Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-16370 October 31, 1961

JOSE S. GALVEZ, Deceased (Represented by his widow and

heir, GRACIA VDA. DE GALVEZ), petitioner,
vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY AND THE
COURT OF INDUSTRIAL RELATIONS, respondents.

Narciso E. Martin and Antonio N. Castro for petitioner.

Perkins, Ponce Enrile, Siguion Reyna, Montecillo and Belo for
respondent Company.
F.A. Sambajon for respondent Court of Industrial Relations.

CONCEPCION, J.:

Appeal by certiorari from an order of the Court of Industrial

Relations.

Petitioner herein, Gracia Vda. de Galvez, hereafter referred to

as Mrs. Galvez, is the widow of the late Jose S. Galvez, who
during his lifetime was an employee of respondent Philippine
Long Distance Telephone Company, hereafter referred to as
the Company. Mr. Galvez had worked therefor from
December 1, 1908 to December 31, 1941, when the operation
of the Company was disrupted by the Japanese invasion and
occupation of the Philippines. As of the date last mentioned
he had served the Company for thirty-three (33) years and one
(1) month. Upon the liberation of the Philippines, or on April
1, 1945, Mr. Galvez was reinstated and continued under the
employment of the Company for another five (5) years, ten
(10) months and six (6) days, or up to February 7, 1951, when
he died. Thus, his prewar and post-war services to the
Company aggregated thirty-eight (38) years, eleven (11)
months and six (6) days. Sometime in 1951, Mrs. Galvez
received from the Company P24,000, as pension and death
benefits due to the deceased under an Employees' Pension
Plan adopted by the Company on September 18, 1923.

Subsequently, or on December 22, 1951, Crispin Jeturian and

about sixty-three (63) other persons, who had served the
Company as its prewar employees, instituted in the Court of
Industrial Relations a proceeding for the collection of their
proportionate shares in said Employees' Pension Plan, which
had been discontinued by a resolution dated November 6,
1945, unilaterally taken by the Board of Directors of the
Company, to be effective retroactively as of January 1, 1942.
In due course, a decision was, on February 23, 1954, rendered
in said proceeding, docketed as Case No. 639-V of the Court of
Industrial Relations, directing payment to the petitioners
therein of their respective proportionate shares in the
aforementioned Employees' Pension Plan, as well as to
those who had not received their 30-day notice of dismissal
from the service of the Company before the resumption of its
business operations in 1946 a severance pay equivalent to
one month salary. With a slight modification, immaterial to
the case at bar, said decision was affirmed by the Supreme
Court in Philippine Long Distance Telephone Co. vs. Jeturian,
et al., G.R. No. L-7756, decided on June 20, 1955.

Later on, the Court of Industrial Relations ordered its chief

examiner to liquidate said prewar pension plan. By an order
dated May 12, 1956, the report thereon of said chief examiner
was approved by the Court of Industrial Relations. The report
specified the names of all prewar employees entitled to
participate in the distribution of the Employees' Pension fund
and the amount each was entitled to. It included the name of
several persons not petitioners in the case, whose aggregate
share was said to be P23,381.96. Among these persons was
Jose S. Galvez whose share, forming part of the sum last
mentioned, amounted to P13,028.64. Thereafter, said non-
petitioners, including Mrs. Galvez, on behalf of her deceased
spouse, asked the Court of Industrial Relations to order the
payment of their aforementioned shares, according to the
examiner's report. Despite the opposition of the Company,
predicated upon the theory that these claimants were not
parties to the proceeding and could not invoke, therefore, the
benefits of the aforementioned decisions (of the Court of
Industrial Relations, of February 23, 1954, and of the Supreme
Court, promulgated on June 20, 1955), the Court of Industrial
Relations issued an order, dated January 8, 1959, granting said
request and directing the Company to deposit with the cashier
of said Court, within a specified time, the aforementioned sum
of P23,381.96, exclusive of service fee. On motion for
reconsideration filed by the company, said order was affirmed
by the Court of Industrial Relations, sitting en banc, in a
resolution dated February 14, 1959. Thereupon, or on or
about February 28, 1959, the Company filed with this Court a
petition, docketed as G.R. No. L-15120, for review by certiorari
of said order and the aforementioned resolution of the Court
of Industrial Relations, dated January 8, and February 14,
1959, respectively, but the petition was dismissed by
resolution of this Court of March 17, 1959, for lack of merit.

