G.R. No. 177921 December 4, 2013
96-37908917
METRO CONCAST STEEL CORPORATION, SPOUSES JOSE
S. DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO
AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND
FILOMENA DYCHIAO, Petitioners,
vs.
ALLIED BANK CORPORATION, Respondent.
RESOLUTION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated February 12, 2007 and the Resolution3dated May 10,
2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896 which
reversed and set aside the Decision4 dated January 17, 2006 of the
Regional Trial Court of Makati, Branch 57 (RTC) in Civil Case No.
00-1563, thereby ordering petitioners Metro Concast Steel
Corporation (Metro Concast), Spouses Jose S. Dychiao and Tiu Oh
Yan, Spouses Guillermo and Mercedes Dychiao, and Spouses
Vicente and Filomena Duchiao (individual petitioners) to solidarily
pay respondent Allied Bank Corporation (Allied Bank) the aggregate
amount of P51,064,094.28, with applicable interests and penalty
charges.
The Facts
On various dates and for different amounts, Metro Concast, a
corporation duly organized and existing under and by virtue of
Philippine laws and engaged in the business of manufacturing
steel,5 through its officers, herein individual petitioners, obtained
several loans from Allied Bank. These loan transactions were covered
by a promissory note and separate letters of credit/trust receipts, the
details of which are as follows:
<<Reference: http://www.scribd.com/doc/196404620/177921>>
Date Document Amount
December 13, 1996 Promissory Note No. 96-213016
P2,000,000.00 November 7, 1995 Trust Receipt No. 96-2023657
P608,603.04 May 13, 1996 Trust Receipt No. 96-9605228
P3,753,777.40 May 24, 1996 Trust Receipt No. 96-9605249
P4,602,648.08 March 21, 1997 Trust Receipt No. 97-20472410
P7,289,757.79 June 7, 1996 Trust Receipt No. 96-20328011
P17,340,360.73 July 26, 1995 Trust Receipt No. 95-20194312
P670,709.24 August 31, 1995 Trust Receipt No. 95-20205313
P313,797.41 November 16, 1995 Trust Receipt No. 96-20243914
P13,015,109.87 July 3, 1996 Trust Receipt No. 96-20355215
P401,608.89 June 20, 1995 Trust Receipt No. 95-20171016
P750,089.25 December 13, 1995 Trust Receipt No.
P92,919.00 December 13, 1995 Trust Receipt No. 96/202581 18
P224,713.58
The interest rate under Promissory Note No. 96-21301 was pegged at
15.25% per annum (p.a.), with penalty charge of 3% per month in
case of default; while the twelve (12) trust receipts uniformly
provided for an interest rate of 14% p.a. and 1% penalty charge. By
way of security, the individual petitioners executed several
Continuing Guaranty/Comprehensive Surety Agreements19 in favor
of Allied Bank. Petitioners failed to settle their obligations under the
aforementioned promissory note and trust receipts, hence, Allied
Bank, through counsel, sent them demand letters,20 all dated
December 10, 1998, seeking payment of the total amount
of P51,064,093.62, but to no avail. Thus, Allied Bank was prompted
to file a complaint for collection of sum of money21 (subject
complaint) against petitioners before the RTC, docketed as Civil Case
No. 00-1563. In their second22 Amended Answer,23petitioners
admitted their indebtedness to Allied Bank but denied liability for the
interests and penalties charged, claiming to have paid the total sum
of P65,073,055.73 by way of interest charges for the period covering
1992 to 1997.24
They also alleged that the economic reverses suffered by the
Philippine economy in 1998 as well as the devaluation of the peso
against the US dollar contributed greatly to the downfall of the steel
industry, directly affecting the business of Metro Concast and
eventually leading to its cessation. Hence, in order to settle their
debts with Allied Bank, petitioners offered the sale of Metro
Concasts remaining assets, consisting of machineries and equipment,
to Allied Bank, which the latter, however, refused. Instead, Allied
Bank advised them to sell the equipment and apply the proceeds of
the sale to their outstanding obligations. Accordingly, petitioners
offered the equipment for sale, but since there were no takers, the
equipment was reduced into ferro scrap or scrap metal over the years.
In 2002, Peakstar Oil Corporation (Peakstar), represented by one
Crisanta Camiling (Camiling), expressed interest in buying the scrap
metal. During the negotiations with Peakstar, petitioners claimed that
Atty. Peter Saw (Atty. Saw), a member of Allied Banks legal
department, acted as the latters agent. Eventually, with the alleged
conformity of Allied Bank, through Atty. Saw, a Memorandum of
Agreement25 dated November 8, 2002 (MoA) was drawn between
Metro Concast, represented by petitioner Jose Dychiao, and Peakstar,
through Camiling, under which Peakstar obligated itself to purchase
the scrap metal for a total consideration of P34,000,000.00, payable
as follows:
(a) P4,000,000.00 by way of earnest money P2,000,000.00 to be
paid in cash and the other P2,000,000.00 to be paid in two (2) post-
dated checks of P1,000,000.00 each;26 and
(b) the balance of P30,000,000.00 to be paid in ten (10) monthly
installments of P3,000,000.00, secured by bank guarantees from
Bankwise, Inc. (Bankwise) in the form of separate post-dated
checks.27
Unfortunately, Peakstar reneged on all its obligations under the MoA.
In this regard, petitioners asseverated that:
(a) their failure to pay their outstanding loan obligations to Allied
Bank must be considered as force majeure ; and
(b) since Allied Bank was the party that accepted the terms and
conditions of payment proposed by Peakstar, petitioners must
therefore be deemed to have settled their obligations to Allied Bank.
To bolster their defense, petitioner Jose Dychiao (Jose Dychiao)
testified28 during trial that it was Atty. Saw himself who drafted the
MoA and subsequently received29 the P2,000,000.00 cash and the
two (2) Bankwise post-dated checks worth P1,000,000.00 each from
Camiling. However, Atty. Saw turned over only the two (2) checks
and P1,500,000.00 in cash to the wife of Jose Dychiao. 30
Claiming that the subject complaint was falsely and maliciously filed,
petitioners prayed for the award of moral damages in the amount
of P20,000,000.00 in favor of Metro Concast and at
least P25,000,000.00 for each individual petitioner, P25,000,000.00
as exemplary damages, P1,000,000.00 as attorneys
fees, P500,000.00 for other litigation expenses, including costs of
suit.
The RTC Ruling
After trial on the merits, the RTC, in a Decision31 dated January 17,
2006, dismissed the subject complaint, holding that the "causes of
action sued upon had been paid or otherwise extinguished." It ruled
that since Allied Bank was duly represented by its agent, Atty. Saw,
in all the negotiations and transactions with Peakstar considering
that Atty. Saw
(a) drafted the MoA,
(b) accepted the bank guarantee issued by Bankwise, and
(c) was apprised of developments regarding the sale and disposition
of the scrap metal then it stands to reason that the MoA between
Metro Concast and Peakstar was binding upon said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a Decision 32 dated
February 12, 2007, reversed and set aside the ruling of the RTC,
ratiocinating that there was "no legal basis in fact and in law to
declare that when Bankwise reneged its guarantee under the [MoA],
herein [petitioners] should be deemed to be discharged from their
obligations lawfully incurred in favor of [Allied Bank]."33
The CA examined the MoA executed between Metro Concast, as
seller of the ferro scrap, and Peakstar, as the buyer thereof, and found
that the same did not indicate that Allied Bank intervened or was a
party thereto. It also pointed out the fact that the post-dated checks
pursuant to the MoA were issued in favor of Jose Dychiao. Likewise,
the CA found no sufficient evidence on record showing that Atty.
Saw was duly and legally authorized to act for and on behalf of
Allied Bank, opining that the RTC was "indulging in hypothesis and
speculation"34 when it made a contrary pronouncement. While Atty.
Saw received the earnest money from Peakstar, the receipt was
signed by him on behalf of Jose Dychiao.35
It also added that "[i]n the final analysis, the aforesaid checks and
receipts were signed by [Atty.] Saw either as representative of
[petitioners] or as partner of the latters legal counsel, and not in
anyway as representative of [Allied Bank]."36
Consequently, the CA granted the appeal and directed petitioners to
solidarily pay Allied Bank their corresponding obligations under the
aforementioned promissory note and trust receipts, plus interests,
penalty charges and attorneys fees. Petitioners sought
reconsideration37 which was, however, denied in a Resolution38 dated
May 10, 2007. Hence, this petition.
The Issue Before the Court
At the core of the present controversy is the sole issue of whether or
not the loan obligations incurred by the petitioners under the subject
promissory note and various trust receipts have already been
extinguished.
The Courts Ruling
Article 1231 of the Civil Code states that obligations are extinguished
either by payment or performance, the loss of the thing due, the
condonation or remission of the debt, the confusion or merger of the
rights of creditor and debtor, compensation or novation.
In the present case, petitioners essentially argue that their loan
obligations to Allied Bank had already been extinguished due to
Peakstars failure to perform its own obligations to Metro Concast
pursuant to the MoA. Petitioners classify Peakstars default as a form
of force majeure in the sense that they have, beyond their control, lost
the funds they expected to have received from the Peakstar (due to
the MoA) which they would, in turn, use to pay their own loan
obligations to Allied Bank. They further state that Allied Bank was
equally bound by Metro Concasts MoA with Peakstar since its
agent, Atty. Saw, actively represented it during the negotiations and
execution of the said agreement. Petitioners arguments are
untenable. At the outset, the Court must dispel the notion that the
MoA would have any relevance to the performance of petitioners
obligations to Allied Bank. The MoA is a sale of assets contract,
while petitioners obligations to Allied Bank arose from various loan
transactions. Absent any showing that the terms and conditions of the
latter transactions have been, in any way, modified or novated by the
terms and conditions in the MoA, said contracts should be treated
separately and distinctly from each other, such that the existence,
performance or breach of one would not depend on the existence,
performance or breach of the other. In the foregoing respect, the issue
on whether or not Allied Bank expressed its conformity to the assets
sale transaction between Metro Concast and Peakstar (as evidenced
by the MoA) is actually irrelevant to the issues related to petitioners
loan obligations to the bank. Besides, as the CA pointed out, the fact
of Allied Banks representation has not been proven in this case and
hence, cannot be deemed as a sustainable defense to exculpate
petitioners from their loan obligations to Allied Bank. Now, anent
petitioners reliance on force majeure, suffice it to state that
Peakstars breach of its obligations to Metro Concast arising from the
MoA cannot be classified as a fortuitous event under jurisprudential
formulation. As discussed in Sicam v. Jorge:39
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to
foresee the same. To constitute a fortuitous event, the following
elements must concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with obligations
must be independent of human will; (b) it must be impossible to
foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be
such as to render it impossible for the debtor to fulfill obligations
in a normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury or loss. 40 (Emphases
supplied)
While it may be argued that Peakstars breach of the MoA was
unforseen by petitioners, the same us clearly not "impossible"to
foresee or even an event which is independent of human will."
Neither has it been shown that said occurrence rendered it impossible
for petitioners to pay their loan obligations to Allied Bank and thus,
negates the formers force majeure theory altogether. In any case, as
earlier stated, the performance or breach of the MoA bears no relation
to the performance or breach of the subject loan transactions, they
being separate and distinct sources of obligations. The fact of the
matter is that petitioners loan obligations to Allied Bank remain
subsisting for the basic reason that the former has not been able to
prove that the same had already been paid41 or, in any way,
extinguished. In this regard, petitioners liability, as adjudged by the
CA, must perforce stand. Considering, however, that Allied Banks
extra-judicial demand on petitioners appears to have been made only
on December 10, 1998, the computation of the applicable interests
and penalty charges should be reckoned only from such date.
WHEREFORE, the petition is DENIED. The Decision dated
February 12, 2007 and Resolution dated May 10, 2007 of the Court
of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED with
MODIFICATION reckoning the applicable interests and penalty
charges from the date of the extrajudicial demand or on December
10, 1998. The rest of the appellate courts dispositions stand.
SO ORDERED.
EUFEMIA ALMEDA and G.R. No. 150806
ROMEL ALMEDA,
Petitioners, Present:
YNARES-
SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-
MARTINEZ,
CORONA,*
NACHURA, and
REYES, JJ.
BATHALA MARKETING
INDUSTRIES, INC.,
Respondent. Promulgated:
January 28, 2008
x----------------------------------------------------------------------------------------
------x
DECISION
NACHURA, J.:
This is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court, of the Decision[1] of the Court of Appeals (CA),
dated September 3, 2001, in CA-G.R. CV No. 67784, and its
Resolution[2] dated November 19, 2001. The assailed Decision
affirmed with modification the Decision[3] of the Regional Trial Court
(RTC), Makati City, Branch 136, dated May 9, 2000 in Civil Case No.
98-411.
Sometime in May 1997, respondent Bathala Marketing Industries, Inc.,
as lessee, represented by its president Ramon H. Garcia, renewed its
Contract of Lease[4] with Ponciano L. Almeda (Ponciano), as lessor,
husband of petitioner Eufemia and father of petitioner Romel
Almeda. Under the said contract, Ponciano agreed to lease a portion of
the Almeda Compound, located at 2208 Pasong Tamo Street, Makati
City, consisting of 7,348.25 square meters, for a monthly rental
of P1,107,348.69, for a term of four (4) years from May 1, 1997 unless
sooner terminated as provided in the contract.[5] The contract of lease
contained the following pertinent provisions which gave rise to the
instant case:
SIXTH It is expressly understood by the parties
hereto that the rental rate stipulated is based on the
present rate of assessment on the property, and that
in case the assessment should hereafter be
increased or any new tax, charge or burden be
imposed by authorities on the lot and building
where the leased premises are located, LESSEE
shall pay, when the rental herein provided
becomes due, the additional rental or charge
corresponding to the portion hereby leased;
provided, however, that in the event that the
present assessment or tax on said property should
be reduced, LESSEE shall be entitled to reduction
in the stipulated rental, likewise in proportion to
the portion leased by him;
SEVENTH In case an extraordinary inflation or
devaluation of Philippine Currency should
supervene, the value of Philippine peso at the time
of the establishment of the obligation shall be the
basis of payment;[6]
During the effectivity of the contract, Ponciano
died. Thereafter, respondent dealt with petitioners. In a
letter[7] dated December 29, 1997, petitioners advised respondent that
the former shall assess and collect Value Added Tax (VAT) on its
monthly rentals. In response, respondent contended that VAT may not
be imposed as the rentals fixed in the contract of lease were supposed
to include the VAT therein, considering that their contract was
executed on May 1, 1997 when the VAT law had long been in effect.[8]
On January 26, 1998, respondent received another letter
from petitioners informing the former that its monthly rental should be
increased by 73% pursuant to condition No. 7 of the contract and
Article 1250 of the Civil Code. Respondent opposed petitioners
demand and insisted that there was no extraordinary inflation to

