (3) that the lower court erred in
ordering the appellant to pay the amount of P2,377.23.
In discussing the first point of contention, the appellant maintains that the appellee has no privity of contract with the
appellant. It is claimed that the transaction between the Taiwan Bank, Ltd. and the appellant, so that the appellee,
Republic of the Philippines, could not legally bring action against the appellant for the enforcement of the obligation
involved in said transaction. This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original

creditor and the transaction between the appellant and the Bank of Taiwan was a private contract of loan. However,
pursuant to the Trading with the Enemy Act, as amended, and Executive Order No. 9095 of the United States; and
under Vesting Order No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., an entity which was
declared to be under the jurisdiction of the enemy country (Japan), were vested in the United States Government and
the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the Republic
of the Philippines. The successive transfer of the rights over the loans in question from the Bank of Taiwan, Ltd. to the
United States Government, and from the United States Government to the government of the Republic of the
Philippines, made the Republic of the Philippines the successor of the rights, title and interest in said loans, thereby
creating a privity of contract between the appellee and the appellant. In defining the word "privy" this Court, in a case,
said:
The word "privy" denotes the idea of succession ... hence an assignee of a credit, and one subrogated to it,
etc. will be privies; in short, he who by succession is placed in the position of one of those who contracted
the judicial relation and executed the private document and appears to be substituting him in the personal
rights and obligation is a privy (Alpurto vs. Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power seized the assets of the Bank of Taiwan, Ltd.
which belonged to an enemy country. The confiscation of the assets of the Bank of Taiwan, Ltd. being an involuntary
act of war, and sanctioned by international law, the United States succeeded to the rights and interests of said Bank
of Taiwan, Ltd. over the assets of said bank. As successor in interest in, and transferee of, the property rights of the
United States of America over the loans in question, the Republic of the Philippines had thereby become a privy to
the original contracts of loan between the Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the
Republic of the Philippines has a legal right to bring the present action against the appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that because
the loans were secured by a chattel mortgage on the standing crops on a land owned by him and these crops were
lost or destroyed through enemy action his obligation to pay the loans was thereby extinguished. This argument is
untenable. The terms of the promissory notes and the chattel mortgage that the appellant executed in favor of the
Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the appellant under the five promissory
notes was not to deliver a determinate thing namely, the crops to be harvested from his land, or the value of the crops
that would be harvested from his land. Rather, his obligation was to pay a generic thing the amount of money
representing the total sum of the five loans, with interest. The transaction between the appellant and the Bank of
Taiwan, Ltd. was a series of five contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the
parties delivers to another ... money or other consumable thing upon the condition that the same amount of the same
kind and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five promissory
notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of money a clear case
of an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of
appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish his obligation
to pay, because the account could still be paid from other sources aside from the mortgaged crops.
In his second point of contention, the appellant maintains that the action of the appellee had prescribed. The
appellant points out that the loans became due on June 1, 1944; and when the complaint was filed on January
17,1961 a period of more than 16 years had already elapsed far beyond the period of ten years when an action
based on a written contract should be brought to court.
This contention of the appellant has no merit. Firstly, it should be considered that the complaint in the present case
was brought by the Republic of the Philippines not as a nominal party but in the exercise of its sovereign functions, to
protect the interests of the State over a public property. Under paragraph 4 of Article 1108 of the Civil Code

prescription, both acquisitive and extinctive, does not run against the State. This Court has held that the statute of
limitations does not run against the right of action of the Government of the Philippines (Government of the Philippine
Islands vs. Monte de Piedad, etc., 35 Phil. 738-751).Secondly, the running of the period of prescription of the action
to collect the loan from the appellant was interrupted by the moratorium laws (Executive Orders No. 25, dated
November 18, 1944; Executive Order No. 32. dated March 10, 1945; and Republic Act No. 342, approved on July 26,
1948). The loan in question, as evidenced by the five promissory notes, were incurred in the year 1943, or during the
period of Japanese occupation of the Philippines. This case is squarely covered by Executive Order No. 25, which
became effective on November 18, 1944, providing for the suspension of payments of debts incurred after December
31, 1941. The period of prescription was, therefore, suspended beginning November 18, 1944. This Court, in the
case of Rutter vs. Esteban (L-3708, May 18, 1953, 93 Phil. 68), declared on May 18, 1953 that the Moratorium Laws,
R.A. No. 342 and Executive Orders Nos. 25 and 32, are unconstitutional; but in that case this Court ruled that the
moratorium laws had suspended the prescriptive period until May 18, 1953. This ruling was categorically reiterated in
the decision in the case of Manila Motors vs. Flores, L-9396, August 16, 1956. It follows, therefore, that the
prescriptive period in the case now before US was suspended from November 18,1944, when Executive Orders Nos.
25 and 32 were declared unconstitutional by this Court. Computed accordingly, the prescriptive period was
suspended for 8 years and 6 months. By the appellant's own admission, the cause of action on the five promissory
notes in question arose on June 1, 1944. The complaint in the present case was filed on January 17, 1961, or after a
period of 16 years, 6 months and 16 days when the cause of action arose. If the prescriptive period was not
interrupted by the moratorium laws, the action would have prescribed already; but, as We have stated, the
prescriptive period was suspended by the moratorium laws for a period of 8 years and 6 months. If we deduct the
period of suspension (8 years and 6 months) from the period that elapsed from the time the cause of action arose to
the time when the complaint was filed (16 years, 6 months and 16 days) there remains a period of 8 years and 16
days. In other words, the prescriptive period ran for only 8 years and 16 days. There still remained a period of one
year, 11 months and 14 days of the prescriptive period when the complaint was filed.
In his third point of contention the appellant maintains that the lower court erred in ordering him to pay the amount of
P2,377.23. It is claimed by the appellant that it was error on the part of the lower court to apply the Ballantyne Scale
of values in evaluating the Japanese war notes as of June 1943 when the loans were incurred, because what should
be done is to evaluate the loans on the basis of the Ballantyne Scale as of the time the loans became due, and that
was in June 1944. This contention of the appellant is also without merit.
The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of December 31, 1959, plus
interest rate of 6% per annum compounded quarterly from the date of the filing of the complaint. The sum total of the
five loans obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed
under the Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in Japanese war notes in June 1943 is
equivalent to P889.64 in genuine Philippine currency which was considered the aggregate amount due as principal of
the five loans, and the amount of P2,377.23 as of December 31, 1959 was arrived at after computing the interest on
the principal sum of P889.64 compounded quarterly from the time the obligations were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of values should be applied as of the time the obligation was
incurred, and that was in June 1943. This stand of the appellee was upheld by the lower court; and the decision of the
lower court is supported by the ruling of this Court in the case of Hilado vs. De la Costa (G.R. No. L-150, April 30,
1949; 46 O.G. 5472), which states:
... Contracts stipulating for payments presumably in Japanese war notes may be enforced in our Courts after
the liberation to the extent of the just obligation of the contracting parties and, as said notes have become
worthless, in order that justice may be done and the party entitled to be paid can recover their actual value in
Philippine Currency, what the debtor or defendant bank should return or pay is the value of the Japanese
military notes in relation to the peso in Philippine Currency obtaining on the date when and at the place
where the obligation was incurred unless the parties had agreed otherwise. ... . (italics supplied)

IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against the appellant. Inasmuch
as the appellant Jose Grijaldo died during the pendency of this appeal, his estate must answer in the execution of the
judgment in the present case.
G.R. No. L-38745 August 6, 1975
LUCIA TAN, plaintiff-appellee,
vs.ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants-appellants.
CASTRO, J.:
This appeal was certified to this Court by the Court of Appeals as involving questions purely of law.
The decision a quo was rendered by the Court of First Instance of Misamis Occidental (Branch I) in an action
instituted by the plaintiff-appellee Lucia Tan against the defendants-appellants Arador Valdehueza and Rediculo
Valdehueza (docketed as civil case 2574) for (a) declaration of ownership and recovery of possession of the parcel of
land described in the first cause of action of the complaint, and (b) consolidation of ownership of two portions of
another parcel of (unregistered) land described in the second cause of action of the complaint, purportedly sold to the
plaintiff in two separate deeds of pacto de retro.
After the issues were joined, the parties submitted the following stipulation of facts:
1. That parties admit the legal capacity of plaintiff to sue; that defendants herein, Arador, Rediculo, Pacita,
Concepcion and Rosario, all surnamed Valdehueza, are brothers and sisters; that the answer filed by Arador
and Rediculo stand as the answer of Pacita, Concepcion and Rosario.
2. That the parties admit the identity of the land in the first cause of action.
3. That the parcel of land described in the first cause of action was the subject matter of the public auction
sale held on May 6, 1955 at the Capitol Building in Oroquieta, Misamis Occidental, wherein the plaintiff was
the highest bidder and as such a Certificate of Sale was executed by MR. VICENTE D. ROA who was then
the Ex-Officio Provincial Sheriff in favor of LUCIA TAN the herein plaintiff. Due to the failure of defendant
Arador Valdehueza to redeem the said land within the period of one year as being provided by law, MR.
VICENTE D. ROA who was then the Ex-Officio Provincial Sheriff executed an ABSOLUTE DEED OF SALE
in favor of the plaintiff LUCIA TAN.
A copy of the NOTICE OF SHERIFFS SALE is hereby marked as 'Annex A', the CERTIFICATE OF SALE is
marked as 'Annex B' and the ABSOLUTE DEED OF SALE is hereby marked as Annex C and all of which
are made as integral parts of this stipulation of facts.
4. That the party-plaintiff is the same plaintiff in Civil Case No. 2002; that the parties defendants Arador,
Rediculo and Pacita, all Valdehueza were the same parties-defendants in the same said Civil Case No.
2002; the complaint in Civil Case No. 2002 to be marked as Exhibit 1; the answer as Exhibit 2 and the order
dated May 22, 1963 as Exhibit 3, and said exhibits are made integral part of this stipulation.
5. That defendants ARADOR VALDEHUEZA and REDICULO VALDEHUEZA have executed two documents
of DEED OF PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA TAN of two portions of a parcel
of land which is described in the second cause of action with the total amount of ONE THOUSAND FIVE
HUNDRED PESOS (P1,500.00), Philippine Currency, copies of said documents are marked as 'Annex D'
and Annex E', respectively and made as integral parts of this stipulation of facts.

6. That from the execution of the Deed of Sale with right to repurchase mentioned in the second cause of
action, defendants Arador Valdehueza and Rediculo Valdehueza remained in the possession of the land;
that land taxes to the said land were paid by the same said defendants.
Civil case 2002 referred to in stipulation of fact no. 4 was a complaint for injunction filed by Tan on July 24,
1957 against the Valdehuezas, to enjoin them "from entering the above-described parcel of land and
gathering the nuts therein ...." This complaint and the counterclaim were subsequently dismissed for failure
of the parties "to seek for the immediate trial thereof, thus evincing lack of interest on their part to proceed
with the case. 1
The Deed of Pacto de Retro referred to in stipulation of fact no. 5 as "Annex D" (dated August 5, 1955) was not
registered in the Registry of Deeds, while the Deed of Pacto de Retro referred to as "Annex E" (dated March 15,
1955) was registered.
On the basis of the stipulation of facts and the annexes, the trial court rendered judgment, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff:
1. Declaring Lucia Tan the absolute owner of the property described in the first cause of action of the
amended complaint; and ordering the herein defendants not to encroach and molest her in the exercise of
her proprietary rights; and, from which property they must be dispossessed;
2. Ordering the defendants, Arador Valdehueza and Rediculo Valdehueza jointly and severally to pay to the
plaintiff, Lucia Tan, on Annex 'E' the amount of P1,200, with legal interest of 6% as of August 15, 1966,
within 90 days to be deposited with the Office of the Court within 90 days from the date of service of this
decision, and that in default of such payment the property shall be sold in accordance with the Rules of
Court for the release of the mortgage debt, plus costs;
3. And as regards the land covered by deed of pacto de retro annex 'D', the herein defendants Arador
Valdehueza and Rediculo Valdehueza are hereby ordered to pay the plaintiff the amount of P300 with legal
interest of 6% from August 15, 1966, the said land serving as guaranty of the said amount of payment;
4. Sentencing the defendants Arador Valdehueza and Rediculo Valdehueza to pay jointly and severally to
the herein plaintiff Lucia Tan the amount of 1,000.00 as attorney's fees; and .
5. To pay the costs of the proceedings.
The Valdehuezas appealed, assigning the following errors:
That the lower court erred in failing to adjudge on the first cause of action that there exists res judicata; and
That the lower court erred in making a finding on the second cause of action that the transactions between
the parties were simple loan, instead, it should be declared as equitable mortgage.
We affirm in part and modify in part.
1. Relying on Section 3 of Rule 17 of the Rules of Court which pertinently provides that a dismissal for failure to
prosecute "shall have the effect of an adjudication upon the merits," the Valdehuezas submit that the dismissal of civil
case 2002 operated, upon the principle of res judicata, as a bar to the first cause of action in civil case 2574. We rule
that this contention is untenable as the causes of action in the two cases are not identical. Case 2002 was for
injunction against the entry into and the gathering of nuts from the land, while case 2574 seeks to "remove any doubt

or cloud of the plaintiff's ownership ..." (Amended complaint, Rec. on App., p. 27), with a prayer for declaration of
ownership and recovery of possession.
Applying the test of absence of inconsistency between prior and subsequent judgments, 2 we hold that the failure of
Tan, in case 2002, to secure an injunction against the Valdehuezas to prevent them from entering the land and
gathering nuts is not inconsistent with her being adjudged, in case 2574, as owner of the land with right to recover
possession thereof. Case 2002 involved only the possession of the land and the fruits thereof, while case 2574
involves ownership of the land, with possession as a mere attribute of ownership. The judgment in the first case could
not and did not encompass the judgment in the second, although the second judgment would encompass the first.
Moreover, the new Civil Code provides that suitors in actions to quiet title "need not be in possession of said
property. 3
2. The trial court treated the registered deed of pacto de retro as an equitable mortgage but considered the
unregistered deed of pacto de retro "as a mere case of simple loan, secured by the property thus sold underpacto de
retro," on the ground that no suit lies to foreclose an unregistered mortgage. It would appear that the trial judge had
not updated himself on law and jurisprudence; he cited, in support of his ruling, article 1875 of the old Civil Code and
decisions of this Court circa 1910 and 1912.
Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the validity of a mortgage
even as between the parties, but under article 2125 of the new Civil Code (in effect since August 30,1950), this is no
longer so. 4
If the instrument is not recorded, the mortgage is nonetheless binding between the parties. (Article
2125, 2nd sentence).
The Valdehuezas having remained in possession of the land and the realty taxes having been paid by them, the
contracts which purported to be pacto de retro transactions are presumed to be equitable mortgages, 5 whether
registered or not, there being no third parties involved.
3. The Valdehuezas claim that their answer to the complaint of the plaintiff affirmed that they remained in possession
of the land and gave the proceeds of the harvest to the plaintiff; it is thus argued that they would suffer double
prejudice if they are to pay legal interest on the amounts stated in the pacto de retro contracts, as the lower court has
directed, and that therefore the court should have ordered evidence to be adduced on the harvest.
The record does not support this claim. Nowhere in the original and the amended complaints is an allegation of
delivery to the plaintiff of the harvest from the land involved in the second cause of action. Hence, the defendants'
answer had none to affirm.
In submitting their stipulation of facts, the parties prayed "for its approval and maybe made the basis of the decision
of this Honorable Court. " (emphasis supplied) This, the court did. It cannot therefore be faulted for not receiving
evidence on who profited from the harvest.
4. The imposition of legal interest on the amounts subject of the equitable mortgages, P1,200 and P300, respectively,
is without legal basis, for, "No interest shall be due unless it has been expressly stipulated in writing." (Article 1956,
new Civil Code) Furthermore, the plaintiff did not pray for such interest; her thesis was a consolidation of ownership,
which was properly rejected, the contracts being equitable mortgages.
With the definitive resolution of the rights of the parties as discussed above, we find it needless to pass upon the
plaintiffs petition for receivership. Should the circumstances so warrant, she may address the said petition to the
court a quo.