Presently, or on April 14, 1959, the Company filed with the

Court of Industrial Relations a petition praying that it be no
longer required to deposit the aforementioned share of Jose
S. Galvez in the amount of P13,028.64, because Mrs. Galvez
had already been paid P24,000, as above stated, inasmuch as,
at the time of his death, Mr. Galvez was receiving a monthly
compensation of P2,000 and, under the rules governing the
Employees' Pension Plan, he would have received only the
salary for six (6) months, or P12,000, for his post liberation
services, which were over five (5) years but less than ten (10)
years, but was given the benefit of a provision prescribing a
12-month pay for those who had served ten (10) years or over,
in view of his prewar services. By an order dated September 8,
1959, the Court of Industrial Relations held that amounts
collectible by Jose S. Galvez under said pension plan for his
prewar and post-liberation services were P13,028.64 and
P12,000, respectively, or the aggregate sum of P25,028.64,
and that since Mrs. Galvez had already received P24,000, the
sum now due her is only P1,028.64, which the Company was
ordered to deposit in court.

A reconsideration having been denied by the Court of

Industrial Relations sitting en banc, Mrs. Galvez now seeks a
review by certiorari of said order of September 8, 1959, upon
the ground that it had in effect amended unlawfully the
aforementioned order of January 8, 1959, which was already
final and executory. By way of justification for the action
complained of, lower court stated in its order of September 8,
1959.

The order of this Court dated May 12, 1956, approving the
Report of Examiner in which the equities of all employees of
the respondent company were determined in accordance with
the decision of this Court in Case No. 639-V, Crispin Jeturian,
et al. vs. Philippine Long Distance Telephone Co., as modified
by the Supreme Court in G.R. No. L-7756, Philippine Long
Distance Telephone Company vs. Crispin Jeturian, et al.,
recognizes the equity in favor of Jose S. Galvez in the pre-war
pension plan, although his name was not specifically
mentioned as one of the petitioners in said Case No. 639-V,
being one of the employees of said company. The order of this
Court of July 8, 1959 in the instant incidental case implements
said Report of Examiner, thus giving effectivity to the award in
favor of Jose S. Galvez, We believe that this Court may in its
sound discretion, after discovering through hearings as was
done in this case a certain error which might do injustice to
the aggrieved party if not corrected, alter or modify its order
to accord substantial justice to the party concerned during the
effectivity of an award, order or decision.

The lower court was thus aware of the fact that it was thereby
altering or modifying its order of January 8, 1959. Regardless
of the excellence of the motive for acting as it did, we are
constrained to hold, however, that the lower court had no
authority to make said alteration or modification. The order of
January 8, 1959, awarding P13,028.64 to Jose S. Galvez, was
affirmed by the Court of Industrial Relations sitting en banc,
and an appeal by certiorari from said order and from the
confirmatory resolution of said Court en banc was dismissed
by this Court, for lack of merit. As a consequence, said order
of January 8, 1959 and the award of P13,028.64 in favor of Jose
S. Galvez become executory and are no longer subject to
alteration or modification (Rattan Art & Decorations, Inc. vs.
Rattan Art & Decorations [Daily Workers] Union, G.R. No. L-
6466, May 28, 1954; Pepsi-Cola Bottling Co. of the P.I. vs.
Philippine Labor Organization, G.R. No. L-3506, January 31,
1951).