warrant the application of Article 1250 in light of the pronouncement
of this Court in various cases.[9]
Respondent refused to pay the VAT and adjusted rentals as
demanded by petitioners but continued to pay the stipulated amount
set forth in their contract.
On February 18, 1998, respondent instituted an action for
declaratory relief for purposes of determining the correct interpretation
of condition Nos. 6 and 7 of the lease contract to prevent damage and
prejudice.[10] The case was docketed as Civil Case No. 98-411 before
the RTC of Makati.
On March 10, 1998, petitioners in turn filed an action for
ejectment, rescission and damages against respondent for failure of the
latter to vacate the premises after the demand made by the
former.[11] Before respondent could file an answer, petitioners filed a
Notice of Dismissal.[12] They subsequently refiled the complaint
before the Metropolitan Trial Court of Makati; the case was raffled to
Branch 139 and was docketed as Civil Case No. 53596.
Petitioners later moved for the dismissal of the declaratory
relief case for being an improper remedy considering that respondent
was already in breach of the obligation and that the case would not end
the litigation and settle the rights of the parties. The trial court,
however, was not persuaded, and consequently, denied the motion.
After trial on the merits, on May 9, 2000, the RTC ruled in
favor of respondent and against petitioners. The pertinent portion of
the decision reads:
WHEREFORE, premises considered,
this Court renders judgment on the case as
follows:
1) declaring that plaintiff is not liable
for the payment of Value-Added Tax (VAT) of
10% of the rent for [the] use of the leased
premises;
2) declaring that plaintiff is not liable
for the payment of any rental adjustment, there
being no [extraordinary] inflation or devaluation,
as provided in the Seventh Condition of the lease
contract, to justify the same;
3) holding defendants liable to plaintiff
for the total amount of P1,119,102.19, said
amount representing payments erroneously made
by plaintiff as VAT charges and rental adjustment
for the months of January, February and March,
1999; and
4) holding defendants liable to plaintiff
for the amount of P1,107,348.69, said amount
representing the balance of plaintiffs rental
deposit still with defendants.
SO ORDERED.[13]
The trial court denied petitioners their right to pass on to respondent
the burden of paying the VAT since it was not a new tax that would
call for the application of the sixth clause of the contract. The court,
likewise, denied their right to collect the demanded increase in rental,
there being no extraordinary inflation or devaluation as provided for in
the seventh clause of the contract. Because of the payment made by
respondent of the rental adjustment demanded by petitioners, the court
ordered the restitution by the latter to the former of the amounts paid,
notwithstanding the well-established rule that in an action for
declaratory relief, other than a declaration of rights and obligations,
affirmative reliefs are not sought by or awarded to the parties.
Petitioners elevated the aforesaid case to the Court of Appeals which
affirmed with modification the RTC decision. The fallo reads:
WHEREFORE, premises considered, the present
appeal is DISMISSED and the appealed decision
in Civil Case No. 98-411 is hereby AFFIRMED
with MODIFICATION in that the order for the
return of the balance of the rental deposits and of
the amounts representing the 10% VAT and rental
adjustment, is hereby DELETED.
No pronouncement as to costs.
SO ORDERED.[14]
The appellate court agreed with the conclusions of law and the
application of the decisional rules on the matter made by the
RTC. However, it found that the trial court exceeded its jurisdiction in
granting affirmative relief to the respondent, particularly the restitution
of its excess payment.
Petitioners now come before this Court raising the following issues:
I.
WHETHER OR NOT ARTICLE 1250 OF THE
NEW CIVIL CODE IS APPLICABLE TO THE
CASE AT BAR.
II.
 WHETHER OR NOT THE DOCTRINE
ENUNCIATED IN FILIPINO PIPE AND documents and the validity thereof are doubtful and require judicial
FOUNDRY CORP. VS. NAWASA CASE, 161
construction; 3) there must have been no breach of the documents in
SCRA 32 AND COMPANION CASES ARE (sic)
APPLICABLE IN THE CASE AT BAR. question; 4) there must be an actual justiciable controversy or the

III. ripening seeds of one between persons whose interests are adverse; 5)
WHETHER OR NOT IN NOT APPLYING THE
DOCTRINE IN THE CASE the issue must be ripe for judicial determination; and 6) adequate relief
OF DEL ROSARIO VS. THE SHELL
is not available through other means or other forms of action or
COMPANY OF THE PHILIPPINES, 164 SCRA
562, THE HONORABLE COURT OF APPEALS proceeding.[16]
SERIOUSLY ERRED ON A QUESTION OF
LAW. It is beyond cavil that the foregoing requisites are present in

IV. the instant case, except that petitioners insist that respondent was
WHETHER OR NOT THE FINDING OF THE already in breach of the contract when the petition was filed.
HONORABLE COURT OF APPEALS THAT
RESPONDENT IS NOT LIABLE TO PAY THE
10% VALUE ADDED TAX IS IN
ACCORDANCE WITH THE MANDATE OF We do not agree.
RA 7716.
After petitioners demanded payment of adjusted rentals and in the

months that followed, respondent complied with the terms and

V. conditions set forth in their contract of lease by paying the rentals
WHETHER OR NOT DECLARATORY
RELIEF IS PROPER SINCE PLAINTIFF- stipulated therein. Respondent religiously fulfilled its obligations to
APPELLEE WAS IN BREACH WHEN THE
PETITION FOR DECLARATORY RELIEF petitioners even during the pendency of the present suit. There is no
WAS FILED BEFORE THE TRIAL COURT. showing that respondent committed an act constituting a breach of the

subject contract of lease. Thus, respondent is not barred from

In fine, the issues for our resolution are as follows: 1)
instituting before the trial court the petition for declaratory relief.
whether the action for declaratory relief is proper; 2) whether

respondent is liable to pay 10% VAT pursuant to Republic Act (RA)

Petitioners claim that the instant petition is not proper because a
7716; and 3) whether the amount of rentals due the petitioners should
separate action for rescission, ejectment and damages had been
be adjusted by reason of extraordinary inflation or devaluation.
commenced before another court; thus, the construction of the subject

contractual provisions should be ventilated in the same forum.

Declaratory relief is defined as an action by any person

interested in a deed, will, contract or other written instrument,

We are not convinced.
executive order or resolution, to determine any question of construction

or validity arising from the instrument, executive order or regulation,

It is true that in Panganiban v. Pilipinas Shell Petroleum
or statute, and for a declaration of his rights and duties thereunder. The
Corporation[17] we held that the petition for declaratory relief should
only issue that may be raised in such a petition is the question of
be dismissed in view of the pendency of a separate action for unlawful
construction or validity of provisions in an instrument or
detainer. However, we cannot apply the same ruling to the instant
statute. Corollary is the general rule that such an action must be
case. In Panganiban, the unlawful detainer case had already been
justified, as no other adequate relief or remedy is available under the
resolved by the trial court before the dismissal of the declaratory relief
circumstances. [15]
case; and it was petitioner in that case who insisted that the action for

declaratory relief be preferred over the action for unlawful

Decisional law enumerates the requisites of an action for
detainer. Conversely, in the case at bench, the trial court had not yet
declaratory relief, as follows: 1) the subject matter of the controversy
resolved the rescission/ejectment case during the pendency of the
must be a deed, will, contract or other written instrument, statute,
declaratory relief petition. In fact, the trial court, where the rescission
executive order or regulation, or ordinance; 2) the terms of said