ACCORDINGLY, the judgment a quo is hereby modified, as follows: (a) the amounts of P1,200 and P300 mentioned
in Annexes E and D shall bear interest at six percent per annum from the finality of this decision; and (b) the parcel of
land covered by Annex D shall be treated in the same manner as that covered by Annex E, should the defendants fail
to pay to the plaintiff the sum of P300 within 90 days from the finality of this decision. In all other respects the
judgment is affirmed. No costs.
G.R. No. L-47878

July 24, 1942

GIL JARDENIL, plaintiff-appellant,

vs. HEFTI SOLAS (alias HEPTI SOLAS, JEPTI SOLAS), defendant-appellee.
MORAN, J.:
This is an action for foreclosure of mortgage. The only question raised in this appeal is: Is defendant-appellee bound
to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the date payment
is effected? This question is, in our opinion controlled by the express stipulation of the parties.
Paragraph 4 of the mortgage deed recites:
Que en consideracion a dicha suma aun por pagar de DOS MIL CUATROCIENTOS PESOS (P2,4000.00),
moneda filipina, que el Sr. Hepti Solas se compromete a pagar al Sr. Jardenil en o antes del dia treintaiuno
(31) de marzo de mil novecientos treintaicuarto (1934), con los intereses de dicha suma al tipo de doce por
ciento (12%) anual a partir desde fecha hasta el dia de su vencimiento o sea treintaiuno (31) de marzo de
mil novecientos treintaicuatro (1934), por la presente, el Sr. Hepti Solas cede y traspasa, por via de primera
hipoteca, a favor del Sr. Jardenil, sus herederos y causahabientes, la parcela de terreno descrita en el
parrafo primero (1.) de esta escritura.
Defendant-appellee has, therefore, clearly agreed to pay interest only up to the date of maturity, or until March 31,
1934. As the contract is silent as to whether after that date, in the event of non-payment, the debtor would continue to
pay interest, we cannot in law, indulge in any presumption as to such interest; otherwise, we would be imposing upon
the debtor an obligation that the parties have not chosen to agree upon. Article 1755 of the Civil Code provides that
"interest shall be due only when it has been expressly stipulated." (Emphasis supplied.)
A writing must be interpreted according to the legal meaning of its language (section 286, Act No. 190, now section
58, Rule 123), and only when the wording of the written instrument appears to be contrary to the evident intention of
the parties that such intention must prevail. (Article 1281, Civil Code.) There is nothing in the mortgage deed to show
that the terms employed by the parties thereto are at war with their evident intent. On the contrary the act of the
mortgage of granting to the mortgagor on the same date of execution of the deed of mortgage, an extension of one
year from the date of maturity within which to make payment, without making any mention of any interest which the
mortgagor should pay during the additional period (see Exhibit B attached to the complaint), indicates that the true
intention of the parties was that no interest should be paid during the period of grace. What reason the parties may
have therefor, we need not here seek to explore.
Neither has either of the parties shown that, by mutual mistake, the deed of mortgage fails to express their
agreement, for if such mistake existed, plaintiff would have undoubtedly adduced evidence to establish it and asked
that the deed be reformed accordingly, under the parcel-evidence rule.
We hold therefore, that as the contract is clear and unmistakable and the terms employed therein have not been
shown to belie or otherwise fail to express the true intention of the parties and that the deed has not been assailed on
the ground of mutual mistake which would require its reformation, same should be given its full force and effect.
When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to
lay any claim more than what its clear stipulations accord. His omission, to which the law attaches a definite warning

as an in the instant case, cannot by the courts be arbitrarily supplied by what their own notions of justice or equity
may dictate.
Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent on the loan of P2, 400 from November 8,
1932 to March 31, 1934. And it being a fact that extra judicial demands have been made which we may assume to
have been so made on the expiration of the year of grace, he shall be entitled to legal interest upon the principal and
the accrued interest from April 1, 1935, until full payment.
Thus modified judgment is affirmed, with costs against appellant.
G.R. No. 155223

April 4, 2007

BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact, MARIE F. FUJITA, Petitioner,

vs. FLORA SAN DIEGO-SISON, Respondent.
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias represented by her Attorney-in-fact, Marie
Regine F. Fujita (petitioner) seeking to annul the Decision1 dated June 18, 2002 and the Resolution2 dated September
11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.
Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang, Muntinlupa, Metro
Manila, which she acquired from Island Masters Realty and Development Corporation (IMRDC) by virtue of a Deed of
Sale dated Nov. 16, 1990.3 The property is covered by TCT No. 168173 of the Register of Deeds of Makati in the
name of IMRDC.4
On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison (respondent), as the
SECOND PARTY, entered into a Memorandum of Agreement5 over the property with the following terms:
NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00) receipt of
which is hereby acknowledged by the FIRST PARTY from the SECOND PARTY, the parties have agreed as follows:
1. That the SECOND PARTY has a period of Six (6) months from the date of the execution of this contract within
which to notify the FIRST PARTY of her intention to purchase the aforementioned parcel of land together within
(sic) the improvements thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND PESOS
(P6,400,000.00). Upon notice to the FIRST PARTY of the SECOND PARTYs intention to purchase the same,
the latter has a period of another six months within which to pay the remaining balance of P3.4 million.
2. That prior to the six months period given to the SECOND PARTY within which to decide whether or not to
purchase the above-mentioned property, the FIRST PARTY may still offer the said property to other persons
who may be interested to buy the same provided that the amount of P3,000,000.00 given to the FIRST PARTY
BY THE SECOND PARTY shall be paid to the latter including interest based on prevailing compounded bank
interest plus the amount of the sale in excess of P7,000,000.00 should the property be sold at a price more
than P7 million.
3. That in case the FIRST PARTY has no other buyer within the first six months from the execution of this
contract, no interest shall be charged by the SECOND PARTY on the P3 million however, in the event that on
the sixth month the SECOND PARTY would decide not to purchase the aforementioned property, the FIRST
PARTY has a period of another six months within which to pay the sum of P3 million pesos provided that the
said amount shall earn compounded bank interest for the last six months only. Under this circumstance, the
amount of P3 million given by the SECOND PARTY shall be treated as [a] loan and the property shall be
considered as the security for the mortgage which can be enforced in accordance with law.

x x x x.6
Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated check dated
February 28, 1990, instead of 1991, which rendered said check stale.7 Petitioner then gave respondent TCT No.
168173 in the name of IMRDC and the Deed of Absolute Sale over the property between petitioner and IMRDC.
Respondent decided not to purchase the property and notified petitioner through a letter8 dated March 20, 1991,
which petitioner received only on June 11, 1991,9 reminding petitioner of their agreement that the amount of two
million pesos which petitioner received from respondent should be considered as a loan payable within six months.
Petitioner subsequently failed to pay respondent the amount of two million pesos.
On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a complaint10 for sum of money with
preliminary attachment against petitioner. The case was docketed as Civil Case No. 93-65367 and raffled to Branch
30. Respondent alleged the foregoing facts and in addition thereto averred that petitioner tried to deprive her of the
security for the loan by making a false report11 of the loss of her owners copy of TCT No. 168173 to the Tagig Police
Station on June 3, 1991, executing an affidavit of loss and by filing a petition12 for the issuance of a new owners
duplicate copy of said title with the RTC of Makati, Branch 142; that the petition was granted in an Order13 dated
August 31, 1991; that said Order was subsequently set aside in an Order dated April 10, 199214where the RTC
Makati granted respondents petition for relief from judgment due to the fact that respondent is in possession of the
owners duplicate copy of TCT No. 168173, and ordered the provincial public prosecutor to conduct an investigation
of petitioner for perjury and false testimony. Respondent prayed for the ex-parte issuance of a writ of preliminary
attachment and payment of two million pesos with interest at 36% per annum from December 7, 1991, P100,000.00
moral, corrective and exemplary damages and P200,000.00 for attorneys fees.
In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a writ of preliminary attachment
upon the filing of a bond in the amount of two million pesos.15
Petitioner filed an Amended Answer16 alleging that the Memorandum of Agreement was conceived and arranged by
her lawyer, Atty. Carmelita Lozada, who is also respondents lawyer; that she was asked to sign the agreement
without being given the chance to read the same; that the title to the property and the Deed of Sale between her and
the IMRDC were entrusted to Atty. Lozada for safekeeping and were never turned over to respondent as there was
no consummated sale yet; that out of the two million pesos cash paid, Atty. Lozada took the one million pesos which
has not been returned, thus petitioner had filed a civil case against her; that she was never informed of respondents
decision not to purchase the property within the six month period fixed in the agreement; that when she demanded
the return of TCT No. 168173 and the Deed of Sale between her and the IMRDC from Atty. Lozada, the latter gave
her these documents in a brown envelope on May 5, 1991 which her secretary placed in her attache case; that the
envelope together with her other personal things were lost when her car was forcibly opened the following day; that
she sought the help of Atty. Lozada who advised her to secure a police report, to execute an affidavit of loss and to
get the services of another lawyer to file a petition for the issuance of an owners duplicate copy; that the petition for
the issuance of a new owners duplicate copy was filed on her behalf without her knowledge and neither did she sign
the petition nor testify in court as falsely claimed for she was abroad; that she was a victim of the manipulations of
Atty. Lozada and respondent as shown by the filing of criminal charges for perjury and false testimony against her;
that no interest could be due as there was no valid mortgage over the property as the principal obligation is vitiated
with fraud and deception. She prayed for the dismissal of the complaint, counter-claim for damages and attorneys
fees.
Trial on the merits ensued. On January 31, 1996, the RTC issued a decision,17 the dispositive portion of which reads:
WHEREFORE, judgment is hereby RENDERED:
1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at the rate of thirty two
(32%) per cent per annum beginning December 7, 1991 until fully paid.

2) Ordering defendant to pay plaintiff the sum of P70,000.00 representing premiums paid by plaintiff on the
attachment bond with legal interest thereon counted from the date of this decision until fully paid.
3) Ordering defendant to pay plaintiff the sum of P100,000.00 by way of moral, corrective and exemplary
damages.
4) Ordering defendant to pay plaintiff attorneys fees of P100,000.00 plus cost of litigation.18
The RTC found that petitioner was under obligation to pay respondent the amount of two million pesos with
compounded interest pursuant to their Memorandum of Agreement; that the fraudulent scheme employed by
petitioner to deprive respondent of her only security to her loaned money when petitioner executed an affidavit of loss
and instituted a petition for the issuance of an owners duplicate title knowing the same was in respondents
possession, entitled respondent to moral damages; and that petitioners bare denial cannot be accorded credence
because her testimony and that of her witness did not appear to be credible.
The RTC further found that petitioner admitted that she received from respondent the two million pesos in cash but
the fact that petitioner gave the one million pesos to Atty. Lozada was without respondents knowledge thus it is not
binding on respondent; that respondent had also proven that in 1993, she initially paid the sum ofP30,000.00 as
premium for the issuance of the attachment bond, P20,000.00 for its renewal in 1994, andP20,000.00 for the renewal
in 1995, thus plaintiff should be reimbursed considering that she was compelled to go to court and ask for a writ of
preliminary attachment to protect her rights under the agreement.
Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the RTC decision with
modification, the dispositive portion of which reads:
WHEREFORE, premises considered, the decision appealed from is MODIFIED in the sense that the rate of interest is
reduced from 32% to 25% per annum, effective June 7, 1991 until fully paid.19
The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her commission and partly as a
loan; respondent did not replace the mistakenly dated check of one million pesos because she had decided not to
buy the property and petitioner knew of her decision as early as April 1991; the award of moral damages was
warranted since even granting petitioner had no hand in the filing of the petition for the issuance of an owners copy,
she executed an affidavit of loss of TCT No. 168173 when she knew all along that said title was in respondents
possession; petitioners claim that she thought the title was lost when the brown envelope given to her by Atty.
Lozada was stolen from her car was hollow; that such deceitful conduct caused respondent serious anxiety and
emotional distress.
The CA concluded that there was no basis for petitioner to say that the interest should be charged for six months only
and no more; that a loan always bears interest otherwise it is not a loan; that interest should commence on June 7,
199120 with compounded bank interest prevailing at the time the two million was considered as a loan which was in
June 1991; that the bank interest rate for loans secured by a real estate mortgage in 1991 ranged from 25% to 32%
per annum as certified to by Prudential Bank,21 that in fairness to petitioner, the rate to be charged should be 25%
only.
Petitioners motion for reconsideration was denied by the CA in a Resolution dated September 11, 2002.
Hence the instant Petition for Review on Certiorari filed by petitioner raising the following issues:
(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO SIX (6)
MONTHS AS CONTAINED IN THE MEMORANDUM OF AGREEMENT.
(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.

(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES AND
ATTORNEYS FEES IS PROPER EVEN IF NOT MENTIONED IN THE TEXT OF THE DECISION. 22
Petitioner contends that the interest, whether at 32% per annum awarded by the trial court or at 25% per annum as
modified by the CA which should run from June 7, 1991 until fully paid, is contrary to the parties Memorandum of
Agreement; that the agreement provides that if respondent would decide not to purchase the property, petitioner has
the period of another six months to pay the loan with compounded bank interest for the last six months only; that the
CAs ruling that a loan always bears interest otherwise it is not a loan is contrary to Art. 1956 of the New Civil Code
which provides that no interest shall be due unless it has been expressly stipulated in writing.
We are not persuaded.
While the CAs conclusion, that a loan always bears interest otherwise it is not a loan, is flawed since a simple loan
may be gratuitous or with a stipulation to pay interest,23 we find no error committed by the CA in awarding a 25%
interest per annum on the two-million peso loan even beyond the second six months stipulated period.
The Memorandum of Agreement executed between the petitioner and respondent on December 7, 1990 is the law
between the parties. In resolving an issue based upon a contract, we must first examine the contract itself, especially
the provisions thereof which are relevant to the controversy.24 The general rule is that if the terms of an agreement
are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall
prevail.25 It is further required that the various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly.26
In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement. We
agree with and adopt the CAs interpretation of the phrase in this wise:
Their agreement speaks of two (2) periods of six months each. The first six-month period was given to plaintiffappellee (respondent) to make up her mind whether or not to purchase defendant-appellants (petitioner's) property.
The second six-month period was given to defendant-appellant to pay the P2 million loan in the event that plaintiffappellee decided not to buy the subject property in which case interest will be charged "for the last six months only",
referring to the second six-month period. This means that no interest will be charged for the first six-month period
while appellee was making up her mind whether to buy the property, but only for the second period of six months
after appellee had decided not to buy the property. This is the meaning of the phrase "for the last six months only".
Certainly, there is nothing in their agreement that suggests that interest will be charged for six months only even if it
takes defendant-appellant an eternity to pay the loan.27
The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e., referring
to the second six-month period, does not mean that interest will no longer be charged after the second six-month
period since such stipulation was made on the logical and reasonable expectation that such amount would be paid
within the date stipulated. Considering that petitioner failed to pay the amount given which under the Memorandum of
Agreement shall be considered as a loan, the monetary interest for the last six months continued to accrue until
actual payment of the loaned amount.
The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due
is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal
amount.28 It has been held that for a debtor to continue in possession of the principal of the loan and to continue to
use the same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment
on the part of the debtor at the expense of the creditor.29
Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and per the
certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32% per annum. The

CA reduced the interest rate to 25% instead of the 32% awarded by the trial court which petitioner no longer
assailed.1awphi1.nt
In Bautista v. Pilar Development Corp.,30 we upheld the validity of a 21% per annum interest on a P142,326.43 loan.
In Garcia v. Court of Appeals,31 we sustained the agreement of the parties to a 24% per annum interest on
an P8,649,250.00 loan. Thus, the interest rate of 25% per annum awarded by the CA to a P2 million loan is fair and
reasonable.
Petitioner next claims that moral damages were awarded on the erroneous finding that she used a fraudulent scheme
to deprive respondent of her security for the loan; that such finding is baseless since petitioner was acquitted in the
case for perjury and false testimony filed by respondent against her.
We are not persuaded.
Article 31 of the Civil Code provides that when the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and
regardless of the result of the latter.32
While petitioner was acquitted in the false testimony and perjury cases filed by respondent against her, those actions
are entirely distinct from the collection of sum of money with damages filed by respondent against petitioner.
We agree with the findings of the trial court and the CA that petitioners act of trying to deprive respondent of the
security of her loan by executing an affidavit of loss of the title and instituting a petition for the issuance of a new
owners duplicate copy of TCT No. 168173 entitles respondent to moral damages.1a\^/phi1.net Moral damages may
be awarded in culpa contractual or breach of contract cases when the defendant acted fraudulently or in bad faith.
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 partakes of the nature of fraud.33
The Memorandum of Agreement provides that in the event that respondent opts not to buy the property, the money
given by respondent to petitioner shall be treated as a loan and the property shall be considered as the security for
the mortgage. It was testified to by respondent that after they executed the agreement on December 7, 1990,
petitioner gave her the owners copy of the title to the property, the Deed of Sale between petitioner and IMRDC, the
certificate of occupancy, and the certificate of the Secretary of the IMRDC who signed the Deed of Sale.34 However,
notwithstanding that all those documents were in respondents possession, petitioner executed an affidavit of loss
that the owners copy of the title and the Deed of Sale were lost.
Although petitioner testified that her execution of the affidavit of loss was due to the fact that she was of the belief that
since she had demanded from Atty. Lozada the return of the title, she thought that the brown envelope with markings
which Atty. Lozada gave her on May 5, 1991 already contained the title and the Deed of Sale as those documents
were in the same brown envelope which she gave to Atty. Lozada prior to the transaction with respondent.35 Such
statement remained a bare statement. It was not proven at all since Atty. Lozada had not taken the stand to
corroborate her claim. In fact, even petitioners own witness, Benilda Ynfante (Ynfante), was not able to establish
petitioner's claim that the title was returned by Atty. Lozada in view of Ynfante's testimony that after the brown
envelope was given to petitioner, the latter passed it on to her and she placed it in petitioners attach case36 and did
not bother to look at the envelope.37
It is clear therefrom that petitioners execution of the affidavit of loss became the basis of the filing of the petition with
the RTC for the issuance of new owners duplicate copy of TCT No. 168173. Petitioners actuation would have
deprived respondent of the security for her loan were it not for respondents timely filing of a petition for relief whereby
the RTC set aside its previous order granting the issuance of new title. Thus, the award of moral damages is in order.