The equitable considerations that led the lower court to take

the action complained of cannot offset the demands of public
policy and public interest which are also responsive to the
tenets of equity requiring that all issues passed upon in
decisions or final orders that have become executory, be
deemed conclusively disposed of and definitely closed, for,
otherwise, there would be no end to litigations, thus setting at
naught the main role of courts of justice, which is to assist in
the enforcement of the rule of law and the maintenance of
peace and order, by settling justiciable controversies with
finality.

WHEREFORE, the order appealed from is hereby set aside and

another one shall be entered directing that, within thirty (30)
days from entry of judgment in this case, the sum of
P13,028.64 exclusive of service fee, be deposited by
respondent Philippine Long Distance Telephone Co. with the
Court of Industrial Relations for the benefit of the heirs of Jose
S. Galvez with costs against said respondent. It is so ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Reyes, J.B.L.,
Paredes, Dizon and De Leon, JJ., concur.
Barrera, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16109 October 2, 1922

M. D. TAYLOR, plaintiff-appellant,
vs.
UY TIENG PIAO and TAN LIUAN, doing business under the firm
name and style of Tan Liuan & Company, defendants.
Uy TIENG PIAO, defendant-appellant.

Cohn, Fisher and DeWitt and William C. Brady for plaintiff-

appellant.
Gabriel La O for defendant-appellant Uy Tieng Piao.
Crossfield and O'Brien for Tan Liuan and Tan Liyan and Co.

STREET, J.:

This case comes by appeal from the Court of First Instance of

the city of Manila, in a case where the court awarded to the
plaintiff the sum of P300, as damages for breach of contract.
The plaintiff appeals on the ground that the amount of
damages awarded is inadequate; while the defendant Uy
Tieng Piao appeals on the ground that he is not liable at all.
The judgment having been heretofore affirmed by us in a brief
opinion, we now avail ourselves of the occasion of the filing of
a motion to rehear by the attorneys for the plaintiff to modify
the judgment in a slight measure and to state more fully the
reasons underlying our decision.

It appears that on December 12, 1918, the plaintiff contracted

his services to Tan Liuan and Co., as superintendent of an oil
factory which the latter contemplated establishing in this city.
The period of the contract extended over two years from the
date mentioned; and the salary was to be at the rate of P600
per month during the first year and P700 per month during the
second, with electric light and water for domestic
consumption, and a residence to live in, or in lieu thereof P60
per month.

At the time this agreement was made the machinery for the
contemplated factory had not been acquired, though ten
expellers had been ordered from the United States; and
among the stipulations inserted in the contract with the
plaintiff was a provision to the following effect:

It is understood and agreed that should the machinery to be

installed in the said factory fail, for any reason, to arrive in the
city of Manila within a period of six months from date hereof,
this contract may be cancelled by the party of the second part
at its option, such cancellation, however, not to occur before
the expiration of such six months.

The machinery above referred to did not arrive in the city of

Manila within the six months succeeding the making of the
contract; nor was other equipment necessary for the
establishment of the factory at any time provided by the
defendants. The reason for this does not appear with
certainty, but a preponderance of the evidence is to the effect
that the defendants, in the first months of 1919, seeing that
the oil business no longer promised large returns, either
cancelled the order for the machinery from choice or were
unable to supply the capital necessary to finance the project.
At any rate on June 28, 1919, availing themselves in part of the
option given in the clause above quoted, the defendants
communicated in writing to the plaintiff the fact that they had
decided to rescind the contract, effective June 30th then
current, upon which date he was discharged. The plaintiff
thereupon instituted this action to recover damages in the
amount of P13,000, covering salary and perquisites due and to
become due under the contract.