case was on appeal, itself initiated the suspension of the proceedings
pending the resolution of the action for declaratory relief.
We are not unmindful of the doctrine enunciated in Teodoro, Jr. v.
Mirasol[18] where the declaratory relief action was dismissed because
the issue therein could be threshed out in the unlawful detainer
suit. Yet, again, in that case, there was already a breach of contract at
the time of the filing of the declaratory relief petition. This dissimilar
factual milieu proscribes the Court from applying Teodoro to the
instant case.
Given all these attendant circumstances, the Court is disposed to
entertain the instant declaratory relief action instead of dismissing it,
notwithstanding the pendency of the ejectment/rescission case before
the trial court. The resolution of the present petition would
write finis to the parties dispute, as it would settle once and for all the
question of the proper interpretation of the two contractual stipulations
subject of this controversy.
Now, on the substantive law issues.
Petitioners repeatedly made a demand on respondent for the
payment of VAT and for rental adjustment allegedly brought about by
extraordinary inflation or devaluation. Both the trial court and the
appellate court found no merit in petitioners claim. We see no reason
to depart from such findings.
As to the liability of respondent for the payment of VAT, we cite with
approval the ratiocination of the appellate court, viz.:
Clearly, the person primarily liable for the
payment of VAT is the lessor who may choose to
pass it on to the lessee or absorb the
same. Beginning January 1, 1996, the lease of real
property in the ordinary course of business,
whether for commercial or residential use, when
the gross annual receipts exceed P500,000.00, is
subject to 10% VAT. Notwithstanding the
mandatory payment of the 10% VAT by the
lessor, the actual shifting of the said tax burden
upon the lessee is clearly optional on the part of
the lessor, under the terms of the statute. The word
may in the statute, generally speaking, denotes
that it is directory in nature. It is generally
permissive only and operates to confer
discretion. In this case, despite the applicability of
the rule under Sec. 99 of the NIRC, as amended
by R.A. 7716, granting the lessor the option to
pass on to the lessee the 10% VAT, to existing
contracts of lease as of January 1, 1996, the
original lessor, Ponciano L. Almeda did not
charge the lessee-appellee the 10% VAT nor
provided for its additional imposition when they
renewed the contract of lease in May 1997. More
significantly, said lessor did not actually collect a
10% VAT on the monthly rental due from the
lessee-appellee after the execution of the May
1997 contract of lease. The inevitable implication
is that the lessor intended not to avail of the option
granted him by law to shift the 10% VAT upon the
lessee-appellee. x x x.[19]
In short, petitioners are estopped from shifting to respondent the burden
of paying the VAT.
Petitioners reliance on the sixth condition of the contract is,
likewise, unavailing. This provision clearly states that respondent can
only be held liable for new taxes imposed after the effectivity of the
contract of lease, that is, after May 1997, and only if they pertain to the
lot and the building where the leased premises are located. Considering
that RA 7716 took effect in 1994, the VAT cannot be considered as a
new tax in May 1997, as to fall within the coverage of the sixth
stipulation.
Neither can petitioners legitimately demand rental adjustment because
of extraordinary inflation or devaluation.
Petitioners contend that Article 1250 of the Civil Code does
not apply to this case because the contract stipulation speaks of
extraordinary inflation or devaluation while the Code speaks of
extraordinary inflation or deflation. They insist that the doctrine
pronounced in Del Rosario v. The Shell Company,
Phils. Limited[20] should apply.
Essential to contract construction is the ascertainment of the intention
of the contracting parties, and such determination must take into
account the contemporaneous and subsequent acts of the parties. This
intention, once ascertained, is deemed an integral part of the
contract.[21]
While, indeed, condition No. 7 of the contract speaks of extraordinary
inflation or devaluation as compared to Article 1250s extraordinary
inflation or deflation, we find that when the parties used the term
devaluation, they really did not intend to depart from Article 1250 of
the Civil Code. Condition No. 7 of the contract should, thus, be read in
harmony with the Civil Code provision.
That this is the intention of the parties is evident from petitioners
letter[22] dated January 26, 1998, where, in demanding rental
adjustment ostensibly based on condition No. 7, petitioners made
explicit reference to Article 1250 of the Civil Code, even quoting the
law verbatim. Thus, the application of Del Rosario is not
warranted. Rather, jurisprudential rules on the application of Article
1250 should be considered.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of
the currency at the time of the establishment of the
obligation shall be the basis of payment, unless
there is an agreement to the contrary.
Inflation has been defined as the sharp increase of money or credit, or
both, without a corresponding increase in business transaction. There
is inflation when there is an increase in the volume of money and credit
relative to available goods, resulting in a substantial and continuing rise
in the general price level.[23] In a number of cases, this Court had
provided a discourse on what constitutes extraordinary inflation, thus:
[E]xtraordinary inflation exists when there is a
decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency,
and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the
establishment of the obligation.[24]
The factual circumstances obtaining in the present case do not make out
a case of extraordinary inflation or devaluation as would justify the
application of Article 1250 of the Civil Code. We would like to stress
that the erosion of the value of the Philippine peso in the past three or
four decades, starting in the mid-sixties, is characteristic of most
currencies. And while the Court may take judicial notice of the decline
in the purchasing power of the Philippine currency in that span of time,
such downward trend of the peso cannot be considered as the
extraordinary phenomenon contemplated by Article 1250 of the Civil
Code. Furthermore, absent an official pronouncement or declaration by
competent authorities of the existence of extraordinary inflation during
a given period, the effects of extraordinary inflation are not to be
applied. [25]
WHEREFORE, premises considered, the petition is DENIED. The
Decision of the Court of Appeals in CA-G.R. CV No.
67784, dated September 3, 2001, and its Resolution dated November
19, 2001, are AFFIRMED.
SO ORDERED.
G.R. No. 158361 April 10, 2013
INTERNATIONAL HOTEL CORPORATION, Petitioner,
vs.
FRANCISCO B. JOAQUIN, JR. and RAFAEL
SUAREZ, Respondents.
DECISION
BERSAMIN, J.:
To avoid unjust enrichment to a party from resulting out of a
substantially performed contract, the principle of quantum meruit
may be used to determine his compensation in the absence of a
written agreement for that purpose. The principle of quantum meruit
justifies the payment of the reasonable value of the services rendered
by him.
The Case
Under review is the decision the Court of Appeals (CA) promulgated
on November 8, 2002,1 disposing:
WHEREFORE, premises considered, the decision dated August 26,
1993 of the Regional Trial Court, Branch 13, Manila in Civil Case
No. R-82-2434 is AFFIRMED with Modification as to the amounts
awarded as follows: defendant-appellant IHC is ordered to pay
plaintiff-appellant Joaquin P700,000.00 and plaintiff-appellant
Suarez P200,000.00, both to be paid in cash.
SO ORDERED.
Antecedents
On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted
a proposal to the Board of Directors of the International Hotel
Corporation (IHC) for him to render technical assistance in securing a
foreign loan for the construction of a hotel, to be guaranteed by the
Development Bank of the Philippines (DBP).2 The proposal
encompassed nine phases, namely: (1) the preparation of a new
project study; (2) the settlement of the unregistered mortgage prior to
the submission of the application for guaranty for processing by
DBP; (3) the preparation of papers necessary to the application for
guaranty; (4) the securing of a foreign financier for the project; (5)
the securing of the approval of the DBP Board of Governors; (6) the
actual follow up of the application with DBP 3; (7) the overall
coordination in implementing the projections of the project study; (8)
the preparation of the staff for actual hotel operations; and (9) the
actual hotel operations.4
The IHC Board of Directors approved phase one to phase six of the
proposal during the special board meeting on February 11, 1969, and
earmarked P2,000,000.00 for the project.5 Anent the financing, IHC
applied with DBP for a foreign loan guaranty. DBP processed the
application,6 and approved it on October 24, 1969 subject to several
conditions.7
On July 11, 1969, shortly after submitting the application to DBP,
Joaquin wrote to IHC to request the payment of his fees in the
amount of P500,000.00 for the services that he had provided and
would be providing to IHC in relation to the hotel project that were
outside the scope of the technical proposal. Joaquin intimated his
amenability to receive shares of stock instead of cash in view of
IHCs financial situation.8
On July 11, 1969, the stockholders of IHC met and granted Joaquins
request, allowing the payment for both Joaquin and Rafael Suarez for
their services in implementing the proposal.9
On June 20, 1970, Joaquin presented to the IHC Board of Directors
the results of his negotiations with potential foreign financiers. He
narrowed the financiers to Roger Dunn & Company and Materials
Handling Corporation. He recommended that the Board of Directors
consider Materials Handling Corporation based on the more
beneficial terms it had offered. His recommendation was accepted.10
Negotiations with Materials Handling Corporation and, later on, with
its principal, Barnes International (Barnes), ensued. While the
negotiations with Barnes were ongoing, Joaquin and Jose Valero, the
Executive Director of IHC, met with another financier, the Weston
International Corporation (Weston), to explore possible
financing.11 When Barnes failed to deliver the needed loan, IHC
informed DBP that it would submit Weston for DBPs
consideration.12As a result, DBP cancelled its previous guaranty
through a letter dated December 6, 1971.13
On December 13, 1971, IHC entered into an agreement with Weston,
and communicated this development to DBP on June 26, 1972.
However, DBP denied the application for guaranty for failure to
comply with the conditions contained in its November 12, 1971
letter.14
Due to Joaquins failure to secure the needed loan, IHC, through its
President Bautista, canceled the 17,000 shares of stock previously
issued to Joaquin and Suarez as payment for their services. The latter
requested a reconsideration of the cancellation, but their request was
rejected.
Consequently, Joaquin and Suarez commenced this action for
specific performance, annulment, damages and injunction by a
complaint dated December 6, 1973 in the Regional Trial Court in
Manila (RTC), impleading IHC and the members of its Board of
Directors, namely, Felix Angelo Bautista, Sergio O. Rustia, Ephraim
G. Gochangco, Mario B. Julian, Benjamin J. Bautista, Basilio L.
Lirag, Danilo R. Lacerna and Hermenegildo R. Reyes.15 The
complaint alleged that the cancellation of the shares had been illegal,
and had deprived them of their right to participate in the meetings and
elections held by IHC; that Barnes had been recommended by IHC
President Bautista, not by Joaquin; that they had failed to meet their
obligation because President Bautista and his son had intervened and
negotiated with Barnes instead of Weston; that DBP had canceled the
guaranty because Barnes had failed to release the loan; and that IHC
had agreed to compensate their services with 17,000 shares of the
common stock plus cash of P1,000,000.00.16
IHC, together with Felix Angelo Bautista, Sergio O. Rustia, Mario B.
Julian and Benjamin J. Bautista, filed an answer claiming that the
shares issued to Joaquin and Suarez as compensation for their "past
and future services" had been issued in violation of Section 16 of the
Corporation Code; that Joaquin and Suarez had not provided a
foreign financier acceptable to DBP; and that they had already
received P96,350.00 as payment for their services.17
On their part, Lirag and Lacerna denied any knowledge of or
participation in the cancellation of the shares.18
Similarly, Gochangco and Reyes denied any knowledge of or
participation in the cancellation of the shares, and clarified that they
were not directors of IHC.19 In the course of the proceedings, Reyes
died and was substituted by Consorcia P. Reyes, the administratrix of
his estate.20
Ruling of the RTC
Under its decision rendered on August 26, 1993, the RTC held IHC
liable pursuant to the second paragraph of Article 1284 of the Civil
Code, disposing thusly:
WHEREFORE, in the light of the above facts, law and jurisprudence,
the Court hereby orders the defendant International Hotel
Corporation to pay plaintiff Francisco B. Joaquin, the amount of Two
Hundred Thousand Pesos (P200,000.00) and to pay plaintiff Rafael
Suarez the amount of Fifty Thousand Pesos (P50,000.00); that the
said defendant IHC likewise pay the co-plaintiffs, attorneys fees
of P20,000.00, and costs of suit.
IT IS SO ORDERED.21
The RTC found that Joaquin and Suarez had failed to meet their
obligations when IHC had chosen to negotiate with Barnes rather
than with Weston, the financier that Joaquin had recommended; and
that the cancellation of the shares of stock had been proper under
Section 68 of the Corporation Code, which allowed such transfer of
shares to compensate only past services, not future ones.
Ruling of the CA
Both parties appealed.22
Joaquin and Suarez assigned the following errors, to wit:
DESPITE HAVING CORRECTLY ACKNOWLEDGED THAT
PLAINTIFFS-APPELLANTS FULLY PERFORMED ALL THAT
WAS INCUMBENT UPON THEM, THE HONORABLE JUDGE
ERRED IN NOT ORDERING THAT:
A. DEFENDANTS WERE UNJUSTIFIED IN
CANCELLING THE SHARES OF STOCK
PREVIOUSLY ISSUED TO PLAINTIFFS-
APPELLANTS; AND
B. DEFENDANTS PAY PLAINTIFFS-APPELLANTS
TWO MILLION SEVEN HUNDRED PESOS (sic)
(P2,700,000.00), INCLUDING INTEREST THEREON
 FROM 1973, REPRESENTING THE TOTAL
OBLIGATION DUE PLAINTIFFS-APPELLANTS.23
On the other hand, IHC attributed errors to the RTC, as follows:
I.
THE LOWER COURT ERRED IN HOLDING THAT
PLAINTIFFS-APPELLANTS HAVE NOTBEEN COMPLETELY
PAID FOR THEIR SERVICES, AND IN ORDERING THE
DEFENDANT-APPELLANT TO PAY TWO HUNDRED
THOUSAND PESOS (P200,000.00) AND FIFTY THOUSAND
PESOS (P50,000.00) TO PLAINTIFFS-APPELLANTS
FRANCISCO B. JOAQUIN AND RAFAEL SUAREZ,
RESPECTIVELY.
II.
THE LOWER COURT ERRED IN AWARDING PLAINTIFFS-
APPELLANTS ATTORNEYS FEES AND COSTS OF SUIT.24
In its questioned decision promulgated on November 8, 2002, the CA
concurred with the RTC, upholding IHCs liability under Article
1186 of the Civil Code. It ruled that in the context of Article 1234 of
the Civil Code, Joaquin had substantially performed his obligations
and had become entitled to be paid for his services; and that the
issuance of the shares of stock was ultra vires for having been issued
as consideration for future services.
Anent how much was due to Joaquin and Suarez, the CA explained
thusly:
This Court does not subscribe to plaintiffs-appellants view that
defendant-appellant IHC agreed to pay them P2,000,000.00. Plaintiff-
appellant Joaquins letter to defendant-appellee F.A. Bautista,
quoting defendant-appellant IHCs board resolutions which
supposedly authorized the payment of such amount cannot be
sustained. The resolutions are quite clear and when taken together
show that said amount was only the "estimated maximum expenses"
which defendant-appellant IHC expected to incur in accomplishing
phases 1 to 6, not exclusively to plaintiffs-appellants
compensation.This conclusion finds support in an unnumbered board
resolution of defendant-appellant IHC dated July 11, 1969:
"Incidentally, it was also taken up the necessity of giving the
Technical Group a portion of the compensation that was authorized
by this corporation in its Resolution of February 11, 1969 considering
that the assistance so far given the corporation by said Technical
Group in continuing our project with the DBP and its request for
guaranty for a foreign loan is 70% completed leaving only some
details which are now being processed. It is estimated
that P400,000.00 worth of Common Stock would be reasonable for
the present accomplishments and to this effect, the President is
authorized to issue the same in the name of the Technical Group, as
follows:
P200,000.00 in common stock to Rafael Suarez, as associate in the
Technical Group, and P200,000.00 in common stock to Francisco G.
Joaquin, Jr., also a member of the Technical Group.
It is apparent that not all of the P2,000,000.00 was allocated
exclusively to compensate plaintiffs-appellants. Rather, it was
intended to fund the whole undertaking including their compensation.
On the same date, defendant-appellant IHC also authorized its
president to pay-appellant Joaquin P500,000.00 either in cash or in
stock or both.
The amount awarded by the lower court was therefore less than what
defendant-appellant IHC agreed to pay plaintiffs-appellants. While
this Court cannot decree that the cancelled shares be restored, for
they are without a doubt null and void, still and all, defendant-
appellant IHC cannot now put up its own ultra vires act as an excuse
to escape obligation to plaintiffs-appellants. Instead of shares of
stock, defendant-appellant IHC is ordered to pay plaintiff-appellant
Joaquin a total of P700,000.00 and plaintiff-appellant
Suarez P200,000.00, both to be paid in cash.
Although the lower court failed to explain why it was granting the