The entitlement to moral damages having been established, the award of exemplary damages is proper.38Exemplary
damages may be imposed upon petitioner by way of example or correction for the public good.39 The RTC awarded
the amount of P100,000.00 as moral and exemplary damages. While the award of moral and exemplary damages in
an aggregate amount may not be the usual way of awarding said damages,40 no error has been committed by CA.
There is no question that respondent is entitled to moral and exemplary damages.
Petitioner argues that the CA erred in awarding attorneys fees because the trial courts decision did not explain the
findings of facts and law to justify the award of attorneys fees as the same was mentioned only in the dispositive
portion of the RTC decision.
We agree.
Article 220841 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must
be reasonable, just and equitable if the same were to be granted.42 Attorney's fees as part of damages are not meant
to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a
suit because of the policy that no premium should be placed on the right to litigate.43 The award of attorney's fees is
the exception rather than the general rule. As such, it is necessary for the trial court to make findings of facts and law
that would bring the case within the exception and justify the grant of such award. The matter of attorney's fees
cannot be mentioned only in the dispositive portion of the decision.44 They must be clearly explained and justified by
the trial court in the body of its decision. On appeal, the CA is precluded from supplementing the bases for awarding
attorneys fees when the trial court failed to discuss in its Decision the reasons for awarding the same. Consequently,
the award of attorney's fees should be deleted.
WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution dated September
11, 2002 of the Court of Appeals in CA-G.R. CV No. 52839 are AFFIRMED with MODIFICATION that the award of
attorneys fees is DELETED.
No pronouncement as to costs. SO ORDERED.
[G.R. No. 142277. December 11, 2002]
ARWOOD INDUSTRIES, INC., petitioner, vs. D.M. CONSUNJI, INC., respondent.
CORONA, J .:
This is a petition for review of the decision[1] dated November 12, 1999 of the Court of Appeals, which affirmed,
with modification, the decision[2] dated April 1, 1997 of the Regional Trial Court, Branch 153, Pasig City in Civil Case
No. 63489.
The core issue of this petition is the propriety of the imposition of two percent (2%) interest on the amount
adjudged by the trial court and later affirmed by the Court of Appeals in favor of respondent D.M. Consunji, Inc. and
against petitioner Arwood Industries, Inc.
The factual backdrop of this case is as follows:
Petitioner and respondent, as owner and contractor, respectively, entered into a Civil, Structural and
Architectural Works Agreement[3] (Agreement) dated February 6, 1989 for the construction of petitioner's Westwood
Condominium at No. 23 Eisenhower St., Greenhills, San Juan, Metro Manila. The contract price for the condominium
project aggregated P20,800,000.00.
Despite the completion of the condominium project, the amount of P962,434.78 remained unpaid by
petitioner. Repeated demands by respondent for petitioner to pay went unheeded.

Thus, on August 13, 1993, respondent, as plaintiff in Civil Case No. 63489 filed its complaint [4] for the recovery
of the balance of the contract price and for damages against petitioner.
Respondent specifically prayed for the payment of the (a) amount of P962,434.78 with interest of 2% per month
or a fraction thereof, from November 1990 up to the time of payment; (b) the amount of P250,000 as attorney's fees
and litigation expenses; (c) amount of P150,000 as exemplary damages and (d) costs of suit.[5]
After trial, the court below resolved to grant the relief prayed for by respondent, thus:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendant ordering the latter to pay
the former the following:
(1) the sum of P962,434.78 representing the balance of contract price with interest at 2% per month from
November 1990 up to the time of payment;
(2) the amount of P150,000.00 as attorney's fees; and
(3) Cost(s) of suit.
SO ORDERED.[6]
Petitioner appealed to the Court of Appeals, particularly opposing the finding of the trial court with regard to the
imposition of the monetary interest of 2% per month on the adjudicated amount.
The Court of Appeals upheld the trial court despite dauntless demurring by petitioner. Respondent court found
basis in Article 6.03 of the Agreement concerning the imposition of the 2% interest, which reads:
Payment shall be made by the OWNER to the CONTRACTOR within fifteen (15) calendar days after receipt of the
Construction Manager's Certificate. In the event OWNER delays the payments (i.e. beyond the stipulated time) to
the CONTRACTOR of monthly progress billings, the CONTRACTOR shall have the option to either suspend the
works on the Project until such payments have been remitted by the OWNER or continue the work but the
OWNER shall be required to pay the interest at a rate of two (2%) percent per month or the fraction thereof in
days of the amount due for payment by the OWNER. The same interest shall be added to the billing of the
following month. Furthermore, the progress payments shall be reduced by a portion of the downpayment made by the
OWNER corresponding to the value of the work completed.[7]
Respondent court, however, modified the decision of the trial court by deleting the award of attorney's fees for
the following reasons:
Finally, defendant-appellant argues that the court a quo erred in awarding attorneys fees because the same was not
mentioned in the body of the decision.
On this ultimate point, We agree.
In the case of Del Rosario vs. Court of Appeals (267 SCRA 158, 175), the Supreme Court held that:
Finally, like the adjudication of actual or compensatory damages, the award of attorneys fees must be deleted. The
matter was dealt with only in the dispositive portion of the Trial Courts decision. Since the judgment does not say why
attorneys fees were awarded, there is no basis for such award, which should consequently be removed. So did this
Court rule, for instance, in Scott Consultants and Resource Development Corp., Inc. et al. (242 SCRA 393, 406):

It is settled that the award of attorneys fees is the exception rather than the rule and counsels fees are not to be
awarded every time a party wins. The power of the court to award attorneys fees under Article 2208 of the Civil Code
demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture. Where
granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the
legal reason for the award of attorneys fees.[8]
Petitioner moved to reconsider, unsuccessfully.
Hence, this petition for review. The only issue is the correctness of imposing a 2% per month interest on the
award of P962,434.78.
Petitioner argues that the trial court's decision has no basis in imposing the 2% interest per month. Although the
Agreement contained a provision with regard to the interest, this provision was not mentioned by the trial court in
awarding interest in the dispositive portion. This provision of the Agreement does not apply to the claim of respondent
but refers to the monthly progress billings. The amount of P962,434.78 is not a monthly progress billing and should
not therefore be subject to interest.
Furthermore, the pre-trial order of the trial court dated February 4, 1994 did not include interest as one of the
issues to be resolved and determined during the trial; the parties agreed that the main issue was
x x x whether or not defendant is liable to pay the balance of P964,434.78 as stated in the Complaint.[9]
Thus, the trial court erroneously disposed of the issue on payment of interest.
Petitioner points to the error of the Court of Appeals in basing its decision (on the issue of interest) on Article
6.03 of the Agreement. It reasons that while there was a formal offer of the Agreement and its sub-markings, the
provision on interest was neither sub-marked nor formally offered in evidence. [10]Hence, the imposition of interest is
wanting in basis as it is not even explicitly alleged in the complaint before the trial court.
Petitioner's stance hardly deserves this Court's attention.
The Agreement or the contract between the parties is the formal expression of the parties rights, duties and
obligations. It is the best evidence of the intention of the parties. Thus, when the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and
their successors in interest, no evidence of such terms other than the contents of the written agreement.[11]
Consequently, upon the fulfillment by respondent of its obligation to complete the construction project, petitioner
had the correlative duty to pay for respondents services. However, petitioner refused to pay the balance of the
contract price. From the moment respondent completed the construction of the condominium project and petitioner
refused to pay in full, there was delay on the part of petitioner. This delay was never disputed.
Delay in the performance of an obligation is looked upon with disfavor because, when a party to a contract
incurs delay, the other party who performs his part of the contract suffers damages thereby. Dilationes in lege sunt
idiosae.[12] Obviously, respondent suffered damages brought about by the failure of petitioner to comply with its
obligation on time. And, sans elaboration of the matter at hand, damages take the form of interest. Accordingly, the
appropriate measure of damages in this case is the payment of interest at the rate agreed upon, which is 2% interest
for every month of delay.
It must be noted that the Agreement provided the contractor, respondent in this case, two options in case of
delay in monthly payments, to wit: a) suspend work on the project until payment is remitted by the owner or b)
continue the work but the owner shall be required to pay interest at a rate of two percent (2%) per month or a fraction

thereof. Evidently, respondent chose the latter option, as the condominium project was in fact already completed. The
payment of the 2% monthly interest, therefore, cannot be jettisoned overboard.
Since the Agreement stands as the law between the parties, [13] this Court cannot ignore the existence of such
provision providing for a penalty for every months delay. Facta legem facunt inter partes.[14] Neither can petitioner
impugn the Agreement to which it willingly gave its consent. From the moment petitioner gave its consent, it was
bound not only to fulfill what was expressly stipulated in the Agreement but also all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. [15] Petitioners attempt to mitigate its
liability to respondent should thus fail.
As a last-ditch effort to evade liability, petitioner argues that the amount of P962,434.78 claimed by respondent
and later awarded by the lower courts does not refer to monthly progress billings, the delayed payment of which
would earn interest at 2% per month.
We disagree.
Petitioner appears confused by a semantics problem. Monthly progress billings certainly form part of the
contract price. If the amount claimed by respondent is not the monthly progress billings provided in the contract, what
then does such amount represent? Petitioner has not in point of fact convincingly supplied an answer to this
query. Neither has petitioner shown any effort to clarify the meaning of monthly progress billings to support its
position. This leaves us no choice but to agree with respondent that the phrase monthly progress billings refers to a
portion of the contract price payable by the owner (petitioner) of the project to the contractor (respondent) based on
the percentage of completion of the project or on work accomplished at a particular stage. It refers to that portion of
the contract price still to be paid as work progresses, after the downpayment is made.[16]
This definition is, indeed, not without basis. Articles 6.02 and 6.03 of the Agreement, which respectively
provides that the (b)alance shall be paid in monthly progress payments based on actual value of the work
accomplished[17] and that the progress payments shall be reduced by a portion of the downpayment made by the
OWNER corresponding to the value of the work completed give sense to respondents interpretation of monthly
progress billings.
Even supposing that petitioner has a different definition of monthly progress billings, it must nonetheless be
interpreted in favor of herein respondent because Article 6.03 of the Agreement, which gives respondent the options
in case of petitioners default in payment, was obviously stipulated for respondents benefit.[18]
Thus, respondent correctly contends that the amount claimed, which is part of the contract price, would not
have accumulated had petitioner been diligent in the monthly payment of the work accomplished by respondent.
Respondents claim, it must be noted, includes payment of the sum of P962,474.78, exclusive of damages. The
Complaint of plaintiff-respondent prayed for the amount of P962,474.78 exclusive of damages. Petitioner had all the
opportunity to squarely meet the issue on interest at the pre-trial as it was deemed included in the phrase exclusive
of damages. The appeal to the respondent court on the matter of interest was, therefore, a belated effort to object to
the contents of the Agreement. Petitioner cannot resort to this sneaky scheme. Objection to evidence cannot be
raised for the first time on appeal; when a party desires the court to reject the evidence offered, he must so state in
the form of objection. Without such objection, he cannot raise the question for the first time on appeal. [19] And, since
there was no timely objection to the contents of the Agreement, the Agreement and its contents form part of the
evidence of the case. All the parties to the case, therefore, are considered bound by any favorable or unfavorable
effects resulting from the evidence.[20]
Needless to state, it is not indispensable that Article 6.03 of the Agreement be sub-marked and formally offered
in evidence during the pre-trial before said provision may take effect. For one, the provision on the payment of
monthly interest is included in the Agreement, the existence and validity of which, to reiterate, were not objected to by

petitioner. For another, the payment of interest as penalty is a necessary consequence of petitioners failure to
exercise diligence in the discharge of its obligation under the contract.
Moreover, even assuming that there was a default of stipulation or agreement on interest, respondent may still
recover on the basis of the general provision of law, which is Article 2209 of the Civil Code, thus:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six percent per annum.
Article 2209 of the Civil Code, as abovementioned, specifies the appropriate measure of damages where the
obligation breached consisted of the payment of sum of money. Article 2209 was, in extent, explicated by the Court in
State Investment House, Inc. vs. Court of Appeals, [21] which provides:
The appropriate measure for damages in case of delay in discharging an obligation consisting of the
payment of a sum of money, is the payment of penalty interest at the rate agreed upon; and in the absence of a
stipulation of a particular rate of penalty interest, then the payment of additional interest at a rate equal to the regular
monetary interest; and if no regular interest had been agreed upon, then payment of legal interest or six percent (6%)
per annum.[22]
Hence, even in the absence of a stipulation on interest, under Article 2209 of the Civil Code, respondent would
still be entitled to recover the balance of the contract price with interest. Respondent court, therefore, correctly
interpreted the terms of the agreement which provides that the OWNER shall be required to pay the interest at a rate
of two percent (2%) per month or the fraction thereof in days of the amount due for payment by the OWNER.
We, therefore, find no basis to alter the findings of the Court of Appeals affirming the decision of the trial court.
WHEREFORE, the petition is hereby DENIED.
SO ORDERED.
G.R. No. L-43579