The case for the plaintiff proceeds on the idea that the
stipulation above quoted, giving to the defendants the right to
cancel the contract upon the contingency of the nonarrival of
the machinery in Manila within six months, must be
understood as applicable only in those cases where such
nonarrival is due to causes not having their origin in the will or
act of the defendants, as delays caused by strikes or
unfavorable conditions of transporting by land or sea; and it is
urged that the right to cancel cannot be admitted unless the
defendants affirmatively show that the failure of the
machinery to arrive was due to causes of that character, and
that it did not have its origin in their own act or volition. In this
connection the plaintiff relies on article 1256 of the Civil Code,
which is to the effect that the validity and fulfillment of
contracts cannot be left to the will of one of the contracting
parties, and to article 1119, which says that a condition shall
be deemed fulfilled if the obligor intentially impedes its
fulfillment.

It will be noted that the language conferring the right of

cancellation upon the defendants is broad enough to cover
any case of the nonarrival of the machinery, due to whatever
cause; and the stress in the expression "for any reason" should
evidently fall upon the word "any." It must follow of necessity
that the defendants had the right to cancel the contract in the
contingency that occurred, unless some clear and sufficient
reason can be adduced for limiting the operation of the words
conferring the right of cancellation. Upon this point it is our
opinion that the language used in the stipulation should be
given effect in its ordinary sense, without technicality or
circumvention; and in this sense it is believed that the parties
to the contract must have understood it.

Article 1256 of the Civil Code in our opinion creates no

impediment to the insertion in a contract for personal service
of a resolutory condition permitting the cancellation of the
contract by one of the parties. Such a stipulation, as can be
readily seen, does not make either the validity or the
fulfillment of the contract dependent upon the will of the
party to whom is conceded the privilege of cancellation; for
where the contracting parties have agreed that such option
shall exist, the exercise of the option is as much in the
fulfillment of the contract as any other act which may have
been the subject of agreement. Indeed, the cancellation of a
contract in accordance with conditions agreed upon
beforehands is fulfillment.
In this connection, we note that the commentator Manresa
has the following observation with respect to article 1256 of
the Civil Code. Says he: "It is entirely licit to leave fulfillment to
the will of either of the parties in the negative form of
rescission, a case frequent in certain contracts (the letting of
service for hire, the supplying of electrical energy, etc.), for in
such supposed case neither is the article infringed, nor is there
any lack of equality between the persons contracting, since
they remain with the same faculties in respect to fulfillment."
(Manresa, 2d ed., vol. 8, p. 610.) 1awph!l.net

Undoubtedly one of the consequences of this stipulation was

that the employers were left in a position where they could
dominate the contingency, and the result was about the same
as if they had been given an unqualified option to dispense
with the services of the plaintiff at the end of six months. But
this circumstance does not make the stipulation illegal.

The case of Hall vs. Hardaker (61 Fla., 267) cited by the
appellant Taylor, though superficially somewhat analogous, is
not precisely in point. In that case one Hardaker had
contracted to render competent and efficient service as
manager of a corporation, to which position it was understood
he was to be appointed. In the same contract it was stipulated
that if "for any reason" Hardaker should not be given that
position, or if he should not be permitted to act in that
capacity for a stated period, certain things would be done by
Hall. Upon being installed in the position aforesaid, Hardaker
failed to render efficient service and was discharged. It was
held that Hall was released from the obligation to do the
things that he had agreed to perform. Some of the judges
appear to have thought that the case turned on the meaning
of the phrase "for any reason," and the familiar maxim was
cited that no man shall take advantage of his own wrong. The
result of the case must have been the same from whatever
point of view, as there was an admitted failure on the part of
Hardaker to render competent service. In the present case
there was no breach of contract by the defendants; and the
argument to the contrary apparently suffers from the logical
defect of assuming the very point at issue.