attorneys fees, this Court nonetheless finds its award proper given
defendant-appellant IHCs actions.25
Issues
In this appeal, the IHC raises as issues for our consideration and
resolution the following:
I
WHETHER OR NOT THE COURT OF APPEALS IS CORRECT
IN AWARDING COMPENSATION AND EVEN MODIFYING
THE PAYMENT TO HEREIN RESPONDENTS DESPITE NON-
FULFILLMENT OF THEIR OBLIGATION TO HEREIN
PETITIONER
II
WHETHER OR NOT THE COURT OF APPEALS IS CORRECT
IN AWARDING ATTORNEYS FEES TO RESPONDENTS26
IHC maintains that Article 1186 of the Civil Code was erroneously
applied; that it had no intention of preventing Joaquin from
complying with his obligations when it adopted his recommendation
to negotiate with Barnes; that Article 1234 of the Civil Code applied
only if there was a merely slight deviation from the obligation, and
the omission or defect was technical and unimportant; that substantial
compliance was unacceptable because the foreign loan was material
and was, in fact, the ultimate goal of its contract with Joaquin and
Suarez; that because the obligation was indivisible and subject to a
suspensive condition, Article 1181 of the Civil Code27 applied, under
which a partial performance was equivalent to non-performance; and
that the award of attorneys fees should be deleted for lack of legal
and factual bases.
On the part of respondents, only Joaquin filed a comment, 28 arguing
that the petition was fatally defective for raising questions of fact;
that the obligation was divisible and capable of partial performance;
and that the suspensive condition was deemed fulfilled through IHCs
own actions.29
Ruling
We deny the petition for review on certiorari subject to the ensuing
disquisitions.
1.
IHC raises questions of law
We first consider and resolve whether IHCs petition improperly
raised questions of fact.
A question of law exists when there is doubt as to what the law is on
a certain state of facts, but, in contrast, a question of fact exists when
the doubt arises as to the truth or falsity of the facts alleged. A
question of law does not involve an examination of the probative
value of the evidence presented by the litigants or by any of them; the
resolution of the issue must rest solely on what the law provides on
the given set of circumstances.30 When there is no dispute as to the
facts, the question of whether or not the conclusion drawn from the
facts is correct is a question of law.31
Considering that what IHC seeks to review is the CAs application of
the law on the facts presented therein, there is no doubt that IHC
raises questions of law. The basic issue posed here is whether the
conclusions drawn by the CA were correct under the pertinent laws.
2.
Article 1186 and Article 1234 of the Civil Code cannot be the source
of IHCs obligation to pay respondents IHC argues that it should not
be held liable because: (a) it was Joaquin who had recommended
Barnes; and (b) IHCs negotiation with Barnes had been neither
intentional nor willfully intended to prevent Joaquin from complying
with his obligations.
IHCs argument is meritorious.
Article 1186 of the Civil Code reads:
Article 1186. The condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment.
This provision refers to the constructive fulfillment of a suspensive
condition,32 whose application calls for two requisites, namely: (a)
the intent of the obligor to prevent the fulfillment of the condition,
and (b) the actual prevention of the fulfillment. Mere intention of the
debtor to prevent the happening of the condition, or to place
ineffective obstacles to its compliance, without actually preventing
the fulfillment, is insufficient.33
The error lies in the CAs failure to determine IHCs intent to pre-
empt Joaquin from meeting his obligations. The June 20, 1970
minutes of IHCs special board meeting discloses that Joaquin
impressed upon the members of the Board that Materials Handling
was offering more favorable terms for IHC, to wit:
xxxx
At the meeting all the members of the Board of Directors of the
International Hotel Corporation were present with the exception of
Directors Benjamin J. Bautista and Sergio O. Rustia who asked to be
excused because of previous engagements. In that meeting, the
President called on Mr. Francisco G. Joaquin, Jr. to explain the
different negotiations he had conducted relative to obtaining the
needed financing for the hotel project in keeping with the authority
given to him in a resolution approved by the Board of Directors.
Mr. Joaquin presently explained that he contacted several local and
foreign financiers through different brokers and after examining the
different offers he narrowed down his choice to two (2), to wit: the
foreign financier recommended by George Wright of the Roger Dunn
& Company and the offer made by the Materials Handling
Corporation.
After explaining the advantages and disadvantages to our corporation
of the two (2) offers specifically with regard to the terms and
repayment of the loan and the rate of interest requested by them, he
concluded that the offer made by the Materials Handling Corporation
is much more advantageous because the terms and conditions of
payment as well as the rate of interest are much more reasonable and
would be much less onerous to our corporation. However, he
explained that the corporation accepted, in principle, the offer of
Roger Dunn, per the corporations telegrams to Mr. Rudolph Meir of
the Private Bank of Zurich, Switzerland, and until such time as the
corporations negotiations with Roger Dunn is terminated, we are
committed, on one way or the other, to their financing.
It was decided by the Directors that, should the negotiations with
Roger Dunn materialize, at the same time as the offer of Materials
Handling Corporation, that the funds committed by Roger Dunn may
be diverted to other borrowers of the Development Bank of the
Philippines. With this condition, Director Joaquin showed the
advantages of the offer of Materials Handling Corporation. Mr.
Joaquin also informed the corporation that, as of this date, the bank
confirmation of Roger Dunn & Company has not been received. In
view of the fact that the corporation is racing against time in securing
its financing, he recommended that the corporation entertain other
offers.
After a brief exchange of views on the part of the Directors present
and after hearing the clarification and explanation made by Mr. C. M.
Javier who was present and who represented the Materials Handling
Corporation, the Directors present approved unanimously the
recommendation of Mr. Joaquin to entertain the offer of Materials
Handling Corporation.34
Evidently, IHC only relied on the opinion of its consultant in
deciding to transact with Materials Handling and, later on, with
Barnes. In negotiating with Barnes, IHC had no intention, willful or
otherwise, to prevent Joaquin and Suarez from meeting their
undertaking. Such absence of any intention negated the basis for the
CAs reliance on Article 1186 of the Civil Code.
Nor do we agree with the CAs upholding of IHCs liability by virtue
of Joaquin and Suarezs substantial performance. In so ruling, the CA
applied Article 1234 of the Civil Code, which states:
Article 1234. If the obligation has been substantially performed in
good faith, the obligor may recover as though there had been a strict
and complete fulfillment, less damages suffered by the obligee.
It is well to note that Article 1234 applies only when an obligor
admits breaching the contract35 after honestly and faithfully
performing all the material elements thereof except for some
technical aspects that cause no serious harm to the obligee.36 IHC
correctly submits that the provision refers to an omission or deviation
that is slight, or technical and unimportant, and does not affect the
real purpose of the contract.
Tolentino explains the character of the obligors breach under Article
1234 in the following manner, to wit:
In order that there may be substantial performance of an obligation,
there must have been an attempt in good faith to perform, without
any willful or intentional departure therefrom. The deviation from the
obligation must be slight, and the omission or defect must be
technical and unimportant, and must not pervade the whole or be so
material that the object which the parties intended to accomplish in a
particular manner is not attained. The non-performance of a material
part of a contract will prevent the performance from amounting to a
substantial compliance.
The party claiming substantial performance must show that he has
attempted in good faith to perform his contract, but has through
oversight, misunderstanding or any excusable neglect failed to
completely perform in certain negligible respects, for which the other
party may be adequately indemnified by an allowance and deduction
from the contract price or by an award of damages. But a party who
knowingly and wilfully fails to perform his contract in any respect, or
omits to perform a material part of it, cannot be permitted, under the
protection of this rule, to compel the other party, and the trend of the
more recent decisions is to hold that the percentage of omitted or
irregular performance may in and of itself be sufficient to show that
there had not been a substantial performance.37
By reason of the inconsequential nature of the breach or omission, the
law deems the performance as substantial, making it the obligees
duty to pay.38 The compulsion of payment is predicated on the
substantial benefit derived by the obligee from the partial
performance. Although compelled to pay, the obligee is nonetheless
entitled to an allowance for the sum required to remedy omissions or
defects and to complete the work agreed upon.39
Conversely, the principle of substantial performance is inappropriate
when the incomplete performance constitutes a material breach of the
contract. A contractual breach is material if it will adversely affect
the nature of the obligation that the obligor promised to deliver, the
benefits that the obligee expects to receive after full compliance, and
the extent that the non-performance defeated the purposes of the
contract.40 Accordingly, for the principle embodied in Article 1234 to
apply, the failure of Joaquin and Suarez to comply with their
commitment should not defeat the ultimate purpose of the contract.
The primary objective of the parties in entering into the services
agreement was to obtain a foreign loan to finance the construction of
IHCs hotel project. This objective could be inferred from IHCs
approval of phase 1 to phase 6 of the proposal. Phase 1 and phase 2,
respectively the preparation of a new project study and the settlement
of the unregistered mortgage, would pave the way for Joaquin and
Suarez to render assistance to IHC in applying for the DBP guaranty
and thereafter to look for an able and willing foreign financial
institution acceptable to DBP. All the steps that Joaquin and Suarez
undertook to accomplish had a single objective to secure a loan to
fund the construction and eventual operations of the hotel of IHC. In
that regard, Joaquin himself admitted that his assistance was
specifically sought to seek financing for IHCs hotel project. 41
Needless to say, finding the foreign financier that DBP would
guarantee was the essence of the parties contract, so that the failure
to completely satisfy such obligation could not be characterized as
slight and unimportant as to have resulted in Joaquin and Suarezs
substantial performance that consequentially benefitted IHC.
Whatever benefits IHC gained from their services could only be
minimal, and were even probably outweighed by whatever losses
IHC suffered from the delayed construction of its hotel.
Consequently, Article 1234 did not apply.
3.
IHC is nonetheless liable to pay under the rule on constructive
fulfillment of a mixed conditional obligation
Notwithstanding the inapplicability of Article 1186 and Article 1234
of the Civil Code, IHC was liable based on the nature of the
obligation.
Considering that the agreement between the parties was not
circumscribed by a definite period, its termination was subject to a
condition the happening of a future and uncertain event.42 The
prevailing rule in conditional obligations is that the acquisition of
rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event that
constitutes the condition.43
To recall, both the RTC and the CA held that Joaquin and Suarezs
obligation was subject to the suspensive condition of successfully
securing a foreign loan guaranteed by DBP. IHC agrees with both
lower courts, and even argues that the obligation with a suspensive
condition did not arise when the event or occurrence did not happen.
In that instance, partial performance of the contract subject to the
suspensive condition was tantamount to no performance at all. As
such, the respondents were not entitled to any compensation.
We have to disagree with IHCs argument.
To secure a DBP-guaranteed foreign loan did not solely depend on
the diligence or the sole will of the respondents because it required
the action and discretion of third persons an able and willing
foreign financial institution to provide the needed funds, and the DBP
Board of Governors to guarantee the loan. Such third persons could
not be legally compelled to act in a manner favorable to IHC. There
is no question that when the fulfillment of a condition is dependent
partly on the will of one of the contracting parties,44 or of the obligor,
and partly on chance, hazard or the will of a third person, the
obligation is mixed.45 The existing rule in a mixed conditional
obligation is that when the condition was not fulfilled but the obligor
did all in his power to comply with the obligation, the condition
should be deemed satisfied.46
Considering that the respondents were able to secure an agreement
with Weston, and subsequently tried to reverse the prior cancellation
of the guaranty by DBP, we rule that they thereby constructively
fulfilled their obligation.
4.
Quantum meruit should apply in the absence of an express agreement
on the fees
The next issue to resolve is the amount of the fees that IHC should
pay to Joaquin and Suarez.
Joaquin claimed that aside from the approved P2,000,000.00 fee to
implement phase 1 to phase 6, the IHC Board of Directors had
approved an additional P500,000.00 as payment for his services. The
RTC declared that he and Suarez were entitled to P200,000.00 each,
but the CA revised the amounts to P700,000.00 for Joaquin
and P200,000.00 for Suarez.
Anent the P2,000,000.00, the CA rightly concluded that the full
amount of P2,000,000.00 could not be awarded to respondents
because such amount was not allocated exclusively to compensate
respondents, but was intended to be the estimated maximum to fund
the expenses in undertaking phase 6 of the scope of services. Its
conclusion was unquestionably borne out by the minutes of the
February 11, 1969 meeting, viz:
xxxx
II
The preparation of the necessary papers for the DBP including the
preparation of the application, the presentation of the mechanics of
financing, the actual follow up with the different departments of the
DBP which includes the explanation of the feasibility studies up to
the approval of the loan, conditioned on the DBPs acceptance of the
project as feasible. The estimated expenses for this particular phase
would be contingent, i.e. upon DBPs approval of the plan now being
studied and prepared, is somewhere around P2,000,000.00.
After a brief discussion on the matter, the Board on motion duly
made and seconded, unanimously adopted a resolution of the
following tenor:
RESOLUTION NO. ______
(Series of 1969)
"RESOLVED, as it is hereby RESOLVED, that if the Reparations
allocation and the plan being negotiated with the DBP is realized the
estimated maximum expenses of P2,000,000.00 for this phase is
hereby authorized subject to the sound discretion of the committee
composed of Justice Felix Angelo Bautista, Jose N. Valero and
Ephraim G. Gochangco."47 (Emphasis supplied)
Joaquins claim for the additional sum of P500,000.00 was similarly
without factual and legal bases. He had requested the payment of that
amount to cover services rendered and still to be rendered to IHC
separately from those covered by the first six phases of the scope of
work. However, there is no reason to hold IHC liable for that amount
due to his failure to present sufficient proof of the services rendered
towards that end. Furthermore, his July 11, 1969 letter revealed that
the additional services that he had supposedly rendered were identical
to those enumerated in the technical proposal, thus:
The Board of Directors
International Hotel Corporation
Thru: Justice Felix Angelo Bautista
President & Chairman of the Board
Gentlemen:
I have the honor to request this Body for its deliberation and action
on the fees for my services rendered and to be rendered to the hotel
project and to the corporation. These fees are separate from the fees
you have approved in your previous Board Resolution, since my fees
are separate. I realize the position of the corporation at present, in that
it is not in a financial position to pay my services in cash, therefore, I
am requesting this Body to consider payment of my fees even in the
form of shares of stock, as you have done to the other technical men
and for other services rendered to the corporation by other people.
Inasmuch as my fees are contingent on the successful implementation
of this project, I request that my fees be based on a percentage of the
total project cost. The fees which I consider reasonable for the
services that I have rendered to the project up to the completion of its
construction is P500,000.00. I believe said amount is reasonable since
this is approximately only of 1% of the total project cost.
So far, I have accomplished Phases 1-5 of my report dated February
1, 1969 and which you authorized us to do under Board Resolution of
February 11, 1969. It is only Phase 6 which now remains to be
implemented. For my appointment as Consultant dated May 12, 1969
and the Board Resolution dated June 23, 1969 wherein I was
appointed to the Technical Committee, it now follows that I have
been also authorized to implement part of Phases 7 & 8.
A brief summary of my accomplished work has been as follows:
1. I have revised and made the new Project Study of your
hotel project, making it bankable and feasible.
2. I have reduced the total cost of your project by
approximately P24,735,000.00.
3. I have seen to it that a registered mortgage with the
Reparations Commission did not affect the application with
the IBP for approval to processing.
4. I have prepared the application papers acceptable to the
DBP by means of an advance analysis and the presentation
of the financial mechanics, which was accepted by the
DBP.
5. I have presented the financial mechanics of the loan
wherein the requirement of the DBP for an
additional P19,000,000.00 in equity from the corporation
became unnecessary.
6. The explanation of the financial mechanics and the
justification of this project was instrumental in changing
the original recommendation of the Investment Banking
Department of the DBP, which recommended disapproval
of this application, to the present recommendation of the
Real Estate Department which is for the approval of this
project for proceeding.
7. I have submitted to you several offers already of foreign
financiers which are in your files. We are presently
arranging the said financiers to confirm their funds to the
DBP for our project,
8. We have secured the approval of the DBP to process the
loan application of this corporation as per its letter July 2,
1969.
9. We have performed other services for the corporation
which led to the cooperation and understanding of the
different factions of this corporation.
I have rendered services to your corporation for the past 6 months
with no clear understanding as to the compensation of my services.
All I have drawn from the corporation is the amount of P500.00 dated
May 12, 1969 and personal payment advanced by Justice Felix
Angelo Bautista in the amount of P1,000.00.
I am, therefore, requesting this Body for their approval of my fees. I
have shown my good faith and willingness to render services to your
corporation which is evidenced by my continued services in the past
6 months as well as the accomplishments above mentioned. I believe
that the final completion of this hotel, at least for the processing of
the DBP up to the completion of the construction, will take
approximately another 2 years. In view of the above, I again
reiterate my request for your approval of my fees. When the
corporation is in a better financial position, I will request for a
withdrawal of a monthly allowance, said amount to be determined by
this Body.
Very truly yours,
(Sgd.)
Francisco G., Joaquin, Jr.48
(Emphasis supplied)
Joaquin could not even rest his claim on the approval by IHCs Board
of Directors. The approval apparently arose from the confusion
between the supposedly separate services that Joaquin had rendered
and those to be done under the technical proposal. The minutes of the
July 11, 1969 board meeting (when the Board of Directors allowed
the payment for Joaquins past services and for the 70% project
completion by the technical group) showed as follows:
III
The Third order of business is the compensation of Mr. Francisco G.
Joaquin, Jr. for his services in the corporation.
After a brief discussion that ensued, upon motion duly made and
seconded, the stockholders unanimously approved a resolution of the
following tenor:
RESOLUTION NO. ___
(Series of 1969)
"RESOLVED that Mr. Francisco G. Joaquin, Jr. be granted a
compensation in the amount of Five Hundred Thousand
(P500,000.00) Pesos for his past services and services still to be
rendered in the future to the corporation up to the completion of the
Project.1wphi1 The President is given full discretion to discuss with
Mr. Joaquin the manner of payment of said compensation,
authorizing him to pay part in stock and part in cash."
Incidentally, it was also taken up the necessity of giving the
Technical Group a portion of the compensation that was authorized
by this corporation in its Resolution of February 11, 1969 considering
that the assistance so far given the corporation by said Technical
Group in continuing our project with the DBP and its request for
guaranty for a foreign loan is 70% completed leaving only some
details which are now being processed. It is estimated
that P400,000.00 worth of Common Stock would be reasonable for
the present accomplishments and to this effect, the President is
authorized to issue the same in the name of the Technical Group, as
follows:
P200,000.00 in Common Stock to Rafael Suarez, an associate in the
Technical Group, and P200,000.00 in Common stock to Francisco G.
Joaquin, Jr., also a member of the Technical Group.49
Lastly, the amount purportedly included services still to be rendered
that supposedly extended until the completion of the construction of
the hotel. It is basic, however, that in obligations to do, there can be
no payment unless the obligation has been completely rendered.50
It is notable that the confusion on the amounts of compensation arose
from the parties inability to agree on the fees that respondents should
receive. Considering the absence of an agreement, and in view of
respondents constructive fulfillment of their obligation, the Court
has to apply the principle of quantum meruit in determining how
much was still due and owing to respondents. Under the principle of
quantum meruit, a contractor is allowed to recover the reasonable
value of the services rendered despite the lack of a written
contract.51 The measure of recovery under the principle should relate
to the reasonable value of the services performed.52 The principle
prevents undue enrichment based on the equitable postulate that it is
unjust for a person to retain any benefit without paying for it. Being
predicated on equity, the principle should only be applied if no
express contract was entered into, and no specific statutory provision
was applicable.53
Under the established circumstances, we deem the total amount
of P200,000.00 to be reasonable compensation for respondents
services under the principle of quantum meruit.
Finally, we sustain IHCs position that the grant of attorneys fees
lacked factual or legal basis. Attorneys fees 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. There should be factual or
legal support in the records before the award of such fees is
sustained. It is not enough justification for the award simply because
respondents were compelled to protect their rights.54
ACCORDINGLY, the Court DENIES the petition for review on
certiorari; and AFFIRMS the decision of the Court of Appeals
promulgated on November 8, 2002 in C.A.-G.R. No. 47094 subject to
the MODIFICATIONS that: (a) International Hotel Corporation is
ordered to. pay Francisco G. Joaquin, Jr. and Rafael
Suarez P100,000.00 each as compensation for their services, and (b)
the award of P20,000.00 as attorney's fees is deleted.
No costs of suit.
SO ORDERED.
[G.R. No. 152317. November 10, 2004]
VICTORIA MOREO-LENTFER,* GUNTER LENTFER and
JOHN CRAIGIE YOUNG CROSS, petitioners, vs.
HANS JURGEN WOLFF, respondent.
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision[1] dated June 14, 2001,
and Resolution[2] dated February 22, 2002, of the Court of Appeals in
CA-G.R. CV No. 48272. The decision reversed the judgment[3] of the
Regional Trial Court of Calapan City, Oriental Mindoro, Branch 39, in
Civil Case No. R-4219.
The facts are as follows:
The petitioners are Gunter Lentfer, a German citizen; his Filipina
wife, Victoria Moreo-Lentfer; and John Craigie Young Cross, an
Australian citizen, all residing in Sabang, Puerto Galera, Oriental
Mindoro. Respondent Hans Jurgen Wolff is a German citizen, residing
in San Lorenzo Village, Makati City.
Petitioners alleged that with respondent, on March 6, 1992, they
engaged the notarial services of Atty. Rodrigo C. Dimayacyac for: (1)
the sale of a beach house owned by petitioner Cross in Sabang, Puerto
Galera, Oriental Mindoro, and (2) the assignment of Cross contract of
lease on the land where the house stood. The sale of the beach house
and the assignment of the lease right would be in the name of petitioner
Victoria Moreo-Lentfer, but the total consideration of 220,000
Deutschmarks (DM) would be paid by respondent Hans Jurgen Wolff.
A promissory note was executed by said respondent in favor of
petitioner Cross.
According to respondent, however, the Lentfer spouses were his
confidants who held in trust for him, a time deposit account in the
amount of DM 200,000[4] at Solid Bank Corporation. Apprised of his
interest to own a house along a beach, the Lentfer couple urged him to
buy petitioner Cross beach house and lease rights in Puerto Galera.
Respondent agreed and through a bank-to-bank transaction, he paid
Cross the amount of DM 221,700[5] as total consideration for the sale
and assignment of the lease rights. However, Cross, Moreo-Lentfer
and Atty. Dimayacyac surreptitiously executed a deed of sale whereby
the beach house was made to appear as sold to Moreo-Lentfer for
only P100,000.[6] The assignment of the lease right was likewise made
in favor of Moreo-Lentfer.[7] Upon learning of this, respondent filed
a Complaint docketed as Civil Case No. R-4219 with the lower court
for annulment of sale and reconveyance of property with damages and
prayer for a writ of attachment.
After trial, the court a quo dismissed the complaint for failure to
establish a cause of action, thus:
ACCORDINGLY, judgment is hereby rendered in favor of the
defendants and against the plaintiff, dismissing the complaint for the
reason that plaintiff has not established a cause of action against the
defendants with costs against the plaintiff.
SO ORDERED.[8]
Aggrieved, respondent appealed to the Court of Appeals. [9]
But in its Decision[10] dated June 14, 2001, the appellate court
reversed the decision of the trial court, thus:
WHEREFORE, the judgment appealed from is hereby REVERSED
and a new one is hereby rendered, as follows:
1. Defendants-appellees spouses Genter[11] and Victoria
Moreno-Lentfer and John Craigie Young Cross are
jointly and severally held liable to pay plaintiff-
appellant the amount of 220,000.00 DM German
Currency or its present peso equivalent plus legal
interest starting from March 8, 1993, the date of the
last final demand letter;
2. The above defendants-appellees are jointly and
severally held liable to pay plaintiff-appellant the
amount of P200,000.00 Philippine Currency,
representing the amount of expenses incurred in the
repairs and maintenance of the property plus legal
interest starting from October 28, 1992, the date the
amount was received by defendant-appellee Victoria
Moreno-Lentfer; and
3. The case against defendant-appellee Rodrigo
Dimayacyac is dismissed.
SO ORDERED.[12]
Hence, the instant petition raising the following issues:
1) DOES ARTICLE 1238 OF THE NEW CIVIL CODE
APPLY IN THE CASE AT BAR?[13]
2) DOES THE PRINCIPLE OF SOLUTIO
INDEBITI UNDER ARTICLE 2154 OF THE NEW
CIVIL CODE, THE PRINCIPLE OF JUSTICE AND
EQUITY, APPLY IN THE CASE AT BAR?[14]
Article 1238 of the New Civil Code provides:
ART. 1238. Payment made by a third person who does not intend to
be reimbursed by the debtor is deemed to be a donation, which
requires the debtors consent. But the payment is in any case valid as
to the creditor who has accepted it.
Petitioners posit that in a contract of sale, the seller is the
creditor, who in this case is Cross, and the buyer is the debtor, namely
Moreo-Lentfer in this case. Respondent is the third person who paid
the consideration on behalf of Moreo-Lentfer, the debtor. Petitioners
insist that respondent did not intend to be reimbursed for said payment
and debtor Moreo-Lentfer consented to it. Thus, by virtue of Article
1238, payment by respondent is considered a donation.
Respondent counters that Article 1238 bears no relevance to the
case since it applies only to contracts of loan where payment is made
by a third person to a creditor in favor of a debtor of a previously
incurred obligation. The instant case, in contrast, involves a contract
of sale where no real creditor-debtor relationship exists between the
parties. Further, respondent argues his conduct never at any time
intimated any intention to donate in favor of petitioner Moreo-Lentfer.
Moreover, respondent contends that the alleged donation is void
for non-compliance with the formal requirements set by law. Citing
Article 748[15] of the New Civil Code, respondent avers that since the
amount involved exceeds P5,000, both the donation and its acceptance
must be in writing for the donation to be valid. Respondent further says
there was no simultaneous delivery of the money as required by Art.
748 for instances of oral donation. Respondent also calls our attention
to the sudden change in petitioners theory. Previously, before the Court
of Appeals, the petitioners claimed that what was donated were the
subject properties. But before this Court, they insist that what was
actually donated was the money used in the purchase of subject
properties.
On this point, we find petitioners stance without merit. Article
1238 of the New Civil Code is not applicable in this case.
Trying to apply Art. 1238 to the instant case is like forcing a
square peg into a round hole. The absence of intention to be
reimbursed, the qualifying circumstance in Art. 1238, is negated by the
facts of this case. Respondents acts contradict any intention to donate
the properties to petitioner Moreo-Lentfer. When respondent learned
that the sale of the beach house and assignment of the lease right were
in favor of Victoria Moreo-Lentfer, he immediately filed a complaint
for annulment of the sale and reconveyance of the property with
damages and prayer for a writ of attachment. Respondent Moreo-
Lentfer at that time claimed the beach house, together with the lease
right, was donated to her. Noteworthy, she had changed her theory, to
say that it was only the money used in the purchase that was donated
to her. But in any event, respondent actually stayed in the beach house
in the concept of an owner and shouldered the expenses for its
maintenance and repair amounting to P200,000 for the entire period of
his stay for ten weeks. Moreover, the appellate court found that
respondent is not related or even close to the Lentfer spouses.
Obviously, respondent had trusted the Lentfer spouses to keep a time
deposit account for him with Solid Bank for the purpose of making the
purchase of the cited properties.
Petitioner Moreo-Lentfers claim of either cash or property
donation rings hollow. A donation is a simple act of liberality where a
person gives freely of a thing or right in favor of another, who accepts
it.[16] But when a large amount of money is involved, equivalent
to P3,297,800, based on the exchange rate in the year 1992, we are
constrained to take the petitioners claim of liberality of the donor with
more than a grain of salt.
 Petitioners could not brush aside the fact that a donation must -particularly the spouses Gunter Lentfer and Victoria Moreo-Lentfer--
comply with the mandatory formal requirements set forth by law for are hereby ORDERED to:
its validity. Since the subject of donation is the purchase money, Art.
748 of the New Civil Code is applicable. Accordingly, the donation of 1. RECONVEY to respondent Hans Jurgen Wolff the
money equivalent to P3,297,800 as well as its acceptance should have beach house and the lease right over the land on which
been in writing. It was not. Hence, the donation is invalid for non- it is situated; and
compliance with the formal requisites prescribed by law. 2. PAY respondent Wolff nominal damages in the amount
Anent the second issue, petitioners insist that since the deed of of P50,000.00.
sale in favor of Moreo-Lentfer was neither identified or marked nor Costs against petitioners.
formally offered in evidence, the same cannot be given any evidentiary
value. They add that since it was not annulled, it remains valid and SO ORDERED.
binding. Hence, petitioners argue, the principle of solutio
indebiti under Article 2154[17] of the New Civil Code should be the
applicable provision in the resolution of this controversy. If so, the
parties unjustly enriched would be liable to the other party who
suffered thereby by being correspondingly injured or damaged.
GIL M. CEMBRANO G.R. No. 163605
The quasi-contract of solutio indebiti harks back to the ancient
principle that no one shall enrich himself unjustly at the expense of and DOLLFUSS R. GO,
another.[18] It applies where (1) a payment is made when there exists
Petitioners, Present:
no binding relation between the payor, who has no duty to pay, and the
person who received the payment, and (2) the payment is made through
mistake, and not through liberality or some other cause. [19]
In the instant case, records show that a bank-to-bank payment
was made by respondent Wolff to petitioner Cross in favor of co- PANGANIBAN, C.J., Chairperson,
petitioner Moreo-Lentfer. Respondent was under no duty to make such
payment for the benefit of Moreo-Lentfer. There was no binding - versus - YNARES-SANTIAGO,
relation between respondent and the beneficiary, Moreo-Lentfer. The
payment was clearly a mistake. Since Moreo-Lentfer received A
something when there was no right to demand it, she had an obligation USTRIA-
to return it.[20] MARTIN
Following Article 22[21] of the New Civil Code, two conditions EZ,
must concur to declare that a person has unjustly enriched himself or
C
herself, namely: (a) a person is unjustly benefited, and (b) such benefit
ALLEJO,
is derived at the expense of or to the damage of another.[22]
SR., and
We are convinced petitioner Moreo-Lentfer had been unjustly
enriched at the expense of respondent. She acquired the properties CHICO-NAZARIO, JJ.
through deceit, fraud and abuse of confidence. The principle of justice
and equity does not work in her favor but in favor of respondent Wolff. CITY OF BUTUAN, represented
Whatever she may have received by mistake from and at the expense
by CITY MAYOR LEONIDES R.
of respondent should thus be returned to the latter, if the demands of
justice are to be served. THERESA PLAZA, CVC LUMBER Promulgated:
The Court of Appeals held that respondent was not entitled to
INDUSTRIES, INC., MONICO
the reconveyance of the properties because, inter alia, of the express
prohibition under the Constitution[23] that non-Filipino citizens cannot PAG-ONG and ISIDRO PLAZA,