June 14, 1938

JOSUE SONCUYA, plaintiff-appellant,

vs. JUAN AZARRAGA, ET AL., defendants-appellants.
DIAZ, J.:
This case is now before us on appeal from the Court of First Instance of Capiz. After trial, the plaintiff filed a second
amended complaint, which the lower court at first refused to consider, but later on admitted after it was convinced that
the allowance thereof was proper in order to make the allegations conform to the established facts. This was done
without the defendants interposing any exception, notwithstanding that they had previously opposed the admission of
the amendment. They not afterwards and not now, in their brief on appeal, question the aforesaid amendment.
It appears from the allegations of the complaint thus amended that the plaintiff has four causes of action. Under the
first cause he seeks to recover from the defendants the sum of P118,635.68 as damages, which he alleges to have
been caused by the defendants in fraudulently depriving him of the possession of four parcels of land with a total area
of 296 hectares, 58 ares and 92 centares, which they, with knowledge that said real properties belonged to him
exclusively, registered in their names in the registry of property and mortgaged in favor of "Hijos de I. de la Rama" to
pay a certain obligation which they had contracted with the Panay Municipal Cadastre. Under the second cause,
plaintiff seeks to recover P6,080 as the supposed value of the heads of cattle belonging to him, which the tenants of
the defendants had slaughtered. Under the third cause, he seeks payment of the sum of P5,575 as the supposed

value of 1,115 coconut trees which he had planted on the four parcels of land in question. Under the fourth and last
cause of action, plaintiff prays that the defendants surnamed Azarraga, with the exception of Joaquin Azarraga, be
ordered to make up to 123 hectares, 13 ares and 99 centares the land which the latter had sold to him, because
plaintiff did not take possession of the land, except a portion thereof, having an area of 72 hectares, 83 ares and 5
centares. In other words, the defendants should deliver to the plaintiff an additional 50 hectares , 30 ares and 94
centares inasmuch as the participation of said Joaquin Azarraga in the estate left to him and his brothers, his codefendants herein, by their common grandfather, Juan Azarraga y Galvez, which Joaquin Azarraga sold to plaintiff,
had that area according to the deed of partition, executed by all of them, and the plan of said estate which was
subsequently drawn up.
In their answer of February 26, 1931, the defendants Azarraga interposed a general denial of each and all the
allegations of the plaintiff's complaint, excepting those relating the following special defenses; First, that the complaint
does not allege facts constituting causes of action; second, that the plaintiff and his predecessor in interest were
negligent in failing to inscribe in the office of the register of deeds the supposed encumbrances in their favor over the
lands in question, granting that said encumbrances had ever existed; third, that the plaintiff knew and was personally
informed that the lands aforesaid would be surveyed at their instance and inscribed in their names as their own
property, but that he did nothing to defend or protect his rights either during the pendency of the proceedings for the
registration of the lands in question or during the period prescribed by law after the issuance of a decree and title,
within which the validity of the same may be assailed; fourth, that at the time of filing their application for registration
as well as of the issuance of the decree ordering the inscription in their names in the registry of property of the lands
in question, they were the sole owners of the same, and that admitting for the sake of argument the theory of the
plaintiff that he had a right to said lands, it was nothing more than an expectation that he would be someday their
owner; fifth, that the plaintiff had no right to apply for or obtain from the court a writ of preliminary injunction,
wherefore, that obtained was illegal; and sixth, that the right of action of the plaintiff, if any, had prescribed.
The defendants Azarraga further alleged the following counterclaims:
(a) That plaintiff is liable to them in damages in the sum of P100,000 because while the contract which the
defendants had entered into with Leodegario Azarraga was still in force, the plaintiff took possession of their
lands not covered by the said contract; that he set loose therein his cattle, utilizing the same as grazing ground
in a negligent manner and without taking the necessary steps to avoid damages to their plantations; that
notwithstanding repeated requests, the plaintiff refused to fence the lands in which he had set loose his animals,
thereby causing damages and destruction to their plantations; that the animals belonging to the plaintiff not only
destroyed and damaged the coconut, palay and corn plantation existing already on the lands before said
animals were brought thereto, but also destroyed their farms and plantations on their enclosed lands; that all
this was due to the neglect and carelessness of the plaintiff; that by reason of his refusal to enclosed the lands
converted into grazing grounds, the defendants were unable to derive any benefits from their lands or to sell or
rent them to those who desire to do so.
(b) That the plaintiff is further liable and should be sentenced to pay them in damages the sum of P 15,000 for
having caused the annotation in the corresponding registry of the book of the office of the register of deeds of
the Province of Capiz of a notice of lis pendens not only with regard to the 150 hectares, 48 ares and 50
centares which he claims in his complaint, but also with regard to the whole area of 246 hectares, 27 ares and
98 centares, described in the original certificate of title No. 9785 issued in the name of the defendants; that as a
result of this act of the plaintiff, they could not enter into any transactions over that unquestioned portion of the
land to which said title relates.
(c) That the plaintiff is likewise liable and the defendants pray that he should be sentenced to pay them the sum
of P30,000 also in damages, for having sought and secured the issuance of an order of preliminary attachment
of their properties described in certificates of title No. 9804 and 10361.
(d) That the plaintiff is liable and should be sentenced to pay them in damages the sum of P10,000 for having
asked and secured from the court on February 7, 1931 a writ of preliminary injunction in the same case, thereby

preventing the defendants from exercising acts of ownership not only on the four parcels in questions, but also
on all the other lands belonging to them.
(e) That in case it is adjudged that the lands in controversy had been improperly inscribed by the defendants in
their names in the registry of property, they pray that the plaintiff be ordered to reimburse them in the sum of
P5,000 which represent the taxes paid by them on said lands, plus interest from the dates said taxes were paid;
(f) The defendants lastly pray that upon the dissolution of the writ of preliminary injunction issued against them
on the date above-stated and the cancellation of the annotation of said writ in the corresponding book of the
office of the register of deeds of Capiz, the plaintiff be sentenced to pay the costs of the suit.
"Hijos de I. de la Rama" and Panay Municipal Cadastre were included in the complaint only for the purpose of
enjoining the former from increasing to P25,000 the credit it had extend to the defendants Azarraga, who had already
obtained P16,000 on a mortgage of the lands in questions executed by them in its favor; and of restraining the latter
from collecting from said loan of P25,000, extended by "Hijos de I. de la Rama" to the defendants, the credit which it
claims to have against them under a contract whereby they bound themselves to provide it with funds to carry on the
enterprise for which it has been organized.
"Hijos de I. de la Rama" showed very little interest in the case, for, according to the lower court, it merely filed an
answer with a general denial.
Panay Municipal Cadastre, in its answer, denied all the allegations of the complaint in so far as it might be affected
thereby, and alleged as special defense that the plaintiff had no right to ask for, and much less obtain, a writ of
preliminary injunction against it. It further alleged as a counterclaim that the said plaintiff has become liable to it in
damages in the sum of P15,000, plus P5,000, plus P5,000 every month, beginning February 7, 1931, because the
plaintiff prevented if from receiving from the defendants Azarraga or from "Hijos de I. de la Rama" the sums which
they had bound themselves to deliver under a contract which they had executed on September 20, 1929. After trial,
the court rendered judgment as follows:
Wherefore, the defendants Juan, Jose, Salvador, Joaquin, Emilio, Luis, Rosario, Julio, all surnamed Azarraga,
are hereby sentenced to pay the plaintiff, jointly and severally, the sum of P24,627.98, with legal interest from
November 10, 1926, as damages because they fraudulently deprived the plaintiff of his lands in Bay-ang, and
likewise to pay the plaintiff, jointly and severally, the sum of P5,575 with legal interest from November 10, 1926,
representing the value of 1,115 coconut trees as improvements on said lands, and, with the exception of
Joaquin Azarraga, to pay the plaintiff, jointly and severally, the sum of P5,030.94 with interest at the legal rate
from November 10, 1926 for eviction and warranty.
In case the defendants Azarraga have no unencumbered properties or can not redeem the mortgage over their
properties, with which to satisfy the indemnity for damages, the payment of said indemnity shall be charged
against the bond of the sureties, who secured the lifting of the attachment on the properties of the defendants.
The writ of preliminary injunction issued in this case on February 7, 1931 against the defendants Azarraga, Hijos
de I. de la Rama and Panay Municipal Cadastre is hereby made final, with the exception of that portion which
enjoins Hijos de I. de la Rama from delivering to the defendants surnamed Azarraga and Panay Municipal
Cadastre more than the sum of P16,000, which had already been delivered, and which likewise enjoins the
latter from demanding from said entity more than the above-mentioned sum of P16,000, which portion is hereby
declared dissolved.
The plaintiff is absolved from the counterclaims interposed by the defendants Azarraga and by the Panay
Municipal Cadastre. The defendants Azarraga and by the Panay Municipal Cadastre. The defendants Azarraga
shall pay the costs.

From the foregoing judgment the defendants as well as the plaintiff appealed, and in their respective briefs they
assign the following errors;
ASSIGNMENTS OF ERROR OF THE DEFENDANTS
I. The trial court erred in holding that the true nature of the stipulation between Attorney Leodegario Azarraga
and the heirs of Don Juan and the heirs of Don Juan Azarraga y Galvez as contained in the plan of partition
Exhibit "A" is one of cession of property in payment of a debt known in Spanish law as "dacion en pago."
II. the trial court erred in not holding that the stipulation between Attorney Leodegario Azarraga and the heirs of
the deceased Juan Azarraga y Galvez to the effect that the lands were to become the property of Attorney
Leodegario Azarraga in case the defendants failed to pay his fees within five years and that during this period
the said attorney had the usufruct and possession of the lands, as contained in Exhibit "A", is one of pacto
comisorio, which is prohibited by article 1884 of the Civil Code.
III. The trial court erred in finding that the three parcels of land in question, lots Nos. 81, 82, and 83, were sold
by Attorney Leodegario Azarraga to the plaintiff herein.
IV. The trial court erred in not holding that the right established by Attorney Leodegario Azarraga by virtue of
Exhibit "A" and transferred to the plaintiff is at most an attorney's lien over the properties in question and that the
action of the plaintiff as transferee of this lien should be to compel the defendants to recognize it as a lien.
V. The trial court erred in holding that the defendants procured the registration of the lands in question by
fraudulent means.
VI. The trial court erred in not holding that the plaintiff, having no real right over the lands in question, the
omission of his name from the application is not fraudulent and not fatal to the registration of the lands.
VII. The trial court erred in not holding that the plaintiff, being a mere usufructuary of the lands in question for a
limited period of time by grace of the owners, was not entitled to be mentioned in the application for registration
and to be notified personally of its proceedings.
VIII. The trial court erred in not holding that the plaintiff had been negligent in not asking for the review of the
decree within one year, and in not holding that the plaintiff purposely allowed the one-year period, within which
he could petition for review of the decree, to elapse in order that he might have a cause of action for damages
against the defendants.
IX. The trial court erred in permitting the plaintiff to prove the market value of the lands in question although
there was absolutely no allegation to that effect in the complaint notwithstanding the objection thereto and the
exception taken by the defendants.
X. The trial court erred in not holding that Joaquin Azarraga has not intervened in the registration of the lands in
question, he being only a coowner pro indiviso and as such has not been guilty of fraud in connection with the
registration of the lands.
XI. The trial court erred in not holding that the plaintiff had no real right over the land referred to in Exhibit 'E' in
view of the fact that the said document had not been registered.
XII. The trial court erred in holding that the land referred to in Exhibit "E" contains an area of 164 hectares
instead of 63 hectares only.

XIII. the trial court erred in finding that the total area of lots 81, 82, and 83, which are the subject matter of the
"pactum commissorium" between Attorney Leodegario Azarraga and the defendants, is 243 hectares instead of
87 hectares only.
XIV. The trial court erred in sentencing the defendants to pay to the plaintiff the sum of P35,233.92 and in not
absolving them from the complaint.
XV. The trial court erred in disallowing all the five counterclaims of the defendants amounting to P58,000.
ASSIGNMENTS OF ERROR OF THE PLAINTIFF
(a) The lower court erred in not finding that the market value of the lands in litigation in 1926 was P118,635.68;
(b) The lower court erred in not sentencing the defendants to pay the plaintiff the sum of P6,080 as indemnity for
the wrongful slaughter of his animals; and
(c) The lower court erred in not sentencing the defendants to pay the plaintiff, jointly and severally, the sum of
P13,290.68 as indemnity, plus legal interest from November 10, 1926.
The salient facts established at the trial which may serve as a basis for an intelligent discussion of the questions
raised by the parties and for a proper decision of the same, may be briefly stated as follows:
By reason of the proceedings had in case No. 11489 of the Court of First Instance of Manila, entitled "Testate Estate
of the Deceased Juan Azarraga y Galvez", the defendants surnamed Azarraga became indebted to Attorney
Leodegario Azarraga, who represented them in said case, for attorney's fees, which on October 21, 1919 the court,
which took cognizance of the case, fixed at P3,000 (Exhibit B).
The defendants Azarraga had previously agreed among themselves to pay Attorney Leodegario Azarraga attorney's
fees in the manner set out in Exhibit A, which they executed on January 20, 1919 and approved by the court on
August 29, of the same year. (Exhibit C.) The pertinent part of the aforesaid Exhibit A reads as follows:
The parties also agree that the parcels of land located in Bay-ang, New Washington, Capiz, P. I., which are
enumerated in the inventory of this partition as Nos. 81, 82 and 83, are specially mortgaged and subject to the
payment of the fees of said attorney of the testate estate, which fees shall be fixed by the court, and said attorney
may hold said lands under no obligation to pay any rent until his fees shall have been fully paid: Provided, however,
that if, at the end of the period of five years from the date of the approval of this project of partition, said parties shall
not have been able to pay in full the fees of said attorney, then said parcels of land, Nos. 81, 82 and 83, located in
Bay-ang, shall be definitely adjudicated to said attorney, Mr. Leodegario Azarraga, as his property, in payment of his
fees, and all sums which he may have received from time to time from the interested parties in these testate
proceedings, within the said period, shall be returned to said parties: Provided, further, that in case said interested
parties in the testate proceedings shall be able to pay in full the fees of the attorney for the estate before the
expiration of said period of five years, then said parcels of land situated in Bay-ang shall continue in the possession
of said attorney for an additional period of three years from the date of the last payment in the event that said attorney
may have kept livestock in said lands.
About nine months after the court approved Exhibit A, or to be exact, on June 9, 1920, which was long before the
expiration of the period of five years within which the defendants Azarraga were bound to pay Attorney Leodegario
Azarraga his fees, which had been fixed at P3,000, said attorney decided to sell and did sell to the plaintiff his credit
against the defendants for the sum of P2,500 with all the rights inherent therein in accordance with the agreements
and stipulations appearing in said document (Exhibit C). One of said agreement was that Attorney Leodegario
Azarraga would take possession of the said parcels of land and, occupy the same, if he so desired, without paying

any rent or annuity, until fees shall have been fully paid. Said parcels were identical with lots Nos. 81, 82 and 83
described in paragraph II of the plaintiff's second amended complaint.
When the plaintiff became the creditor of the defendants Azarraga by virtue of the sale and cession which Attorney
Azarraga had made in his favor of the rights which said attorney had under Exhibit A, he allowed the defendants an
extension of a few years over the five years with in which they would have to pay him his credit, or up to February 16,
1926, but with the express condition that they would pay him interest at the rate of 12 per cent per annum, from
August 30, 1924 (Exhibit 5). This term was later extended to April 26, 1926 on the request of the defendants, but also
with the condition that they would pay the plaintiff the same interest of 12 per cent. (Exhibits l and M.) The plaintiff
granted another extension to expire on October 31, 1928, but subject to the condition that instead of seven thousand
and odd pesos, which undoubtedly referred to the interest of 12 per cent per annum charged the defendants, they
should pay him P12,000 (Exhibit 2). In said two amounts of P7,000 and P12,000 the sum of P4,000 which the plaintiff
had given to the defendant Joaquin Azarraga and which will be dealt with further in detail, was included.
Aside from the above transactions between the plaintiff and the defendants Azarraga, one of the latter, Joaquin
Azarraga, executed in favor of the former, the deed known as Exhibit E of the record and dated October 14, 1922, by
which he sold to the plaintiff, for the sum of P4,000, his portion of the inheritance in the testate estate of the late Juan
Azarraga y Galvez, consisting of an undivided tract of land containing an estimated area of 63 hectares and located
in Bay-ang Chico, New Washington, Capiz. It is further stated therein that the period of redemption would be five
years to be counted from February 16, 1921, which was later extended to April 26, 1926. In granting him this
extension, the plaintiff imposed on Joaquin Azarraga the condition that he should pay him interest at the rate of 12
per cent from the expiration of the first term (Exhibit M; par. III of the second amended complaint of plaintiff; and page
5 of the brief of the plaintiff as appellant). A second extension was further granted, but under the condition that he
should, together with his brothers, pay the plaintiff instead of seven thousand and odd pesos, representing the
interest referred to in the preceding paragraph, in which the P3,000 mentioned in Exhibit A were included, P12,000
(Exhibit 20. The deed referred to was never annotated or inscribed in any register in the office of the register of deeds
of said province.
By virtue of the transfer made to him by Joaquin Azarraga and also of the terms conditions enumerated in said Exhibit
A, the plaintiff took possession of practically the whole land of the defendants Azarraga, located in Bay-ang, placing
therein livestock from the month of August, 1920 and in the same year built sheepfolds therein, besides erecting
some wire fences. When the plaintiff took possession of part of the land in question in August, 1920 and another part
thereof in February, 1922, after the execution in his favor of the deed of transfer, which is a clarification of Exhibit E,
he found fruit-bearing and young coconut trees, the latter being more numerous. In 1925, 1926 and 1927, Joaquin
Azarraga, either by himself or his laborers, planted therein hundreds of coconut trees of which but a few hundreds, as
we the case with the old ones, remained on account of the long droughts or other causes. There is nothing definite in
the record to show the exact number of animals which the plaintiff had brought to Bay-ang or the cause of the death
of some of them. It seems that some had been wounded, by whom it is not known, much less it is known whether
they were wounded by men of the defendants Azarraga. The plaintiff himself has not spoken with certainly; his
statements on this point are mere conjectures uncorroborated by anybody or anything (transcript of stenographic
notes, pages 145-147). There have been also no exact accounts as to whether the animals of the plaintiff where
those which destroyed the coconut trees planted on the land by Joaquin Azarraga during the years 1925, 1926 and
1927 above-mentioned, or were the animals of other persons.
Sometimes in May, 1928, the plaintiff went to the house of the defendants Joaquin Azarraga to collect not only his
credit against all the defendants Azarraga, but also the special credit which, according to him, he had against Joaquin
Azarraga. And on October 9, 1928, he addressed a letter to each and every one of the defendants including Joaquin
Azarraga whom he expressly mentioned therein, and, among other things, told them that:
Last May, Messrs. Salvador and Joaquin came to an agreement with me whereby they were to redeem the
land in Bay-ang for seven thousand and odd pesos las September, and in default thereof to transfer in my
name the Torrens title of the portion belonging to me; but until now neither of these has been done.