But it will be said that the question is not so much one

concerning the legality of the clause referred to as one
concerning the interpretation of the resolutory clause as
written, the idea being that the court should adjust its
interpretation of said clause to the supposed precepts of
article 1256, by restricting its operation exclusively to cases
where the nonarrival of the machinery may be due to
extraneous causes not referable to the will or act of the
defendants. But even when the question is viewed in this
aspect their result is the same, because the argument for the
restrictive interpretation evidently proceeds on the
assumption that the clause in question is illegal in so far as it
purports to concede to the defendants the broad right to
cancel the contract upon nonarrival of the machinery due to
any cause; and the debate returns again to the point whether
in a contract for the prestation of service it is lawful for the
parties to insert a provision giving to the employer the power
to cancel the contract in a contingency which may be
dominated by himself. Upon this point what has already been
said must suffice.
As we view the case, there is nothing in article 1256 which
makes it necessary for us to warp the language used by the
parties from its natural meaning and thereby in legal effect to
restrict the words "for any reason," as used in the contract, to
mean "for any reason not having its origin in the will or acts of
the defendants." To impose this interpretation upon those
words would in our opinion constitute an unjustifiable
invasion of the power of the parties to establish the terms
which they deem advisable, a right which is expressed in
article 1255 of the Civil Code and constitutes one of the most
fundamental conceptions of contract right enshrined in the
Code.

The view already expressed with regard to the legality and

interpretation of the clause under consideration disposes in a
great measure of the argument of the appellant in so far as the
same is based on article 1119 of the Civil Code. This provision
supposes a case where the obligor intentionally impedes the
fulfillment of a condition which would entitle the obligee to
exact performance from the obligor; and an assumption
underlying the provision is that the obligor prevents the
obligee from performing some act which the obligee is entitled
to perform as a condition precedent to the exaction of what is
due to him. Such an act must be considered unwarranted and
unlawful, involving per se a breach of the implied terms of the
contract. The article can have no application to an external
contingency which, like that involved in this case, is lawfully
within the control of the obligor.

In Spanish jurisprudence a condition like that here under

discussion is designated by Manresa a facultative condition
(vol. 8, p. 611), and we gather from his comment on articles
1115 and 1119 of the Civil Code that a condition, facultative as
to the debtor, is obnoxious to the first sentence contained in
article 1115 and renders the whole obligation void (vol. 8, p.
131). That statement is no doubt correct in the sense intended
by the learned author, but it must be remembered that he
evidently has in mind the suspensive condition, such as is
contemplated in article 1115. Said article can have no
application to the resolutory condition, the validity of which is
recognized in article 1113 of the Civil Code. In other words, a
condition at once facultative and resolutory may be valid even
though the condition is made to depend upon the will of the
obligor.

If it were apparent, or could be demonstrated, that the

defendants were under a positive obligation to cause the
machinery to arrive in Manila, they would of course be liable,
in the absence of affirmative proof showing that the nonarrival
of the machinery was due to some cause not having its origin
in their own act or will. The contract, however, expresses no
such positive obligation, and its existence cannot be implied in
the fact of stipulation, defining the conditions under which the
defendants can cancel the contract.

Our conclusion is that the Court of First Instance committed

no error in rejecting the plaintiff's claim in so far as damages
are sought for the period subsequent to the expiration of the
first six months, but in assessing the damages due for the six-
month period, the trial judge evidently overlooked the item of
P60, specified in the plaintiff's fourth assignment of error,
which represents commutation of house rent for the month of
June, 1919. This amount the plaintiff is clearly entitled to
recover, in addition to the P300 awarded in the court below.

We note that Uy Tieng Piao, who is sued as a partner with Tan

Liuan, appealed from the judgment holding him liable as a
member of the firm of Tan Liuan and Co.; and it is insisted in
his behalf that he was not bound by the act of Tan Liuan as
manager of Tan Liuan and Co. in employing the plaintiff. Upon
this we will merely say that the conclusion stated by the trial
court in the next to the last paragraph of the decision with
respect to the liability of this appellant in our opinion in
conformity with the law and facts.