acquire land in the Philippines. We note, however, that subject
properties consist of a beach house and the lease right over the land Respondents. September 20, 2006
where the beach house stands. The constitutional prohibition against
aliens from owning land in the Philippines has no actual bearing in this x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
case. A clear distinction exists between the ownership of a piece of ----x
land and the mere lease of the land where the foreigners house stands.
Thus, we see no legal reason why reconveyance could not be allowed.
DECISION
Since reconveyance is the proper remedy, respondents expenses
for the maintenance and repair of the beach house is for his own
account as owner thereof. It need not be an issue for now.
However, we deem it just and equitable under the circumstances
CALLEJO, SR., J.:
to award respondent nominal damages in the amount
of P50,000,[24] pursuant to Articles 2221[25] and 2222[26] of the New
Civil Code, since respondents property right has been invaded through
defraudation and abuse of confidence committed by petitioners.
WHEREFORE, the petition is hereby DENIED. The assailed
Decision, dated June 14, 2001 and Resolution dated February 22, 2002, Before the Court is a Petition for Review on Certiorari of
of the Court of Appeals in CA-G.R. CV No. 48272 reversing the lower
courts judgment are AFFIRMED with MODIFICATION. Petitioners- the Decision[1] of the Court of Appeals (CA) in C.A.-G.R. SP No.
75328, nullifying the Orders[2] of the Regional Trial Court (RTC),
Butuan City, Agusan Del Norte, Branch 4, in Civil Case No. 3851, as
well as the Resolution[3] of the CA denying the motion for
reconsideration thereof. The assailed Orders[4] of the RTC directed the
Sheriff to garnish the
bank account of the City of Butuan amounting to P926,845.00 and
directed the Development Bank of the Philippines (DBP) to release the
amount to petitioners Atty. Gil M. Cembrano and Atty. Dollfuss R. Go.
The Antecedents
CVC Lumber Industries, Inc. (CVC) was a timber concession licensee
in Bunawen and Veruela, Agusan del Sur. Cembrano, then
its Marketing Manager, participated in a bidding for the
supply of piles and poles which were to be used for the
construction of the new City Hall of Butuan City. The
contract was awarded to CVC, under which it was to deliver
to the City of Butuan 757 timber piles at a unit cost
of P1,485.00 or a total of P1,124,145.00 within 60 days from
receipt of the order; in the event of delay in the delivery,
CVC would be liable for liquidated damages, to be deducted
from the total value of the contract price, and in case of
partial delivery, liquidated damages would be deducted from
the total value of the delivered portion, per Rule 9 of
Presidential Decree (P.D.) No. 526.[5]
On May 6, 1991, the City of Butuan issued a Purchase Order[6] for 757
timber piles to CVC or Gil Cembrano. To partly finance the purchase
of the merchandise, petitioner Cembrano, along with Gener Cembrano,
secured a P150,000.00 loan from the DBP, as evidenced by a
Promissory Note[7] dated June 4, 1991. To secure the loan, they
executed a real estate mortgage over a parcel of land covered by
Transfer Certificate of Title (TCT) No. T-5491.[8] The purchase order
was modified on August 22, 1991 with respect to the specifications of
the timber piles. The seller/supplier furnished the same to CVC or Gil
M. Cembrano.[9]
Within the 60-day period, CVC was able to make two (2) deliveries of
117 and 57 pieces which respondent accepted and paid for. On August
26 and September 9, 1991, Cembrano received payment
of P148,574.25 and P84,645.00, respectively, for the aforesaid
deliveries, as evidenced by the disbursement vouchers issued by the
City in favor of CVC Lumber Industries, Inc. It appears on the face of
the vouchers that the payee is CVC or Gil Cembrano.[10]
On November 13, 1991, the 60-day period for CVC to make
deliveries of the timber piles expired. CVC offered to deliver 100
timber piles worth P148,500.00, but respondent refused.
On November 19, 1991, CVC, through petitioner Cembrano,
requested for an extension, until December 11, 1991, to complete the
delivery of timber piles.[11] City Engineer Edgardo T. Sanchez denied
this request, and recommended that a new bidding be held on the
unexecuted portion of the contract.[12] The re-bidding was held
on December 2, 1991 with the approval of former City Mayor
Guillermo Sanchez, without notice to CVC.
At the instance of CVC, through Cembrano, an investigation
regarding the unilateral cancellation of the contract and the subsequent
re-bidding was conducted. The City Legal Officer rendered a report
upholding the validity of the contract with CVC and the purchase order
issued by the City to it, considering the suspicious haste attendant to
its termination and the irregularities surrounding the re-bidding
process.[13] The City Legal Officer made the following
recommendation to the Mayor:
1. To honor the contract with CVC
Lumber Industries, Inc. or Mr. Gil M. Cembrano
and compromise with the same by requiring the
said contractor to complete delivery of timber
piles within the period of 45 calendar days without
charging the provided liquidated damages, which
Compromise Agreement shall provide for its
automatic expiration after the lapse of the above-
mentioned period;
2. To declare the December 2,
1991 bidding Null and Void and confirm the stop
payment order of this office permanently;
3. To endorse to the Committee on
Good Government and to the Office of the
Ombudsman the irregular acts of the City General
Service Department Head for appropriate
Administrative and Criminal action[s],
respectively;
4. To suspend the City General Service
Department Head for a period of not more than 90
 days for him to fully face the charges filed against
him before the Committee on Good Government;
5. To request the Committee on Good
Government to conduct further investigation
within the Office of the City General Service to
determine involvement of other government
employees in the said irregularities[14]
CVC and Cembrano, through Go as counsel, filed a
complaint for breach of contract and damages against respondent,
claiming that CVC sustained damages amounting to P856,695.00 - the
value of the timber piles which it was ready to deliver and the value of
those it failed to deliver on account of the cancellation of the contract
on November 13, 1992. Cembrano alleged therein that he was the
Marketing Supervisor and an agent of CVC, that he secured a loan
from the DBP and executed a real estate mortgage over his property as
collateral to partly finance the purchase of the timber poles/piles. The
case was docketed as Civil Case No. 3851.
In its Answer, the City of Butuan admitted the allegations in
the complaint.
Meanwhile, during a meeting of the CVC Board of Directors
on September 3, 1992, Monico Pag-Ong was elected President
and Isidro B. Plaza as Corporate Secretary.[15] Plaza also became the
resident manager of the corporation.
On May 27, 1996, the trial court rendered judgment in favor
of the defendants and ordered the dismissal of the complaint on the
following ratiocination:
It may be recalled that as of November
13, 1991 the contract had already been
terminated for failure of the plaintiff [CVC and
Cembrano] to complete deliveries on the original
period. Since the request for extension by the
plaintiff was denied, the defendant [City] was no
longer obliged to accept any delivery as said
acceptance can be considered a waiver or
abandonment of the right to rescind. The
obligation of plaintiff to make complete delivery,
according to the contract, expired on November
13, 1991. The law is clear that obligations arising
from contracts have the force of law between the
contracting parties and should be complied with
in good faith. The power to rescind is given to the
injured party which, in this case is the defendant.
The plaintiff being a party who did not perform
the undertaking which [sic] he was bound by the
terms of the agreement to perform, it is not
entitled to insist upon the performance of the
contract by the defendant or recover damages by
reason of the breach.[16]
Cembrano appealed the decision to the CA. The appeal was
docketed as CA-G.R. CV No. 55049. The CA rendered judgment
reversing the decision of the trial court and ordered the City
of Butuan to pay its liability to Cembrano and CVC. The dispositive
portion of the Decision[17] reads:
IN VIEW OF THE FOREGOING, the decision
appealed from is hereby REVERSED and SET
ASIDE. Defendant City of Butuan is directed to
pay the plaintiffs the total sum of P926,845.00 in
accordance with the above computation, with 6%
interest as of the date this decision attains
finality.
Costs against defendant-appellee.
SO ORDERED.[18]
The appellate court declared that it was undisputed that
CVC, through Cembrano, its Marketing Supervisor, participated and
won the bidding for the supply of 757 timber piles and poles,[19]and
that the contract was between CVC and the City of Butuan. The CA
likewise affirmed the findings of the Investigation Report made by the
City Legal Officer, and CVCs entitlement to damages amounting
to P926,845.00.[20]
The City of Butuan thereafter filed a petition for review
on certiorari with this Court, docketed as G.R. No. 149466. However,
the petition was denied on November 12, 2001 for failure to observe
the 15-day period to appeal, and failure to serve a copy thereof to the
CA.[21] The City filed a motion for reconsideration, which the Court
denied with finality on January 16, 2002.[22]Thus, the CA decision
became final and executory.
On March 1, 2002, Cembrano, in his behalf and as attorney-
in-fact of CVC, executed a Deed of Assignment[23] covering of the
monetary award of the CA in favor of Go, his uncle.
In a letter[24] dated March 19, 2002, Go wrote the City
Mayor of Butuan City, requesting payment of the P926,845.00
awarded to it via the decision in CA-G.R. CV No. 55049 plus
interests, to avoid the embarrassment of the implementation of a writ
of execution against the City. However, in a letter [25]
dated July 15,
2002, CVC, through its Resident Manager Isidro B. Plaza, informed
the City Mayor that it was laying claim to the money judgment and
requested that the amount be remitted it.
In a 2nd Indorsement[26] dated July 17, 2002, the City Legal
Officer recommended that the Sangguniang
Panglungsod appropriate P926,845.00 to pay for the award in favor of
CVC under CA-G.R. CV No. 55049. During a meeting with
the Sangguniang Panglungsod Chairman and Members of the
Committee on Appropriation and Finance, Cembrano and Go agreed
that under the decision, the amount due to CVC was P926,845.00 with
6% interest per year. The Sanggunian resolved to refer the matter to
the City Budget Officer.[27]
In a letter[28] dated October 30, 2002, the City Legal Officer
requested the City Budget Officer to release P926,845.00 plus 6%
legal interest to CVC. The City Treasurer and the City Mayor signed a
check[29] dated November 5, 2002 for the said amount with CVC
LUMBER INDUSTRIES, INC/MONICO E. PAG-ONG as
payee. The check was received by Pag-Ong for CVC, as evidenced by
a disbursement voucher.[30]
Thereafter, Atty. Go, acting as counsel for CVC and
Cembrano, filed a Alternative Motion for Issuance of a Writ of
Execution or Entry of Judgment[31] in the RTC in Civil Case No.
3851.The court issued an order granting the motion. The Sheriffs
arrived in the Office of the City Mayor to enforce the writ
on November 28, 2002, but were told that the City had already remitted
the amount. Thus, the Sheriffs submitted a Return on the Writ of
Execution declaring that they failed to enforce the writ on account of
the Citys claim that it had already remitted the P926,845.00 to CVC.
In a letter[32] dated November 29, 2002, Plaza wrote the City
Treasurer that the proceeds of the 210 piles of poles and piles delivered
to the City at the price of P311,850.00 had not been remitted to CVC.
He requested that CVC be furnished copies of vouchers, checks,
official receipts, including Cembranos authority to transact business
with the city government and other documents.Plaza, likewise,
informed Go that the amount of P120,000.00 as his attorneys fees and
litigation expenses under the decision in CA-G.R. CV No. 55049 was
ready for claiming.[33]
The City Legal Officer filed a Manifestation,[34] also
dated November 29, 2002, that it had already paid the P926,845.00 to
CVC, through Pag-Ong, its President. Go filed an Urgent Motion (To
Direct Sheriffs To Garnish Defendants Bank Account),[35] alleging that
the payment by the City of Butuan to Monico Pag-Ong was not in
compliance with the decision in CA-G.R. CV No. 55049, as affirmed
by the Supreme Court. It was, likewise, asserted that the creditors
under the CA decision were CVC Unit VI and Cembrano, not Plaza or
Pag-Ong. It insisted that the payment made by the City to Pag-Ong did
not discharge its obligation to Cembrano. It was, likewise, asserted that
the creditors under the CA decision were CVC Unit IV and
Cembrano, not Plaza or Pag-Ong. It insisted that the payment made by
the City to Pag-Ong did not discharge its obligation to Cembrano. It
was alos averred that the logging operations of CVC and Triumph-
Timber Corporation were consolidated in one timber concession
license, and that the two corporations conducted the operations under
an independent and separate entity which was CVC Unit VI. The
plaintiffs-movants prayed that:
WHEREFORE, it is respectfully prayed
of this Honorable Court to issue an order directing
Sheriffs ROGER KINANAHAS, with the
assistance of VICENTE TIU and ARTHUR
CALO, to enforce the writ of execution by way of
garnishment of defendants bank accounts pursuant
to Section 9, Rule 39, specifically paragraph (c) of
the Revised Rules of Court.
Plaintiffs further pray for such other
remedies that may be just and equitable in the
premises.[36]
The City opposed the motion, contending that Cembrano
was merely the agent or marketing supervisor of CVC as alleged in the
complaint in Civil Case No. 3851; although Cembrano was impleaded
as one of the plaintiffs, the real party-in-interest entitled to the sum
of P926,845.00 was CVC. Cembrano was bound by his allegation in
the complaint that he was merely the Marketing Supervisor for CVC.
It pointed out that Go and Cembrano failed to implead Plaza and Pag-
Ong, who were indispensable parties in their motion; hence, the motion
was a mere scrap of paper. The City of Butuan suggested that the issue
of who between plaintiff CVC or Cembrano was entitled to the amount
of P926,845.00 should be resolved by them.[37]
For his part, Pag-Ong filed a Manifestation, stating that he
refrained from intervening in the case for the simple reason that he was
the President of CVC, thus clothed with the authority to receive
the P926,845.00. He appended thereto the minutes of the meeting of
the CVC Board of Directors on September 3, 1982, during which he
was appointed President.[38]
On January 8, 2003, the court issued an Order[39] granting
the motion of Ong and Cembrano, and ordered the Sheriff to garnish
the bank account of the City of Butuan in the DBP for the enforcement
of the writ of execution. It ruled that the payment made by the City
of Butuan to Pag-Ong was illegal because it was made in a motion for
writ of execution, and Pag-Ong was not a party to the case and had no
personality. For their part, Go and Cembrano filed a motion to compel
the DBP to remit the garnished amount to them. On February 3, 2003,
the trial court issued an Order[40] granting the motion and ordered the
DBP to remit P926,845.00 to Cembrano and Go in cash. The
dispositive portion of the Order reads:
WHEREFORE, in view of the
foregoing, the garnishee, Development Bank of
the Philippines, Butuan City Branch, through its
manager, Mr. Wilfred Alava, is hereby ordered
to release one half of the garnished amount or
the sum of P490,609.955 in CASH to Atty.
Dollfuss R. Go.
As there is no showing from the
pleadings filed by defendant City of Butuan
that CVC Lumber Industries, Inc., still exist,
Mr. Wilfred Alava is likewise ordered to
release the remaining half of the garnished
amount in the sum of P490,609.955 in CASH to
plaintiff Gil M. Cembrano.
IT IS SO ORDERED.[41]
The DBP complied and released the amount of P981,219.91
to CVC and Cembrano.[42]
On February 4, 2003, the City of Butuan filed a Petition
for Certiorari and Prohibition[43] with the CA against CVC, Pag-Ong,
Plaza and Cembrano, assailing the January 8, 2003 Order of the trial
court. The case was docketed as CA-G.R. SP No. 75328. It insisted
that it had already paid respondent CVC and Cembrano as ordered by
the CA in CA-G.R. CV No. 55049.
Atty. Go filed a Comment[44] on the petition for and in behalf
respondents except Pag-Ong and Plaza, alleging that the RTC had the
inherent power to rule that such payment made by the City
of Butuan to Pag-Ong was illegal.
For its part, the City of Butuan filed a Reply,[45] claiming
that the petition had become moot and academic because the DBP had
already released the money to Go and Cembrano on February 4, 2003.
On August 5, 2003, the CA rendered judgment granting the
petition. The fallo reads:
IN VIEW OF ALL THE FOREGOING, the instant petition
is hereby GRANTED and the assailed
Orders RECALLED and SET ASIDE, and a new
one entered RECALLING and DECLARING
NULL and VOID the Orders dated January 8,
2003 and February 3, 2003, and altogether
quashing the writ of execution or garnishment
issued in this case. As a further consequence of
this order, Atty. Dollfuss R. Go and plaintiff Gil
M. Cembrano are ordered each to return to the
petitioner City of Butuan the amount
of P490,605.955, which they received as a result
of the implementation of the writ of garnishment
issued in the case. Costs against the respondents.
SO ORDERED.[46]
The CA ruled that, under the Decision of the CA in CA-G.R.
CV No. 55049, either respondent Cembrano or Pag-Ong could receive
the award of P926,845.00 for the respondent CVC.Moreover, the City
of Butuan acted in good faith in delivering the check to the President
of CVC. Inasmuch as it had already remitted the judgment debt, the Cembrano and Go, now petitioners, assail the Decision and