For this reason and in view of the fact that you have not stated in the Torrens title of the land in Bay-ang
when you applied for the same, the two encumbrances thereon in my favor, I am compelled by this
omission, which is a clear disregard of my rights, to seek redress therefor in the courts, if you refuse the
same to me. Therefore, if you desire to redeem the land, you may do so for the sum of twelve thousand
pesos (P12,000) until the 31st of this month of October; but should you not wish to redeem it, then in order
to avoid the inconvenience of a law suit, I would request that on the same day or prior thereto that you shall
have at least submitted to the court your motion praying for an order approving the segregation and transfer
of the portion of said land which belongs to me, together with the corresponding plan, namely, that
corresponding to the land which shall be in my name in the Torrens title. In the understanding that if said
date, October 31st, arrives, and you have not done anything either one way or the other, then through your
own fault, I would be compelled to resort to the courts to ask protection of my rights before I lose them,
urging the court to order you to pay me by reason of such fraudulent omission a sum more than double the
amount above-mentioned. (Exhibit 2.)
The land in Bay-ang to which the above-transcribed letters refers is the same land made up by the four parcels
mentioned in paragraph II of the second amended complaint of the plaintiff, as parcels 81, 82, 83 and that having an
area of 63 hectares.
Between the date of the execution of the document Exhibit A (January 20, 1919) and the date of said letter Exhibit 2
(October 9, 1928), the defendants secured the inscription in the registry of property and the issuance in their favor of
the corresponding certificate of title of the lands described in original certificate of title No. 9785, by virtue of the
decree of registration of October 27, 1925 (Exhibit Q). Of this fact the plaintiff had full knowledge by reason of the
letter dated July 9, 1924, which was sent to him by the defendant Juan Azarraga, wherein the latter, besides asking
for an extension of three years, informed him (plaintiff) of the registration proceedings which were then going on.
(Exhibit 1.) The plaintiff did not then nor thereafter take any step to oppose the same, or to ask at least for the
revision of the decree of registration, which was issued later, within the period of one year prescribed by law. To this
letter, the plaintiff replied on the 30th of the same month and year, stating, among other things:
Now that I am somewhat relieved from the pressure of work, I am writing to inform you that, although I need
cash to meet my pressing financial obligations, your requests have compelled me to grant you, as
administrator the undivided properties of the Azarraga brothers, an extension of the term for the payment of
the credit which encumbers the land in Bay-ang, and, consequently, of the redemption of the same, up to
February 16, 1926. Said land and its encumbrances are described in the deed of sale of the said credit with
all the rights inherent therein, executed by Mr. Leodegario Azarraga in favor of the undersigned on July 9,
1920.
As the granting of this extension is causing me a real sacrifice and a great financial strain, in justice and
equity, I also ask from you, as administrator of the undivided properties of the Azarraga brothers, thelucrum
cessans so that from August 30, 1924 the aforesaid credit of P3,000 shall earn 12 per cent annual interest.
This letter will serve you as evidence of the granting of the extension of the term for redemption of the said
land in Bay-ang and, therefore, there is no necessity for executing another document to that effect. (Exhibit
5.)
At the time of the filing of the original complaint, plaintiff simultaneously asked for and obtained on February 7, 1931,
upon posting a bond in the amount of P2,000, a writ of preliminary injunction against the defendants (Exh. 15), and in
due time caused the annotation in the office of the register of deeds of the Province of Capiz of a notice of lis
pendens not only with regard to the portion having an area of 150 hectares, 48 ares and 50 centares of the lands of
the defendants Azarraga, but also with regard to the whole area of 246 hectares, 27 ares and 98 centares described
in original certificate of title No. 9785.
The plaintiff also secured from the Court of First Instance a preliminary attachment of the properties of the
defendants, described in certificates of title No. 9804 and 10351, on February 5, 1929 (Exhibit R); and the same was

annotated in the registry of property in the same month. Seven months after, or on September 9, of said year, the
aforementioned attachment was lifted by order of September 7, 1929 (Exhibit X) upon the filing of a bond required by
the court in the sum of P12,500 by the interested parties. Said bond having been filed by the defendants, the court,
on the same day, ordered the cancellation of the notice of lis pendens annotated in the office of the register of deeds
and the inscription of all the necessary annotations. (Exhibit Y.)
As clearly proven as the foregoing are the facts that the defendant "Hijos de I. de la Rama" entered into a contract
with its co-defendants Azarraga for the purpose of granting them a credit of P25,000, having delivered to them on
different occasions after the execution by said defendants of a deed of mortgage Exhibit 16 in its favor on September
20, 1929, as part of the aforementioned sum, the total amount of P16,000. The Azarragas needed said amount for
carrying on the business for which the defendant Panay Municipal Cadastre, Inc., had been organized, as set forth in
said Exhibit 16 and clarified in Exhibit 17.
By virtue of the writ of injunction issued by the lower court on February 7, 1931, enjoining the defendants Azarraga
and the Panay Municipal Cadastre from obtaining from their co-defendant "Hijos de I. de la Rama" another loan, arise
from the P16,000 which they had previously obtained (Exhibit 14), said defendant "Hijos de I. de la Rama" did not
extend the credit, which it had opened to its co-defendants, to P25,000 as required by the contracts Exhibits 16 and
17 above-referred to. In connection with the issuance of the writ of preliminary injunction, the following facts must be
mentioned: After the plaintiff commenced the present case against the defendants Azarraga on January 28, 1929 by
means of his original complaint, he instituted another action against them, which was civil case No. 2643, for the
purpose of obtaining a writ of injunction to prevent them from securing the aforementioned loan of P25,000 from
"Hijos de I. de la Rama". This latter case reached this court on certiorari filed on March 22, 1930. As its sole object
was the issuance of a writ of preliminary injunction, this court, reiterating once more the ruling that said remedy is
purely subsidiary available only in aid of the right sought to be enforced in the action wherein the same is issued, and
that a separate action to secure the same does not lie as it would permit of multiplicity of suits with the consequent
needless expenses (Panay Municipal Cadastre vs. Garduo and Soncuya, 55 Phil., 574, 578), granted
the certiorari prayed for on January 22, 1931, thus setting aside the writ of preliminary injunction issued by the court
of Capiz on October 21, 1929, hence, it was in being for not more than one year, three months and one day.
The writ of preliminary injunction subsequently issued on February 7, 1931, has remained in force up to the present,
as the lower court declared in its judgment that it shall be final with respect to the P9,000 still owing from "Hijos de I,
de la Rama" on account of the loan which it had agreed to extend to the other defendants.
The works for which the Panay Municipal Cadastre had been organized were begun in October, 1929. According to
the testimony of Gaspar Ferraren, for all the work which they intended of Gaspar Ferraren, for all the work which they
intended to undertake, they needed a capital of not more than P40,000 to make a gross profit of P100,000. Of this
estimated capital they invested the P16,000, obtained from "Hijos de I. de la Rama", which immediately yielded a
return of P6,000. He also stated that the Panay Municipal Cadastre completed half of its works with only the capital
obtained from "Hijos de I. de la Rama" (P16,000), plus its first profit of P6,000 and that it made a profit of P24,277.15
meaning thereby that with the aforemention P16,000 it obtained P30,277. 15, or a net profit of P14,277.15.
Another fact which has been clearly established by the testimony of the plaintiff himself is that he decided to sell all
the animals which he had placed on the land in question because he became discouraged by the destruction of said
animals by the tenants of the defendants Azarraga. This fact, however, has been established not by competent
evidence, but by hearsay testimony, which was of course timely objected to; and, although he testified in the same
breath that he had still some cattle there, he could not state their exact number, but limited himself to saying "I cannot
tell whether there were fifty of them." (Transcript, page 14.)
In his subsequent dealings with the defendants Azarraga, including Joaquin Azarraga, as in his pleadings and
testimony, the plaintiff, in referring to the amount of P2,700 or P3,000, the value of the credit which he had purchased
from Attorney Leodegario Azarraga, and to that of P4,000 which he gave to Joaquin Azarraga on the date and under
the circumstances stated in Exhibit E, he alluded to, and considered them as his "credit". Thus, on page 176 of the
transcript of the stenographic notes, he said: ". . . land mortgaged to me . . .;" and on pages 192 and 194 of said

transcript, he also said: "Now I am not collecting the credit; I am collecting the damages. Although they may have
sold that property to me for P1, if its commercial value has increased after they have deprive me of the same, I
should collect from them such value;" and ". . . I want so say again that what I am collecting now is not the credit
which I have against them, but the damages they have caused me by depriving me of the property."
The facts of the case being as above set out, the questions raised by the parties in their respective assignments of
error, should now be considered. In fact, the most important or those discussed in the first fourteen errors attributed
by the defendants to the lower court, and in the first and last errors, which plaintiff, in turn, assigned, may be reduced
to the following:
I. Was the contract entered into by-the Azarraga brothers, the defendants herein, with Attorney Leodegario Azarraga
from whom the plaintiff derived his right, a sale with pacto de retro, or an assignment in payment of a debt, or was it
an antichresis partaking of the nature of what was anciently known as pacto comisorio, or a mortgage, or was it
merely a loan with real estate security?
II. Was the contract executed by the defendant Joaquin Azarraga, on the one hand, and the plaintiff, on the other,
embodied in Exhibit E, a sale with pacto de retro or simply a loan with real estate security?
The first question offers no difficulty if account is taken of the established facts and the conduct of the interested
parties after the expiration of the term of five years fixed in Exhibit A. When the plaintiff extended the period to
February 16, 1926 within which the defendants Azarraga could pay him his credit, but imposed on them the condition
that they pay him 12 per cent annual interest from August 30, 1924 on the principal of P3,000 (Exh. 5) and gave them
another extension up to April 26, 1926, under the same conditions as regard interest (Exh. M), what perhaps could
have been considered as a antichresis or pacto comisorio not an assignment in payment of a debt, or a sale
with pacto de retro because there is nothing in Exhibit A to indicate that such was the intention of the defendants
Azarraga or, at least, that they bound themselves to deliver the land in question to the plaintiff and that the latter
should pay them the value thereof; and because there was what may be considered the resolutory condition of five
years was converted into a simple loan by the decisive circumstance that plaintiff chose to collect thereafter, and
the obligors agreed to pay him, 12 per cent annual interest. It is only in contracts of loan, with or without guaranty,
that interest may be demanded (articles 1108, 1740, 1755, 1868, 1876, and 1881 of the Civil Code. As a matter of
fact, the contract embodied in Exhibit A was novated by Exhibits 5 and M, and the plaintiff wanted to have it novated
for the third time by means of Exhibit 2. It does not appear of record, however, that the defendants Azarraga ever
assented to the latter novation. Perhaps, their refusal to agree to the same was due to the fact that the plaintiff
wanted to raise their old obligation (P3,000 or P2,700 of all the Azarraga brothers, plus P4,000 which Joaquin
Azarraga alone owed, which two accounts both the plaintiff and the defendants considered as amounting to P7,000,
exclusive of the annual interest of 12 per cent) to the round sum of P12,000. From all this it may easily be inferred
that the obligation which the defendants had imposed upon themselves by Exhibit A had ceased to exist and became
a simple loan with security, if so desired, of the lands in question, but without prejudice to third parties as neither
Exhibit A nor the deed of assignment Exhibit C, executed by Leodegario Azarraga in favor of the plaintiff, was
inscribed in the registry of deeds.
There is also no difficulty in disposing of the second question, considering the various novations which, as has been
said, had taken place and had been extended not only to the Azarraga brothers with respect to their obligation of
P3,000 or P2,700, but also to the defendant Joaquin Azarraga as regard his personal debt of P4,000. We must not
lose sight of the fact that the plaintiff never considered the contract entered into by him with Joaquin Azarraga as,
strictly speaking, a sale with pacto de retro. And if he had ever considered it as such, it is, nevertheless, true that he
novated it on February 16, 1926, considering it from the time on as a simple loan, inasmuch as on that date he began
to charge the said defendant 12 per cent annual interest with the latter's assent and confirmity. This clearly appears in
Exhibit M which must be considered together with paragraphs 7 and 8 of Exhibit E, as the plaintiff himself does in his
brief (brief for the plaintiff as appellant, pages 4 and 5), because the term of five years to which said Exhibit E refers
and which should have expired on February 16, 1926 was extended by the said plaintiff, by Exhibit M, up to April 26,
1926 under the aforementioned condition that he should be paid 12 per cent annual interest.

Consequently, the contention of the defendants that the plaintiff did not and could never receive the lands in question
as an assignment in payment of a debt, and much less did he acquire them by purchase with pacto de retro, is well
taken. It must also be noted that at no time did the plaintiff claim any rights of dominion over the lands since he did
not even intimate to the defendants, either directly or indirectly, that for their failure to pay him his credit within the
time provided therefor, he become the absolute owner thereof. Notwithstanding the fact that all the extensions he had
given defendants had expired, he did not, even only for tax declaration purposes, declare the lands as his property.
Having reached this conclusion, it is needless to state that the plaintiff has no right to the various sums which he
seeks in his complaint and to which he refers in the first and last errors assigned by him. If, as has been shown, he
never became the owner of the lands in question, he can neither claim payment of the value of the same nor ask to
be indemnified for the deprivation of their possession. The plaintiff, moreover, has no reason to complain that his lien,
if his right over said lands could be termed as such, was not annotated in the certificate of title which the defendants
Azarraga had obtained, or that the latter did not ask that it be stated therein that the lands to which it refers are
charged with his credit against them; inasmuch as he was himself negligent in that he did not ask the court, while the
registration case relating to said lands was being heard, for the annotation of what he considered necessary to
protect his rights, and in not seeking the revision of modification of the decree of registration within the period of one
year provided for the purpose.
As to the fifteenth error attributed to the lower court by the defendants Azarraga, we hold that, in view of the
established facts above-related, they have failed to show satisfactorily that they have any right under all or any of
their several counterclaims. If the coconut trees planted by Joaquin Azarraga on a portion of the land in question were
indeed lost or destroyed, it was due more to his own negligence than to the of the plaintiff; for he well knew on
planting them in 1925, 1926 and 1927 that the plaintiff maintained therein, with his (Joaquin Azarraga's) approval,
livestock which might destroy them, and he did not take the necessary precautions against such occurrence. This is,
of course, upon the supposition that his coconut plantations died by reason of the devastation caused by the animals
of the plaintiff. The preponderance of the evidence, however, has shown that they died on account of the drought
alone.
We likewise hold that the issuance of the writs of preliminary injunction and attachment at the instance of the plaintiff
did not prejudice the defendants, inasmuch as there is no competent evidence of record to the contrary. On the other
hand, there is evidence to show that from the loan which the defendants Azarraga had obtained from "Hijos de I. de
la Rama" they derived a net profit of P14,277.15 within the short period of one year and a few months.
There is no support for the contention of the defendants that they suffered damages by reason of the preliminary
attachment ordered by the lower court because they were unable to sell one of their houses to the Calibo Institute for
the price agreed upon by them and said entity. The record shows that they lost nothing because the Calibo Institute is
at present occupying a portion of said house and they may, if they so desire, sell it even now to the occupant. It does
not appear, on the other hand, that the latter desisted from buying it on finding a better building.
As to the second error assigned by the plaintiff, it suffices to recall that the established facts do not show that the
tenants of the defendants were responsible for the killing and wounding of the animals belonging to him or that said
tenants acted upon the instigation of the defendants. Consequently, the plaintiff's claim to this effect is entirely without
merit.
In view of all the foregoing and in resume, we hold that the plaintiff alone has the right (1) to recover from the
defendants Azarraga, by virtue of the assignment and sale made to him by Attorney Leodegario Azarraga of the
latters' credit of P2,700 against the said defendants, the aforesaid sum plus interest at the rate of 12 per cent per
annum from August 30, 1924; (2) to recover from the defendant Joaquin Azarraga, in particular, the sum of P4,000
plus interest at the rate of 12 per cent per annum from April 26, 1926. We also hold that the defendants are not
entitled to anything under their counterclaims.
Wherefore, reversing the appealed judgment,

(a) All the defendants are hereby sentenced to pay jointly the sum of P2,700 to the plaintiff, with 12 per cent
annual interest from August 30, 1924 until said sum is fully paid; ;and
(b) The defendant Joaquin Azarraga is sentenced to pay the plaintiff the sum of P4,000 plus interest at the
rate of 12 per cent per annum from April 26, 1926, until fully paid.
The plaintiff is absolved from defendants' counterclaims and the writ of preliminary injunction issued by the lower
court on February 7, 1931, is hereby dissolved. There is no special pronouncement as to costs. So ordered.
G.R. No. L-6313

May 14, 1954

THE ROYAL SHIRT FACTORY, INC., plaintiff-appellee,

vs.CO BON TIC, defendant-appellant.
MONTEMAYOR, J.:
The present appeal involves an action originally brought in the Municipal Court of Manila by the plaintiff, the ROYAL
SHIRT COURT, INC., to recover from defendant CO BON TIC the sum of P1,422 said to represent the balance of the
purchase price of 350 pairs of "Balleteenas" shoes at P7 a pair, with interest at 12 per cent per annum from August
27, 1948, and 25 per cent of said sum as attorney's fees, and costs.
The principal issues in the Municipal Court was the nature of the sale of the 350 pairs of shoes by plaintiff to
defendant whether it was an outright sale as contended by the plaintiff, or a sale merely on consignment as
claimed by the defendant who wanted to return the shoes not yet sold by him. There was also involved the question
of the amount already paid by the defendant to the plaintiff. The Municipal Court held that the contract was of sale on
consignment; that of the 350 pairs of shoes consigned, 207 pairs were sold at the rate of P8 a pair, amounting to a
total of P1,656; and that defendant had paid the sum of P1,028 to plaintiff on account of the purchase price of the
shoes sold, excluding the amount of P420, value of Check No. 790264 issued by defendant as payment but returned
to him by the plaintiff and not replaced with cash. Judgment was rendered sentencing the defendant to pay plaintiff
the sum of P628 with interest thereon at the legal rate from the date of the filing of the complaint, and to return to
plaintiff the 143 pairs of shoes still unsold, unless he preferred to retain and pay for them at the rate of P8 a pair
within a period of fifteen days from receipt of a copy of the decision.
The defendant appealed from the judgment to the Court of First Instance of Manila, and after trial, the appellate court
held that the transaction involved was one of outright sale at P7 per pair of shoes, sales tax included, the court
accepting the version given by the plaintiff to the effect that on the basis of the order slip (Exhibit A), the defendant
had 9 days from delivery of the shoes to make his choice of the two alternatives, that is to consider the sale of the
350 pairs of shoes closed at the flat rate of P7 per pair, sales tax included, or, at the expiration of 9 days to pay for the
shoes sold at P8 per pair, and to return the remaining unsold ones to plaintiff; and that, inasmuch as defendant, at the
expiration of the 9 days stipulated, failed to return the shoes, and actually began making partial payments on account
of the purchase price agreed upon, the transaction in the nature of a straight sale, was considered closed. The court
also found as did the Municipal Court that the amount of P420 represented by Check No. 790624 was never replaced
or exchanged for cash by the defendant upon its return to him, and consequently, it may not be considered as part
payment.
Judgment was rendered in favor of the plaintiff and against the defendant and the latter was ordered to pay to the
former the sum of P1,422, the unpaid balance of the sales price of 350 pairs of shoes in question, with interest on the
amount due at the rate of 12 per cent per annum from August 27, 1948 until final payment plus the amount of 25 per
cent of the same sum for attorney's fees as stipulated, and costs. After failing to get a reconsideration of the
judgment, the defendant appealed the case to the Court of Appeals which Tribunal after the submission of the briefs
for both parties, and acting upon a motion filed by counsel for the appellant that the case be certified to the Supreme
Court for the reason that the question raised in his first and second assignment of errors involved the jurisdiction of

the trial court, granted the same and certified the appeal to us for final determination pursuant to Section 17, par. 2 (3)
of Republic Act. 296.
Under the first and second assignment of errors, the defendant raises the question of jurisdiction of the Court of First
Instance of Manila in reviewing and passing upon the issues already passed upon and decided by the Municipal
Court but not appealed from by plaintiff. It is the theory of the appellant that as for instance, when the Municipal Court
found that the transaction between plaintiff and defendant was a sale on consignment and plaintiff failed to appeal
from that decision, that part of the judgment became final as to him (plaintiff), and should be regarded as res
adjudicata, and that the Court of First Instance in the exercise of its appellate not original jurisdiction may not review
and pass upon the same question or issue, and that in so doing it exceeded its appellate jurisdiction. Defendant
further contends and cites authorities in support of his contention that regardless of the provisions of Rule 40, section
9, of the Rules of Court whose provisions are to the effect that a perfected appeal from a decision of the justice of the
peace or the municipal court shall operate to vacate the said judgment and shall stand for trial de novo upon its
merits in accordance with the regular procedure in that court as though the same had never been tried before and
had been originally commenced there, an appeal brings up for review only that which was decided against the
appellant so that that part of the judgment favorable to him is not reviewable if the other party does not appeal; that a
party who has not appealed a judgment cannot assail it, neither can he ask for a judgment more favorable to him
than that rendered in the court below; that the party who has not appealed a judgment signifies his acceptance of the
correctness of the said judgment, and that in the appeal his position is merely defensive and he may only refute
appellant's assignment of errors and sustain the judgment of the trial court.
The above contention of appellant might possibly hold with regards to appeals from judgments of Courts of First
Instance to the Court of Appeals or to the Supreme Court in that one cannot seek further remedy or relief in the
appeal not taken by him than that granted him by the trial court, unless of course, the appellate court motu
proprio takes cognizance of palpable errors committed by the trial court and proceeds to correct the same even if the
correction favors the appellee (Section 5, Rule 53, Rules of Court). However, we have a special legal provision
governing an appeal from justice of the peace or municipal courts to Courts of First Instance, the very Rule 40,
section 9, of the Rules of Court cited by defendant-appellant. Such appeal serves to vacate the judgment appealed
from and the action will stand for trial de novo upon its merits as though the same had never been tried before and
had been originally commenced in the Court of First Instance. The Court of First Instance will try the case without
regard to the proof presented in the Justice of the Peace or Municipal Court or the conclusions arrived by said court.
The Court of First Instance will not affirm, reverse, or modify the rulings or the judgment appealed from for the simple
reason that there is no ruling or judgment to affirm, reverse or modify because all the proceedings had in the justice
of the peace or municipal court, including the judgment, do not in contemplation of law exist, having been vacated;
and the only instance when said judgment appealed from is revived in when the appeal is withdrawn or dismissed
(Crisostomo vs. Director of Prisons. 41 Phil., 368; Colegio de San Jose vs. Sison, 56 Phil., 344, 351; Lizo vs.
Carandang 2 Off. Gaz., 302, March 1943; Co Tiamco vs. Diaz,* 42 Off. Gaz., 1169, 1231; Lichauco vs. Guash, 42 Off.
Gaz., 1863, 1865; Rule 40, Sec. 9, Rules of Court). From all this it is evident that the contention of the appellant is
untenable; and that any and all issues involved in a case originating in an inferior court, whether or not passed upon
by said court and whether or not appealed upon by any or both parties, are thrown open and may be passed upon by
the Court of First Instance when the case is appealed to it. Consequently, the Court of First Instance of Manila had
jurisdiction and authority to rule on the issue as to the nature of the transaction between plaintiff and defendants as to
the sale of the shoes. Now, was it an absolute sale or a sale on consignment?
Exhibit A of the plaintiff which was accepted, admitted and considered by the Court of First Instance of Manila is an
order slip which lists down and classifies the 350 shoes in question according to color, and contains the following
condition of the sale in the handwriting of Mr. Chebat, the agent of the plaintiff who sold the shoes to the defendant
CONDICION (Terms)
Al cabo de 9 dias, pagar todo a razon de P7 al par, o pagar lo vendido a P8 el par.

Explaining said condition, Mr. Chebat testifying, said that it meant that the defendant could either consider the sale as
one on consignment, sell as many shoes as he could at any price, pay for them at P8 a pair and at the end of nine
days return the shoes unsold to the plaintiff, or, consider the sale of the 350 shoes as absolute at P7 a pair; and that
since the defendant did not return any of the shoes at the expiration of 9 days he must be held to have chosen the
second alternative, namely, that he bought the whole stock of shoes at P7 a pair. It will be noted, however, that
Exhibit "A" was never accepted much less signed by the defendant or his sales manager Mr. Bernardo Geronimo,
and therefore, cannot bind the defendant and so is but a self-serving evidence which should not have been admitted
and considered by the trial court.
Disregarding Exhibit "A", the nature of the transaction must be judged by other evidence, including the conduct of the
parties at the time of making the contract and subsequent thereto (Art. 1282 of the old Civil Code and Art. 1371 of the
new Civil Code). Exhibit "B" of the plaintiff is an invoice of the same 350 pairs of shoes whose price including sales
tax is listed as P2,450. It was evidently not only accepted by the defendant but on it he noted down in his own
handwriting the different partial payments of P500, P528 and lastly of the controversial P420 by check. It will also be
noticed that the defendant in making said notations of payment considered the full purchase price of the 350 pairs of
shoes at P7.00 or P2,450, and it was against said total that he had been making the payments, putting down the
balance after each payment. For instance, after paying P500 on account, he put P1,950 as balance, and after paying
another P528, he put down as balance P1,422. In other words, he obviously accepted the straight sale to him on
credit of the whole 350 pairs of shoes for P2,450 and made partial payments on account thereof. In making said
partial payments, he made no mention whatsoever of the number of shoes sold by him and the number of shoes
remaining unsold, which he should have done had the sale been on the consignment basis. On the other hand, he
merely mentioned the balance of the purchase price after deducting the several partial payments made by him.
Furthermore, if the sale had been on consignment, a stipulation as to the period of time for the return of the unsold
shoes should have been made; but evidently that had not been done and defendant kept the shoes unsold more or
less indefinitely, but giving the same excuse that he could not return them to the plaintiff because he did not know
where to return them. The plaintiff Royal Shirt Factory, Inc., is quite well-known. Is has a store at the Escolta and
according to the invoice (Exhibit B), it is an importer, wholesaler and manufacturer, and it could not have been hard,
much less impossible for the defendant to return the shoes unsold by him had the transaction really been a sale on
consignment. So, on this issue of the nature of the transaction between the parties, we agree with the trial court that it
was a straight sale at the rate of P7 per pair of shoes.
As regards Check No. 790264 of the China Banking Corporation, Exhibit F, in the amount of P420 with which
defendant attempted to make another partial payment as appears in Exhibit 'B', both parties agree that since the
check was postdated, it was returned by the plaintiff to the defendant who however claims that he replaced it with
cash. This was stoutly denied by plaintiff. After a careful review of the evidence, we agree with the trial court that the
preponderance thereof is to the effect that the amount of said check of P420 was never replaced by the defendant. It
is also interesting to note that the Municipal Court of Manila where this issue was first considered, came to the same
conclusion that the defendant never replaced the amount of this check in cash.
The decision appealed from the sentences the defendant to pay to the plaintiff P1,422 with interest at 12 percent per
annum from August 27, 1948, plus 25 per cent of the same sum for attorney's fees, besides costs. This rate of
interest and the 25 per cent for attorney's fees appears in Exhibit "B" in printed form as terms or conditions. In Exhibit
"A", the order slip, the conditions of sale also printed provide for 20 per cent only as attorney's fees and no rate of
interest in case of litigation. Had the defendant signed Exhibit "A", which he did not, he would have been bound by it
and would be liable to 20 per cent of any amount due from him, but because of the absence of stipulation as to the
rate of interest he would be paying only the legal rate of 6 per cent per annum. There is no explanation of this
difference in conditions of sale about rate of interest and attorney's fees found in the order slip (Exhibit "A") and the
invoice (Exhibit "B") both of the plaintiff. Anyway, neither did the defendant sign Exhibit "B". If we hold defendant
bound by Exhibit "B" at all, it is because of his tacit acceptance of the total value of 350 pairs of shoes and by his
notation against it of his partial payments. We do not think it fair for him to be bound also by the printed terms of the
conditions of sale. Moreover, we find under said printed form the clause in pencil: "as agreed with Mr. Chebat." We
may even say that said clause in handwriting may be considered as having overruled what was printed as to the rate
of interest and the attorney's fees. We therefore hold that the defendant should only pay 6 per cent interest on the

amount due him from the date of the filing of the complaint, with costs, and nothing for attorney's fees. It is also
interesting to note that this was the same ruling of the Municipal Court on this point.
With the above modification, the decision appealed from is hereby affirmed, with costs.
G.R. No. L-33582 March 30, 1982
THE OVERSEAS BANK OF MANILA, petitioner,
vs.VICENTE CORDERO and COURT OF APPEALS, respondents.
ESCOLIN, J.:
Again, We are confronted with another case involving the Overseas Bank of Manila, filed by one of its depositors.
This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed the judgment of the
Court of First Instance of Manila, holding petitioner bank liable to respondent Vicente Cordero in the amount of
P80,000.00 representing the latter's time deposit with petitioner, plus interest thereon at 6% per annum until fully
paid, and costs.
On July 20, 1967, private respondent opened a one-year time deposit with petitioner bank in the amount of
P80,000.00 to mature on July 20, 1968 with interest at the rate of 6% per annum. However, due to its distressed
financial condition, petitioner was unable to pay Cordero his said time deposit together with the interest. To enforce
payment, Cordero instituted an action in the Court of First Instance of Manila.
Petitioner, in its answer, raised as special defense the finding by the Monetary Board of its state of insolvency. It cited
the Resolution of August 1, 1968 of the Monetary Board which authorized petitioner's board of directors to suspend
all its operations, and the Resolution of August 13, 1968 of the same Board, ordering the Superintendent of Banks to
take over the assets of petitioner for purposes of liquidation.
Petitioner contended that although the Resolution of August 13, 1968 was then pending review before the Supreme
Court, 1 it effectively barred or abated the action of respondent for even if judgment be ultimately rendered in favor of
Cordero, satisfaction thereof would not be possible in view of the restriction imposed by the Monetary Board,
prohibiting petitioner from issuing manager's and cashier's checks and the provisions of Section 85 of Rep. Act 337,
otherwise known as the General Banking Act, forbidding its directors and officers from making any payment out of its
funds after the bank had become insolvent. It was further claimed that a judgment in favor of respondent would create
a preference in favor of a particular creditor to the prejudice of other creditors and/or depositors of petitioner bank.
After pre-trial, petitioner filed on November 29, 1968, a motion to dismiss, reiterating the same defenses raised in its
answer. Finding the same unmeritorious, the lower court denied the motion and proceeded with the trial on the merits.
In due time, the lower court rendered the aforesaid decision. Dissatisfied, petitioner appealed to the Court of Appeals,
which affirmed the decision of the lower court.
Hence, this petition for review on certiorari.
The issues raised in this petition are quite novel. Petitioner stands firm on its contentions that the suit filed by
respondent Cordero for recovery of his time deposit is barred or abated by the state of insolvency of petitioner as
found by the Monetary Board of the Central Bank of the Philippines; and that the judgment rendered in favor of
respondent would in effect create a preference in his favor to the prejudice of other creditors of the bank.
Certain supervening events, however, have rendered these issues moot and academic. The first of these
supervening events is the letter of Julian Cordero, brother and attorney-in-fact of respondent Vicente Cordero,
addressed to the Commercial Bank of Manila (Combank), successor of petitioner Overseas Bank of Manila. In this

letter dated February 13, 1981, copy of which was furnished this Court, it appears that respondent Cordero had
received from the Philippine Deposit Insurance Company the amount of P10,000.00.
The second is a Manifestation by the same Julian Cordero dated July 3, 1981, acknowledging receipt of the sum of
P73,840.00. Said Manifestation is in the nature of a quitclaim, pertinent portions of which We quote:
I, the undersigned acting for and in behalf of my brother Vicente R. Cordero who resides in Canada
and by virtue of a Special Power of Attorney issued by Vicente Romero, our Consul General in
Vancouver, Canada, xerox copy attached, do hereby manifest to this honorable court that we have
decided to waive all and any damages that may be awarded to the above-mentioned case and we
hereby also agree to accept the amount of Seventy Three Thousand Eight Hundred Forty Pesos
(P73,840.00) representing the principal and interest as computed by the Commercial Bank of
Manila. We also agree to hold free and harmless the Commercial Bank of Manila against any claim
by any third party or any suit that may arise against this agreement of payment.
... We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73,840.00)
with our full satisfaction. ...
When asked to comment on this Manifestation, counsel for Combank filed on August 12, 1981 a Comment confirming
and ratifying the same, particularly the portions which state:
We also agree to hold free and harmless the Commercial Bank any third party or any suit that may
arise against this agreement of payment, and
We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73,840.00) with
our full satisfaction.
However, upon further examination, this Court noted the absence of the alleged special power of attorney executed
by private respondent in favor of Julian Cordero. When directed to produce the same, Julian Cordero submitted the
following explanatory Comment, to which was attached the special power of attorney executed by respondent Vicente
Cordero:
3. This manifestation (referring to the Manifestation of July 3, 1981) applies only to third party
claims, suit and other damages. It does not mean waiving the interest it should earn while the bank
is closed and also the attorney's fees as decided by the lower court. It is very clear. I did not waive
the attorney's fees because it belongs to our attorney and interest because it belongs to us and we
are entitled to it.
Thus, with the principal claim of respondent having been satisfied, the only remaining issue to be determined is
whether respondent is entitled to (1) interest on his time deposit during the period that petitioner was closed and (2)
to attorney's fees.
We find the answer to be in the negative.
The pronouncement made by this Court, per Justice Barredo, in the recent case of Overseas Bank of Manila vs.
Court of Appeals 2 is explicit and categorical. We quote:
It is a matter of common knowledge which we take judicial notice of, that what enables a bank to pay
stipulated interest on money deposited with it is that thru the other aspects of its operation, it is able to
generate funds to cover the payment of such interest. Unless a bank can lend money, engage in
international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage
in other banking and financing activities, from which it can derive income, it is inconceivable how it can carry