City was released of its obligation under the Decision in CA-G.R. CV Resolution of the CA on the following grounds:

No. 55049; hence, the trial court committed grave abuse of its
I
discretion amounting to excess of jurisdiction when it ordered the
BOTH PETITONERS WERE DEPRIVED OF
garnishment of the bank account of petitioner Butuan City with the THEIR CONSTITUTIONAL AND
PROCEDURAL DUE PROCESS WHEN THE
DBP, and in ordering the bank to release P490,609.955 to Atty. HONORABLE COURT OF APPEALS
ORDERED THEM TO RETURN TO THE
Dollfuss R. Go, and the remaining half to Cembrano. CITY OF BUTUAN THE AMOUNT
OF P490,609.955[51]

The CA, likewise, declared that: [w]hatever intra-corporate II

disputes over any controversy existing between Cembrano, on the one THAT THE HONORABLE COURT OF
APPEALS COMMITTED SERIOUS ERRORS
hand, and Pag-Ong on the other, is something which they have to OF LAW NAY GRAVE ABUSE OF
DISCRETION IN DECLARING PAYMENT
thresh out in an appropriate proceeding and not in the case before
BY THE CITY OF BUTUAN TO MONICO
it.[47] Consequently, the appellate court ordered Go and Cembrano to PAG-ONG AND ISIDRO PLAZA, WHO
WERE NOT PARTIES TO CIVIL CASE NO.
return what each received from the DBP to the City of Butuan. The 3851 AND CA-G.R. CV No. 55049, IS A
VALID PAYMENT OF THE JUDGMENT
appellate court also stated the judgment creditor can very well satisfy DEBT IN CA-G.R. CV No. 55049 AND IN
SETTING ASIDE AND DECLARING NULL
the judgment debt even before a writ of execution shall have been
AND VOID THE WRIT OF GARNISHMENT
issued by the court for the implementation of its decision. [48] ISSUED BY THE COURT A QUO. [52]

III
THE DECISION OF THE HONORABLE
Go and Cembrano filed a Motion for Reconsideration, COURT OF APPEALS IN CA G.R. CV No.
55049 HAD BECOME FINAL AND
insisting that the trial court did not commit any grave abuse of its
EXECUTORY AND COULD NOT BE
discretion in issuing the assailed orders of the trial court. As gleaned CHANGED BY THE HONORABLE COURT
OF APPEALS 1ST DIVISION ON A MERE
from the evidence on record in Civil Case No. 3851, the transaction PETITION FOR CERTIORARI IN CA-G.R. SP
No. 75328.[53]
subject matter thereof was between Cembrano and the City of Butuan,

and Plaza and Pag-Ong had no participation or involvement therein

whatsoever. Cembrano maintained that it was he who funded the Petitioner Go avers that he was merely the counsel of petitioner

purchase and delivery of the timber poles and piles to the City Cembrano in Civil Case No. 3851, and was not a party in said case nor

of Butuan, since he secured the P150,000.00 loan from the DBP, the in CA-G.R. CV No. 55049. He and petitioner Cembrano were deprived

amount CVC used to finance the purchase of timber poles and piles. of their right to due process when they were ordered by the CA in CA-

This is gleaned from the evidence adduced during the trial, consisting G.R. SP No. 75328 to return the P490,609.955 garnished by the Sheriff

of the Promissory Note he executed in favor of DBP for P150,000.00, in Civil Case No. 3851. The proper recourse of the respondent City

and the real estate mortgage executed by him in favor of the DBP over was to file a separate complaint to resolve the issue of who is entitled

the property belonging to his mother covered by TCT No. 17068 as to the amount; the issue of whether petitioner Go was obliged to return

security for the payment of said loan.[49] They appended to the motion the amount which he received as attorneys fees and reimbursement of

the real estate mortgage executed by Cembrano in favor of the DBP litigation expenses and whether petitioner Cembrano was entitled to

and their formal offer of evidence filed in Civil Case No. 3851. the P490,609.95 would have to be ventilated and resolved after a full-

blown trial.