on as a depository obligated to pay stipulated interest. ... Consequently, it should be deemed read into every
contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the
operation of the bank is completely suspended by the duly constituted authority, the Central Bank.
We consider it of trivial consequence that the stoppage of the bank's operations by the Central Bank has
been subsequently declared illegal by the Supreme Court, for before the Court's order, the bank had no
alternative under the law than to obey the orders of the Central Bank. Whatever be the juridical significance
of the subsequent action of the Supreme Court, the stubborn fact remained that the petitioner was totally
crippled from then on from earning the income needed to meet its obligations to its depositors. If such a
situation cannot, strictly speaking be legally denominated as "force majeure" as maintained by private
respondent, We hold it is a matter of simple equity that it be treated as such.
And concluding, this Court stated:
Parenthetically, We may add for the guidance of those who might be concerned and so that unnecessary
litigations may be avoided from further clogging the dockets of the courts that in the light of the consideration
expounded in the above opinion, the same formula that exempts petitioner from the payment of interest to its
depositors during the whole period of factual stoppage of its operations by orders of the Central Bank,
modified in effect by the decision as well as the approval of a formula of rehabilitation by this Court, should
be, as a matter of consistency, applicable or followed in respect to all other obligations of petitioner which
could not be paid during the period of its actual complete closure.
Neither can respondent Cordero recover attorney's fees. The trial court found that herein petitioner's refusal to pay
was not due to a wilful and dishonest refusal to comply with its obligation but to restrictions imposed by the Central
Bank. 3 Since respondent did not appeal from this decision, he is now barred from contesting the same.
WHEREFORE, that portion of the lower court's decision ordering petitioner to pay interest on Cordero's time deposit
is set aside. It appearing that the amount of the latter's time deposit had been fully paid, this case is hereby
dismissed. No costs. SO ORDERED.
G.R. No. L-29352 July 22, 1985
EMERITO M. RAMOS, et al., petitioners,
vs. CENTRAL BANK OF THE PHILIPPINES, respondents; COMMERCIAL BANK OF MANILA, intervenor.
TEEHANKEE, J.:
Pending final determination is respondent Central Bank's motion for reconsideration dated December 28, 1982 of the
Court's Resolution of October 19, 1982 which ruled "applying the Tapia ruling as reaffirmed by the Court in the
subsequent cases cited above OBM vs. Vicente Cordero, 113 SCRA 303 (March 30, 1982), per Escolin, J.; OBM vs.
Julian Cordero, 113 SCRA 778 (April 27, 1982), per Barredo, J.) that the bank is not liable for interest on the Central
Bank loans and advances during the period of its closure from August 21 1968 to January 8, 1981."
In the Tapia ruling (105 SCRA 49, June 11, 1981), the Court held that "the obligation to pay interest on the deposit
ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central
Bank," and that "for the guidance of those who might be concerned, and so that unnecessary litigations may be
avoided from further clogging the dockets of the courts, that in the light of the considerations expounded in the above
opinion, the same formula that exempts petitioner from the payment of interest to its depositors during the whole
period of factual stoppage of its operations by orders of the Central Bank, modified in effect by the decision as well as
the approval of a formula of rehabilitation by this Court, should be, as a matter of consistency, applicable or followed
in respect to all other obligations of petitioner which could not be paid during the period of its actual complete
closure."

The parties have been extensively heard on the pending incident through their various pleadings and in oral
argument on October 23, 1984 as well as in their memoranda in amplification of oral argument.
Respondents have failed to adduce any cogent argument to persuade the Court to reconsider its Resolution at bar
that the Tapia ruling as reaffirmed by the aforecited cases is fully applicable to the non-payment of interest, during the
period of the bank's forcible closure, on loans and advances made by respondent Central Bank. Respondent Central
Bank itself when it was then managing the Overseas Bank of Manila (now Commercial Bank of Manila) under a
holding trust agreement, held the same position in Idelfonso D. Yap vs. OBM and CB (CA-G.R. No. 48887-R) wherein
it argued in its brief that "(I)n a suit against the receiver of a national bank for money loaned to the Bank while it was a
going concern, it was error to permit plaintiff to recover interest on the loan after the bank's suspension" (citing
Zollman Banks and Banking). In Pablo R. Roman et al vs. Central Bank (CA-G.R. No. 49144-R, October 18, 1973,
per then Court of Appeals Justice Hermogenes Concepcion, Jr.), the appellate court by final judgment affirmed the
trial court's judgment ordering appellant Central Bank to condone all interests on Central Bank loans to the Republic
Bank, as well as penalties imposed on it which would be tantamount "to force the Republic Bank to liquidate as an
insolvent." It should be further noted that the respondent Central Bank when called upon to deal with commercial
banks and extend to them emergency loans and advances, deals with them not as an ordinary creditor engaged in
business, but as the ultimate monetary authority of government charged with the supervision and preservation of the
banking system.
A significant development of the case also is set forth in the manifestation dated October 19, 1984 of Government
Corporate Counsel and general counsel of the COMBANK Manuel M. Lazaro confirming inter alia that "(T)he
Government Service Insurance System (GSIS) has acquired ownership of 99.93% of the outstanding capital stock of
COMBANK," and urging resolution at the earliest time possible of the sole issue raised in respondent Central Bank's
motion for reconsideration of the Resolution of October 19, 1982 that "applying the Tapia ruling as reaffirmed by the
Court in subsequent cases, COMBANK is not liable for interest on CB loans and advances during the period of its
closure from August 2, 1968 to January 8, 1981 " (Record, Vol. V, p. 2261). In his earlier petition for early resolution,
Government Corporate Counsel Manuel M. Lazaro had likewise urged that "(T)he raison d' etre of the Honorable
Court's Resolution of October 19, 1982 is but a re- affirmation of the ruling laid down and firmly established in
previous decisions that have long become final, notably OBM vs. Tapia, 105 SCRA 49 (June 11, 1981), OBM vs.
Vicente Cordero and Court of Appeals, 113 SCRA 303 (Mar. 30, 1982), and OBM vs. Court of Appeals and Julian R.
Cordero, 113 SCRA 778 (April 27, 1982)" (idem, p. 2242). Government Corporate Counsel Lazaro in his aforecited
manifestation removes any and all doubts as to the propriety of the Court having rendered its Resolution of October
19, 1982 pursuant to the bank's motion for a clarificatory ruling in the present case made pursuant to the express
agreement between the bank and the respondent Central Bank then under Governor Jaime Laya. As stated in the
Resolution itself, "the bank's letter of July 1, 1981 invoking the Tapia ruling was precisely the subject of the Central
Bank's reply of November 12, 1981 above quoted, agreeing anew that the Central Bank and the Combank seek a
clarificatory ruling from the Supreme Court on the applicability of the Tapiaruling to the case at bar with both parties
ultimately agreeing to 'abide by any clarificatory ruling which the Supreme Court may render on the matter" (Record,
Vol. IV, pp. 1993-1994). The COMBANK in its said manifestation makes of record that it has likewise entered into an
agreement with its sister government banking institution, the Philippine National Bank, that "both banks have agreed
to abide by the final resolution of this Honorable Court on the CB's pending Motion for Reconsideration," and that
"COMBANK is represented in the above-captioned case by its General Counsel, the Government Corporate Counsel
who is also the legal counsel for the PNB and whose services were recently retained by CB in connection with the
controversy involving Banco Filipino and Governor Jose B. Fernandez, Jr." This certainly makes moot any previous
doubts raised during the oral argument that then Central Bank Governor Jaime Laya may not have had the authority
to enter into such agreement.
The Court's Resolution of October 19, 1982 manifestly redounds to the benefit of another government institution, the
GSIS, which has acquired 99.93% of the outstanding capital stock of the COMBANK and to the preservation of the
banking system. It is time to write finis to this case which had its beginnings long ago when the original judgment of
October 4, 1971 was rendered against the Central Bank, as succinctly stated by the now Chief Justice in his
"[concurrence] in the result primarily on the ground that respondent's arbitrary and improvident exercise of its
asserted power in the premises is violative of due process" (Ramos vs. Central Bank, 41 SCRA 565).

ACCORDINGLY, the Court Resolved to DENY with finality respondent Central Bank's motion for reconsideration, for
lack of necessary votes.
G.R. No. L-33205 August 31, 1987
LIRAG TEXTILE MILLS, INC., and BASILIO L. LIRAG, petitioners,
vs. SOCIAL SECURITY SYSTEM, and HON. PACIFICO DE CASTRO, respondents.
FERNAN, J.:
This is an appeal by certiorari involving purely questions of law from the decision rendered by respondent judge in
Civil Case No. Q-12275 entitled "Social Security System versus Lirag Textile Mills, Inc. and Basilio L. Lirag."
The antecedent facts, as stipulated by the parties during the trial, are as follows:
1. That on September 4, 1961, the plaintiff [herein respondent Social Security System] and the defendants
[herein petitioners] Lirag Textile Mills, Inc. and Basilio Lirag entered into a Purchase Agreement under which
the plaintiff agreed to purchase from the said defendant preferred shares of stock worth ONE MILLION
PESOS [P1,000,000.00] subject to the conditions set forth in such agreement;...
2. That pursuant to the Purchase Agreement of September 4, 1961, the plaintiff, on January 31, 1962, paid
the defendant Lirag Textile Mills, Inc. the sum of FIVE HUNDRED THOUSAND PESOS [P500,000.00] for
which the said defendant issued to plaintiff 5,000 preferred shares with a par value of one hundred pesos
[P10000] per share as evidenced by stock Certificate No. 128, ...
3. That further in pursuance of the Purchase Agreement of September 4, 1961, the plaintiff paid to the Lirag
Textile Mills, Inc. the sum of FIVE UNDRED THOUSAND PESOS [P500,000.00] for which the said
defendant issued to plaintiff 5,000 preferred shares with a par value of one hundred pesos [P100.00] per
share as evidenced by Stock Certificate No. 139, ...
4. That in accordance with paragraph 3 of the Purchase Agreement of September 4, 1961 which provides for
the repurchase by the Lirag Textile Mills, Inc. of the shares of stock at regular intervals of one year beginning
with the 4th year following the date of issue, Stock Certificates Nos. 128 and 139 were to be repurchased by
the Lirag Textile Mills, Inc. thus:
CERT. No. AMOUNT DATE OF REDEMPTION
128 P100,000.00 February 14, 1965
100,000.00 February 14, 1966
100,000.00 February 14, 1967
100,000.00 February 14, 1968
100,000.00 February 14, 1969
139 P100,000.00 July 3, 1966
100,000.00 July 3,1967

100,000.00 July 3,1968

100,000.00 July 3, 1969
100,000.00 July 3,1970
5. That to guarantee the redemption of the stocks purchased by the plaintiff, the payment of dividends, as
well as the other obligations of the Lirag Textile Mills, Inc., defendants Basilio L. Lirag signed the Purchase
Agreement of September 4, 1961 not only as president of the defendant corporation, but also as surety so
that should the Lirag Textile Mills, Inc. fail to perform any of its obligations in the said Purchase Agreement,
the surety shall immediately pay to the vendee the amounts then outstanding pursuant to Condition No. 4, to
wit:
To guarantee the redemption of the stocks herein purchased, the payment of the
dividends, as well as other obligations of the VENDOR herein, the SURETY
hereby binds himself jointly and severally liable with the VENDOR so that should
the VENDOR fail to perform any of its obligations hereunder, the SURETY shall
immediately pay to the VENDEE the amounts then outstanding. '
6. That defendant corporation failed to redeem certificates of Stock Nos. 128 and 139 by payment of the
amounts mentioned in paragraph 4 above;
7. That the Lirag Textile Mills, lnc. has not paid dividends in the amounts and within the period set forth in
paragraph 10 of the complaint;*
8. That letters of demands have been sent by the plaintiff to the defendant to redeem the foregoing stock
certificates and pay the dividends set forth in paragraph 10 of the complaint, but the Lirag Textile Mills, Inc.
has not made such redemption nor made such dividend payments;
9. That defendant Basilio L. Lirag likewise received letters of demand from the plaintiff requiring him to make
good his obligation as surety;
10. That notwithstanding such letters of demand to the defendant Basilio L. Lirag, Stock Certificates Nos.
128 and 139 issued to plaintiff are still unredeemed and no dividends have been paid on said stock
certificates;
11. That paragraph 5 of the Purchase Agreement provides that should the Lirag Textile Mills, Inc. fail to effect
any of the redemptions stipulated therein, the entire obligation shall immediately become due and
demandable and the Lirag Textile Mills, Inc., shall, furthermore, be liable to the plaintiff in an amount
equivalent to twelve per cent [12%] of the amount then outstanding as liquidated damages;
12. That the failure of the Lirag Textile Mills, Inc. to redeem the foregoing certificates of stock and pay
dividends thereon were due to financial reverses, to wit:
[a] Unrestrained smuggling into the country of textiles from the United States and other countries;
[b] Unrestricted entry of supposed remmants which competed with textiles of domestic produce to
the disadvantage and economic prejudice of the latter;
[c] Scarcity of money and the unavailability of financing facilities;

[d] Payment of interest on matured loans extended to defendant corporation;

[e] Construction of the Montalban plant of the defendant corporation financed largely through
reparation benefits;
[f] Labor problems occasioned by the fact that the defendant company is financial (sic) unable to
improve, in a substantial way, the economic plight of its workers as a result of which two costly
strikes had occurred, one in 1965 and another in 1968; and
[g] The occurrence of a fire which destroyed more than 1 million worth of raw cotton, paralyzed
operations partially, increased overhead costs and wiped out any expected profits that year;
13. That it has been the policy of the plaintiff to be represented in the board of directors of the corporation or
entity which has obtained financial assistance from the System be it in terms of loans, mortgages or equity
investments. Thus, pursuant to paragraph 6 of the Purchase Agreement of September 4, 1961 which
provides as follows:
The VENDEE shall be allowed to have a representative in the Board of Directors of the VENDOR
with the right to participate in the discussions and to vote therein;
14. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan were each issued one common share
of stock as a qualifying share to their election to the Board of Directors of the Lirag Textiles Mills, Inc.;
15. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan, during their respective tenure as
member of the Board of Directors of the Lirag Textile Mills, Inc. attended the meetings of the said Board,
received per diems for their attendance therein in the same manner and in the same amount as any other
member of the Board of Directors, participated in the deliberations therein and freely exercised their right to
vote in such meetings. However, the per diems received by the SSS representative do not go to the coffers
of the System but personally to the representative in the said board of directors. 1
For failure of Lirag Textile Mills, Inc. and Basilio L. Lirag to comply with the terms of the Purchase Agreement, the
SSS filed an action for specific performance and damages before the then Court of First Instance of Rizal, Quezon
City, praying that therein defendants Lirag Textile Mills, Inc. and Basilio L. Lirag be adjudged liable for [1] the entire
obligation of P1M which became due and demandable upon defendants' failure to repurchase the stocks as
scheduled; [21 dividends in the amount of P220,000.00; [31 liquidated damages in an amount equivalent to twelve
percent (12%) of the amount then outstanding; [4] exemplary damages in the amount of P100,000.00 and [5]
attorney's fees of P20,000.00.
Lirag Textile Mills, Inc. and Basilio L. Lirag moved for the dismissal of the complaint, but were denied the relief
sought. Thus, they filed their answer with counterclaim, denying the existence of any obligation on their part to
redeem the preferred stocks, on the ground that the SSS became and still is a preferred stockholder of the
corporation so that redemption of the shares purchased depended upon the financial ability of said corporation.
Insofar as defendant Basilio Lirag is concerned, it was alleged that his liability arises only if the corporation is liable
and does not perform its obligations under the Purchase Agreement. They further contended that no liability on their
part has arisen because of the financial condition of the corporation upon which such liability was made to depend,
particularly the non-realization of any profit or earned surplus. Thus, the other claims for dividends, liquidated
damages and exemplary damages are allegedly without basis.
After entering into the Stipulation of Facts above-quoted, the parties filed their respective memoranda and submitted
the case for decision.

The lower court, ruling that the purchase agreement was a debt instrument, decided in favor of SSS and sentenced
Lirag Textile Mills, Inc. and Basilio L. Lirag to pay SSS jointly and severally P1,000,000.00 plus legal interest until the
said amount is fully paid; P220,000.00 representing the 8% per annum dividends on the preferred shares plus legal
interest up to the time of actual payment; P146,400.00 as liquidated damages; and P10,000.00 as attorney's fees.
The counterclaim of Lirag Textile Mills, Inc. and Basilio L. Lirag was dismissed.
Hence, this petition.
Petitioners assign the following errors:
1. The trial court erred in deciding that the Purchase Agreement is a debt instrument;
2. Respondent judge erred in holding petitioner corporation liable for the payment of the 8% preferred and
cumulative dividends on the preferred shares since the purchase agreement provides that said dividends
shall be paid from the net profits and earned surplus of petitioner corporation and respondent SSS has
admitted that due to losses sustained since -1964, no dividends had been and can be declared by petitioner
corporation;
3. Respondent judge erred in sentencing petitioners to pay P146,400.00 in liquidated damages;
4. Respondent judge erred in sentencing petitioners to pay P10,000.00 by way of attorney's fees;
5. Respondent judge erred in sentencing petitioners to pay interest from the time of firing the complaint u to
the time of full payment both on the P1,000,000.00 invested by respondent SSS in petitioner's corporation
and on the P220,000.00 which the SSS claims as dividends due on its investments;
6. Respondent judge erred in holding that petitioner Lirag is liable to redeem the P1,000,000.00 worth of
preferred shares purchased by respondent SSS from petitioner corporation and the 8% cumulative dividend,
it appearing that Lirag was merely a surety and not an insurer of the obligation;
7. Respondent judge erred in dismissing the counterclaim of petitioners.
The fundamental issue in this case is whether or not the Purchase Agreement entered into by petitioners and
respondent SSS is a debt instrument.
Petitioners claim that respondent SSS merely became and still is a preferred stockholder of the petitioner corporation,
the redemption of the shares purchased by said respondent being dependent upon the financial ability of petitioner
corporation. Petitioner corporation, thus, has no obligation to redeem the preferred stocks.
On the other hand, respondent SSS claims that the Purchase Agreement is a debt instrument, imposing upon the
petitioners the obligation to pay the amount owed, and creating as between them the relation of creditor and debtor,
not that of a stockholder and a corporation.
We uphold the lower court's finding that the Purchase Agreement is, indeed, a debt instrument. Its terms and
conditions unmistakably show that the parties intended the repurchase of the preferred shares on the respective
scheduled dates to be an absolute obligation which does not depend upon the financial ability of petitioner
corporation. This absolute obligation on the part of petitioner corporation is made manifest by the fact that a surety
was required to see to it that the obligation is fulfilled in the event of the principal debtor's inability to do so. The
unconditional undertaking of petitioner corporation to redeem the preferred shares at the specified dates constitutes a
debt which is defined "as an obligation to pay money at some fixed future time, or at a time which becomes definite
and fixed by acts of either party and which they expressly or impliedly, agree to perform in the contract. 2

A stockholder sinks or swims with the corporation and there is no obligation to return the value of his shares by
means of repurchase if the corporation incurs losses and financial reverses, much less guarantee such repurchase
through a surety.
As private respondent rightly contends, if the parties intended it [SSS] to be merely a stockholder of petitioner
corporation, it would have been sufficient that Preferred Certificates Nos. 128 and 139 were issued in its name as the
preferred certificates contained all the rights of a stockholder as well as certain obligations on the part of petitioner
corporation. However, the parties did in fact execute the Purchase Agreement, at the same time that the petitioner
corporation issued its preferred stock to the respondent SSS. The Purchase Agreement serves to define the rights
and obligations of the parties and to establish firmly the liability of petitioners in case of breach of contract. The
Certificates of Preferred Stock serve as additional evidence of the agreement between the parties, though the precise
terms and conditions thereof must be read together with, and regarded as qualified by the terms and conditions of the
Purchase Agreement.
The rights given by the Purchase Agreement to respondent SSS are rights not enjoyed by ordinary stockholders. This
fact could only lead to the conclusion made by the trial court that:
The aforementioned rights specially stipulated for the benefit of the plaintiff [respondent SSS]
suggest eloquently an intention on the part of the plaintiff [respondent SSS] to facilitate a loan to
the defendant corporation upon the latter's request. In order to afford protection to the plaintiff
which otherwise is provided by means of collaterals, as the plaintiff exacts in its grants of loans in
its ordinary transactions of this kind, as it is looked upon more as a lending institution rather than as
an investing agency, the purchase agreement supplied these protective rights which would
otherwise be furnished by collaterals to the loan. Thus, the membership in the board is to have a
watchdog in the operation of the business of the corporation, so as to insure against
mismanagement which may result in losses not entirely unavoidable since payment for purposes of
redemption as well as the dividends is expressly stipulated to come from profits and/or surplus.
Such a right is never exacted by an ordinary stockholder merely investing in the corporation. 3
Moreover, the Purchase Agreement provided that failure on the part of petitioner to repurchase the preferred shares
on the scheduled due dates renders the entire obligation due and demandable, with petitioner in such eventuality
liable to pay 12% of the then outstanding obligation as liquidated damages. These features of the Purchase
Agreement, taken collectively, clearly show the intent of the parties to be bound therein as debtor and creditor, and
not as corporation and stockholder.
Petitioners' contention that it is beyond the power and competence of petitioner corporation to redeem the preferred
shares or pay the accrued dividends due to financial reverses can not serve as legal justification for their failure to
perform under the Purchase Agreement. The Purchase Agreement constitutes the law between the parties and
obligations arising ex contractu must be fulfilled in accordance with the stipulations. 4 Besides, it was precisely this
eventuality that was sought to be avoided when respondent SSS required a surety for the obligation.
Thus, it follows that petitioner Basilio L. Lirag cannot deny liability for petitioner corporation's default. As surety, Basilio
L. Lirag is bound immediately to pay respondent SSS the amount then outstanding.
The obligation of a surety differs from that of a guarantor in that the surety insures the debt,
whereas the guarantor merely insures solvency of the debtor; and the surety undertakes to pay if
the principal does not pay, whereas a guarantor merely binds itself to pay if the principal is unable
to pay. 5
On the liability of petitioners to pay 8% cumulative dividend, We agree with the observation of the lower court that the
dividends stipulated by the parties served evidently as interests. 6 The amount thereof was fixed at 8% per annum
and was not made to depend upon or to fluctuate with the amount of profits or surplus realized, a clear indication that
the parties intended to give a sure and fixed earnings on the principal loan. The fact that the dividends were

supposed to be paid out of net profits and earned surplus, of which there were none, does not excuse petitioners
from the payment thereof, again for the reason that the undertaking of petitioner Basilio L. Lirag as surety, included
the payment of dividends and other obligations then outstanding.
The award of the sum of P146,400.00 in liquidated damages representing 12% of the amount then outstanding is
correct, considering that petitioners in the stipulation of facts admitted having failed to fulfill their obligations under the
Purchase Agreement. The grant of liquidated damages in the amount stated is expressly provided for in the Purchase
Agreement in case of contractual breach.
The pronouncement of the lower court for the payment of interests on both the unredeemed shares and unpaid
dividends is also in order. Per stipulation of facts, petitioners did not deny the fact of non-payment of dividends nor
their failure to purchase the preferred shares. Since these involve sums of money which are overdue, they are bound
to earn legal interest from the time of demand, in this case, judicial, i.e., the time of filing the action.
Petitioner Basilio L. Lirag is precluded from denying his liability under the- Purchase Agreement. After his firm
representation to "pay immediately to the VENDEE the amounts then outstanding" evidencing his commitment as
SURETY, he is estopped from denying the same. His signature in the agreement carries with it the official imprimatur
as petitioner corporation's president, in his personal capacity as majority stockholder, as surety and as solidary
obligor. The essence of his obligation as surety is to pay immediately without qualification whatsoever if petitioner
corporation does not pay. To have another interpretation of petitioner Lirag's liability as surety would violate the
integrity of the Purchase Agreement as well as the clear and unmistakable intent of the parties to the same.
WHEREFORE, the decision in Civil Case No. Q-12275 entitled "Social Security System vs. Lirag Textile Mills, Inc.
and Basilio L. Lirag" is hereby affirmed in toto. Costs against petitioners. SO ORDERED.
G.R. No. L-25704

April 24, 1968

ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee,

vs. CHELDA ENTERPRISES and DAVID SYJUECO, defendants-appellants.
BENGZON, J.P., J.:
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against the partnership Chelda
Enterprises and David Syjueco, its capitalist partner, for recovery of alleged unpaid loans in the total amount of
P20,880.00, with legal interest from the filing of the complaint, plus attorney's fees of P5,000.00. Alleging that post
dated checks issued by defendants to pay said account were dishonored, that defendants' industrial partner,
Chellaram I. Mohinani, had left the country, and that defendants have removed or disposed of their property, or are
about to do so, with intent to defraud their creditors, preliminary attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff in the total amount of P26,500.00, of which
P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff charged and deducted from the loan
usurious interests thereon, at rates of 2% and 2.5% per month, and, consequently, plaintiff has no cause of action
against defendants and should not be permitted to recover under the law. A counterclaim for P2,000.00 attorney's
fees was interposed.
Plaintiff filed on June 25, 1964 an answer to the counterclaim, specifically denying under oath the allegations of
usury.
After trial, decision was rendered, on November 10, 1965. The court found that there remained due from defendants
an unpaid principal amount of P20,287.50; that plaintiff charged usurious interests, of which P1,048.15 had actually
been deducted in advance by plaintiff from the loan; that said amount of P1,048.15 should therefore be deducted
from the unpaid principal of P20,287.50, leaving a balance of P19,247.351 still payable to the plaintiff. Said court held

that notwithstanding the usurious interests charged, plaintiff is not barred from collecting the principal of the loan or its
balance of P19,247.35. Accordingly, it stated, in the dispositive portion of the decision, thus:
WHEREFORE, judgment is hereby rendered, ordering the defendant partnership to pay to the plaintiff the
amount of P19,247.35, with legal interest thereon from May 29, 1964 until paid, plus an additional sum of
P2,000.00 as damages for attorney's fee; and, in case the assets of defendant partnership be insufficient to
satisfy this judgment in full, ordering the defendant David Syjueco to pay to the plaintiff one-half (1/2) of the
unsatisfied portion of this judgment.
With costs against the defendants.1wph1.t
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest, may the creditor
recover the principal of the loan? (2) Should attorney's fees be awarded in plaintiff's favor?
To refute the lower court's decision which is based on the doctrine laid down by this Court in Lopez v. El Hogar
Filipino, 47 Phil. 249, holding that a contract of loan with usurious interest is valid as to the loan but void as to the
usurious interest, appellants argue that in light of the New Civil Code provisions said doctrine no longer applies. In
support thereof, they cite the case decided by the Court of Appeals in Sebastian v. Bautista, 58 O.G. No. 15, p. 3146.
The Sebastian case was an action for recovery of a parcel of land. The Court of First Instance therein decided in
plaintiff's favor, on the ground that the so-called sale with pacto de retro of said land was in fact only an equitable
mortgage. In affirming the trial court, the writer of the opinion of the Court of Appeals went further to state the view
that the loan secured by said mortgage was usurious in nature, and, thus, totally void. Such reasoning of the writer,
however, was not concurred in by the other members of the Court, who concurred in the result and voted for
affirmance on the grounds stated by the trial court. Furthermore, the affirmance of the existence of equitable
mortgage necessarily implies the existence of a valid contract of loan, because the former is an accessory contract to
the latter.
Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act
constitutes criminal offense, both parties being in pari delicto, they shall have no action against each other,
and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects
or instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he
has given, and shall not be bound to comply with his promise.
Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of pari
delicto expressed in Article 1411, supra, applies, so that neither party can bring action against each other. Said rule,
however, appellants add, is modified as to the borrower, by express provision of the law (Art. 1413, New Civil Code),
allowing the borrower to recover interest paid in excess of the interest allowed by the Usury Law. As to the lender, no
exception is made to the rule; hence, he cannot recover on the contract. So they continue the New Civil Code
provisions must be upheld as against the Usury Law, under which a loan with usurious interest is not totally void,
because of Article 1961 of the New Civil Code, that: "Usurious contracts shall be governed by the Usury Law and
other special laws, so far as they are not inconsistent with this Code." (Emphasis ours.)
We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of
the Old Civil Code. Therefore, said provision is no warrant for departing from previous interpretation that, as provided
in the Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally void only as to the interest.

True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies where a contract's nullity
proceeds from illegality of the cause or object of said contract.
However, appellants fail to consider that a contract of loan with usurious interest consists of principal and accessory
stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest thereon.2
And said two stipulations are divisible in the sense that the former can still stand without the latter. Article 1273, Civil
Code, attests to this: "The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver
of the latter shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to payment of interest likewise renders a nullity the
legal terms as to payments of the principal debt. Article 1420 of the New Civil Code provides in this regard: "In case
of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the
cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the
stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is
illegal.
Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in Sec. 6, any person who
for a loan shall have paid a higher rate or greater sum or value than is allowed in said law, may recover thewhole
interest paid. The New Civil Code, in Article 1413 states: "Interest paid in excess of the interest allowed by the usury
laws may be recovered by the debtor, with interest thereon from the date of payment." Article 1413, in speaking of
"interest paid in excess of the interest allowed by the usury laws" means the whole usurious interest; that is, in a loan
of P1,000, with interest of P20% per annum P200 for one year, if the borrower pays said P200, the whole P200 is the
usurious interest, not just that part thereof in excess of the interest allowed by law. It is in this case that the law does
not allow division. The whole stipulation as to interest is void, since payment of said interest is the cause or object
and said interest is illegal. The only change effected, therefore, by Article 1413, New Civil Code, is not to provide for
the recovery of the interest paid in excess of that allowed by law, which the Usury Law already provided for, but to
add that the same can be recovered "with interest thereon from the date of payment."
The foregoing interpretation is reached with the philosophy of usury legislation in mind; to discourage stipulations on
usurious interest, said stipulations are treated as wholly void, so that the loan becomes one without stipulation as to
payment of interest. It should not, however, be interpreted to mean forfeiture even of the principal, for this would
unjustly enrich the borrower at the expense of the lender. Furthermore, penal sanctions are available against a
usurious lender, as a further deterrence to usury.
The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action. And
in case of such demand, and the debtor incurs in delay, the debt earns interest from the date of the demand (in this
case from the filing of the complaint). Such interest is not due to stipulation, for there was none, the same being void.
Rather, it is due to the general provision of law that in obligations to pay money, where the debtor incurs in delay, he
has to pay interest by way of damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering
defendants to pay the principal debt with interest thereon at the legal rate, from the date of filing of the complaint.
As regards, however, the attorney's fees, the court a quo stated no basis for its award, beyond saying that as a result
of defendants' refusal to pay the amount of P19,247.35 notwithstanding repeated demands, plaintiff was obliged to
retain the services of counsel. The rule as to attorney's fees is that the same are not recoverable, in the absence of
stipulation. Several exceptions to this rule are provided (Art. 2208, Civil Code). Unless shown to fall under an
exception, the act of plaintiff in engaging counsel's services due to refusal of defendants to pay his demand, does not
justify award of attorney's fees (Estate of Buan v. Camaganacan, L-21569, Feb. 28, 1966). Defendants, moreover,
had reason to resist the claim, since there was yet no definite ruling of this Court on the point of law involved herein in
light of the New Civil Code. Said award should therefore be deleted.

WHEREFORE, with the modification that the award of attorney's fees in plaintiff's favor is deleted therefrom, and the
correction of the clerical error as to the principal still recoverable, from P19,247.35 to P19,239.35, the appealed
judgment is hereby affirmed. No costs. So ordered.