The CA, however, denied the motion for reconsideration in

Petitioners aver that the CA committed a serious error when it declared
a Resolution[50] dated April 5, 2005.
that the payment by the respondent Butuan City to respondent CVC,
through its President Pag-Ong, validly discharged it from its obligation
in CA-G.R. CV No. 55049; it likewise erred in ruling that the behalf of said corporation. Citing Article 1240 of the New Civil Code,
acceptance of P926,845.00 by respondent Pag-Ong released the City respondent City maintains that its payment to CVC, through its
of Butuan from its obligations on the premise that Pag-Ong, as President, satisfied its obligations under the decision of the CA in CA-
president of CVC, could be considered as a person in possession of G.R. CV No. 55049. It was completely unaware of any dispute
credit. between CVC and Cembrano. Moreover, if petitioners believed that
they were entitled to the P490,609.955 out of its remittance
of P926,845.00 to CVC, they should have presented evidence in the
Petitioner Cembrano, being one of the plaintiffs in Civil RTC to prove their claim.
Case No. 3851 and an appellant in CA-G.R. CV No. 55049, is entitled
to one-half of the award, which he had already assigned to petitioner
Go; hence, the latter is entitled to one-half of the award, For their part, respondents Pag-Ong and Plaza aver that as president of
or P490,609.955. Petitioner Go maintains that the deed of assignment CVC and chief executive officer, Pag-ong was authorized to receive
is a valid contract between him and petitioner Cembrano.Petitioners the amount of P926,845.00 from respondent Butuan City.
cite the ruling of this Court in Harry E. Keeler Electric Co. v.
The threshold issues in this case are: (1) whether or not the remittance
Rodriguez.[54]
of the P926,845.00 made by respondent City of Butuan to the
respondent CVC, through its president respondent Pag-Ong, released
it from its obligation under the decision in CA-G.R. CV No. 55049;
Petitioner Go avers that he was not a party in Civil Case No. 3851 (CA-
and (2) whether the CA erred in ordering the petitioner to return
G.R. CV No. 55049 and CA-G.R. SP No. 75328). He was merely the
the P981,219.91 to the account of respondent City with the DBP.
counsel of the plaintiffs in Civil Case No. 3851, and who were the
appellants
CA-G.R. CV No. 55049. Hence, the CA in CA-G.R. SP No. 75328
The Ruling of the Court
cannot compel him to return the P490,609.955 he received from the
DBP. Petitioners insist that the proper remedy of respondent City
of Butuan is to file the proper complaint against them so that they can
On the first issue, the respondent City, as judgment debtor,
file the appropriate pleadings in their defense.
is burdened to prove with legal certainty that its obligation under the
CA decision in CA-G.R. CV No. 55049 has been discharged by
payment, which under Article 1240 of the Civil Code, is a mode of
For its part, the respondent City of Butuan avers that it
extinguishing an obligation.[55] Article 1240 of the Civil Code provides
complied with the decision in CA-G.R. CV No. 55049 when it remitted
that payment shall be made to the person in whose favor the obligation
the full amount of P926,845.00 to respondent CVC. Contrary to his
has been constituted, or his successor-in-interest, or any person
claim, petitioner Cembrano is not entitled to one-half of the monetary
authorized to receive it.[56]
award in CA-G.R. CV No. 55049 for the simple reason that he was
merely CVC Marketing Supervisor, and happened to participate in the
public bidding for the supply of timber piles solely in that capacity. As
Payment made by the debtor to the person of the creditor or
ruled by the CA in CA-G.R. SP No. 75328, petitioner Cembrano
to one authorized by him or by the law to receive it extinguishes the
admitted in his Urgent Motion (to Direct Sheriff to Garnish Defendants
Account) that he was clothed with the proper authority to participate obligation.[57] When payment is made to the wrong party, however, the
in the bidding and deliver the timber piles under the contract. It obligation is not extinguished as to the creditor who is without fault or
maintains that what should prevail is the dispositive portion of the negligence even if the debtor acted in utmost good faith and by mistake
decision in CA-G.R. CV No. 55049, and that a writ of execution which
as to the person of the creditor or through error induced by fraud of a
does not strictly adhere to the dispositive portion of the decision is
third person.[58]
invalid.

In general, a payment in order to be effective to discharge an

It further maintains that it acted on its honest belief that respondent obligation, must be made to the proper person. Thus, payment must be

Pag-Ong, as CVC president, was authorized to receive payment in made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment. Payment made to one
having apparent authority to receive the money will, as a rule, be
treated as though actual
authority had been given for its receipt. Likewise, if payment is made
to one who by law is authorized to act for the creditor, it will work a
discharge. The receipt of money due on a judgment by an officer
authorized by law to accept it will, therefore, satisfy the debt. [59]
When there is a concurrence of several creditors or of several debtors
or of several creditors and debtors in one and the same obligation, it is
presumed that the obligation is joint and not solidary. [60]The most
fundamental effect of joint divisible obligations is that each creditor
can demand only for the payment of his proportionate share of the
credit, while each debtor can be held liable only for the payment of his
proportionate share of the debt. As a corollary to this rule, the credit or
debt shall be presumed, in the absence of any law or stipulation to the
contrary, to be divided into as many shares as there are creditors and
debtors, the credits or debts being considered distinct from one
another.[61] It necessarily follows that a joint creditor cannot act in
representation of the others. Neither can a joint debtor be compelled to
answer for the liability of the others.[62] The pertinent rules are
provided in Articles 1207[63] and 1208[64] of the Civil Code.
We agree with the petitioners contention that, under the fallo of the CA
decision in CA-G.R. CV No. 55049, respondent City was ordered to
pay P926,845.00 to the plaintiffs in Civil Case No. 3851:
IN VIEW OF THE FOREGOING, the decision
appealed from is hereby REVERSED and SET
ASIDE. Defendant City of Butuan is directed to
pay the plaintiffs the total sum of P926,845.00
in accordance with the above computation with
6% interest as of the date this decision attains
finality.
Costs against defendant-appellee.[65]
xxx
The Court adopts with approval the investigation
report of the City Legal Officer. As a consequence
of which, We find plaintiffs to be entitled to
damages as follows:
- The value of the timber piles defendants
refused to accept computed at
P1,485.00 per timber pile .. P148,500.00
- The value of 447 timber piles which
plaintiffs were ready and could
have delivered were it not for the
unilateral termination of the
contract P708,345.00
- Attorneys fees P 50,000.00
- Litigation expenses P 20,000.00
or a total of P926,845.00[66]
As gleaned from the complaint in Civil Case No. 3851, the
plaintiffs therein are petitioner Gil Cembrano and respondent
CVC; as such, the judgment creditors under the fallo of the CA
decision are petitioner Cembrano and respondent CVC. Each of them
is entitled to one-half (1/2) of the amount of P926,845.00
or P463,422.50 each.
In compliance with the decision of the CA in CA-G.R. CV 55409,
respondent City remitted the P926,845.00 to respondent CVC, and that
respondent Pag-Ong received the amount for and in behalf of CVC and
not in his personal capacity. Considering that respondent Pag-ong as
CVC president was authorized to receive the money, respondent Citys
payment discharged respondent City of its obligation under the
decision in CA-G.R. CV No. 55049. However, since petitioner
Cembrano did not receive any centavo out of the P926,845.00 remitted
to respondent CVC, the obligation to remit one-half of the amount,
or P463,422.50, to petitioner Cembrano was not extinguished.
The petitioners and the respondent City are correct in their
contention that the general rule is that the fallo or the dispositive
portion of the decision is the subject of execution. Where there is a
conflict between the dispositive portion and the opinion of the court
contained in the text or body of the decision, the former must prevail
over the latter on the theory that the dispositive portion is the final
order, while the opinion is merely a statement ordering nothing.[67] The
other parts of the decision may be resorted to in order to determine
the ratio decidendi of the dispositive portion of the decision.[68] Where
the inevitable conclusion from the body of the decision is so clear as
to show that there was a mistake in the dispositive portion, the body of
the decision will prevail.[69]
In this case, the fallo or dispositive portion of the CA decision in CA-
G.R. CV No. 55049 is plain and unambiguous in that respondent City
was ordered to pay to petitioner Cembrano and respondent CVC the
amount of P926,845.00 plus interest. In the body of its decision, the
CA declared that the plaintiffs are to be entitled to damages, as
follows:
The Court adopts with approval the investigation
report of the City Legal Officer. As a consequence
of which, We find plaintiffs to be entitled to
damages as follows:
- The value of the timber piles defendants
refused to accept computed at
P1,485.00 per timber pile .. P148,500.00
- The value of 447 timber piles which
record, petitioner Cembrano and respondent CVC were entitled to the
plaintiffs were ready and could
have delivered were it not for the amount of P926,845.00.
unilateral termination of the
contract P708,345.00 To reiterate, it is the dispositive part of the judgment that
- Attorneys fees P 50,000.00
actually settles and declares the rights and obligations of the parties,
- Litigation expenses P 20,000.00 finally, definitively, authoritatively, notwithstanding the existence of

or a total of P926,845.00[70] inconsistent statements in the body that may tend to confuse; it is the
dispositive part that controls, for purposes of execution.[72]

Respondent CVC did not file any motion for the

We note that under the decision of the appellate court, the value of 447
reconsideration of the CA decision in CA-G.R. CV No. 55049. Since
timber piles which the plaintiffs could have delivered to respondent
petitioner Cembrano had assigned his rights and interests under the
City was P708,345.00.
decision to petitioner Go, the latter received the amount

We agree with respondents contention that under the decision of the of P490,609.955 on the basis of the deed of assignment executed by

CA, the winning bidder for the sale and supply of timber piles/poles petitioner Cembrano. Petitioner Go cannot be compelled to return the

was respondent CVC, and that petitioner Cembrano was merely the same to respondent City.

CVC Marketing Supervisor who represented it during the bidding, and Since respondent CVC was entitled to only P490,605.955

that this was also alleged in the complaint before the RTC. The CA in under the CA decision in CA-G.R. CV No. 55049 but

CA-G.R. CV No. 55049 further declared that respondent CVC, not received P926,845.00, there was, in fine, an overpayment

petitioner Cembrano, secured the DBP loan to augment its capital. of P490,605.955 made by respondent City. Thus, respondent CVC is

Consequently, respondents argue, CVC being the contracting party and obliged to return the amount of P490,605.955 to respondent City.

petitioner Cembrano being a mere agent of CVC, the latter is entitled Since petitioner Cembrano had already assigned P490,609.955 to

to the value of the timber poles/piles subject to be supplied to petitioner Go, the latter likewise had the right to

respondent City contrary to the plain and unambiguous fallo of the receive the P490,609.955 from DBP. Petitioner Cembrano should thus

decision. However, if this contention of respondents had been correct, be made to return the amount of P490,609.955 he received from the

the CA should have dismissed the complaint insofar as petitioner DBP to respondent City.

Cembrano was concerned, on the premise that he had no cause of

action against respondent City. The CA did not do so, and instead
ordered respondent City to pay P926,845.00 to petitioner
Cembrano and respondent CVC. IN LIGHT OF ALL THE FOREGOING, the petition
is PARTIALLY GRANTED. The decision of the Court of Appeals
It bears stressing that there were two plaintiffs in Civil Case
is AFFIRMED with MODIFICATION. Petitioner Gil Cembrano
No. 3851. It appears in the complaint that petitioner Cembrano was a
is ORDERED to return to respondent City of Butuan the amount
party-plaintiff. He alleged that it was he who secured a loan from the
of P490,609.955, with 6% interest per annum to be computed from the
DBP of P150,000.00 and mortgaged the property of his uncle as
finality of this decision. Respondent CVC is ORDERED to return to
security therefor to partly finance the purchase of timber poles/piles to
respondent Butuan City the amount of P490,609.955, with 6% interest
the respondent City. The plaintiffs adduced in evidence the Promissory
per annum to be computed from the date of finality of this decision. No
Note executed by Cembrano and the Real Estate Mortgage he executed
costs.
in favor of the DBP.[71] The Purchase Order issued by the City was
delivered to respondent CVC orCembrano. Based on the disbursement
SO ORDERED.
voucher for the payment of the P24,640.00 paid
by the respondent City for the supply of poles/piles, it appears that the
payee is CVC or Cembrano. In the report of the City Legal Officer
which was approved by the Court of Appeals, it declared that the
contract of respondent City for the supply of timber poles/piles was
CVC or Cembrano. In fine, Cembrano was a party-plaintiff in his
personal capacity and not merely as Marketing Supervisor of
respondent CVC. The CA resolved that, based on the evidence on