The judgment appealed from will be modified by declaring

that the defendants shall pay to the plaintiff the sum of P360,
instead of P300, as allowed by the lower court, and as thus
modified the judgment will be affirmed with interest from
November 4, 1919, as provided in section 510 of the Code of
Civil Procedure, and with costs. So ordered.

Araullo, C.J., Johnson, Malcolm, Avancea, Villamor, Ostrand,

Johns and Romualdez, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-55744 February 28, 1985

JOSE V. HERRERA, petitioner

vs.
L.P. LEVISTE & CO., INC., JOSE T. MARCELO, GOVERNMENT
SERVICE IN- INSURANCE SYSTEM, PROVINCIAL SHERIFF OF
RIZAL, REGISTER OF DEEDS OF RIZAL and THE HON. COURT OF
APPEALS, respondents.

Amador Santiago, Jr. for respondent L.P. Leviste & Co., Inc.

Benjamin Aquino for respondent J.T. Marcelo, Jr.

RESOLUTION

MELENCIO-HERRERA, J.:

Before the Court is petitioner's Motion, dated July 3, 1981, for

the reconsideration of the Resolution of this Court, dated April
1, 1981, denying due course to this Petition for Review on
certiorari for lack of merit.
The Motion for Reconsideration was set for oral argument on
June 13, 1984, after which, the Court required the parties to
submit simultaneously concise memoranda in amplification of
their oral arguments. All parties have complied with the
Court's directive.

Briefly, the antecedent facts may be summarized as follows:

On June 10, 1969, L.P. Leviste & Co. (Leviste, for short) had
obtained a loan from the Government Service Insurance
System (GSIS) in the amount of P1,854,311.50. As security
therefore, Leviste mortgaged two (2) lots, one located at
Paraaque (the Paraaque Property), and the other located at
Buendia Avenue, Makati, with an area of approximately 2,775
square meters, together with the 3-story building thereon (the
Buendia Property).

On November 3, 1971, Leviste sold to Petitioner, Jose V.

Herrera, the Buendia Property for the amount of
P3,750,000.00. The conditions were that petitioner would: (1)
pay Leviste P11,895,688.50; (2) assume Leviste's indebtedness
of P1854,311.50 to the GSIS; and (3) substitute the Paranaque
property with his own within a period of six (6) months.

For his part, Leviste undertook to arrange for the conformity

of the GSIS to petitioner's assumption of the obligation.

It was further stipulated in the Contract to Sell that "failure to

comply with any of the conditions contained therein,
particularly the payment of the scheduled amortizations on
the dates herein specified shall render this contract
automatically cancelled and any and all payments made shall
be forfeited in favor of the vendor and deemed as rental
and/or liquidated damages."

Petitioner took possession of the Buendia property, received

rentals of P21,000.00 monthly, and collected approximately
P800,000.00 from December, 1971, up to March, 1975.

However, petitioner remitted a total of only P300,000.00 to

the GSIS.

On April 15, 1973, petitioner requested the GSIS for the

restructuring of the mortgage obligation because of his own
arrearages in the payment of the amortizations. GSIS replied
that as a matter of policy, it could not act on his request unless
he first made proper substitution of property, updated the
account, and paid 20% thereof to the GSIS. There was no
requirement by the GSIS for the execution of a final deed of
sale by Leviste in favor of petitioner.

On June 2, 1974, GSIS sent notice to Leviste of its intention to

foreclose the mortgaged properties by reason of default in the
payment of amortizations. An application for foreclosure was
thereafter filed by the GSIS with the Provincial Sheriff of Rizal,
and on February 15, 1975, the foreclosed properties were sold
at public auction and a Certificate of Sale in favor of the GSIS,
as the highest bidder, was issued.

On March 3, 1975, Leviste assigned its right to redeem both

foreclosed properties to respondent Jose Marcelo, Jr.
(Marcelo for brevity). Later, on November 20, 1975, Marcelo
redeemed the properties from the GSIS by paying it the sum
of P3,232,766.94 for which he was issued a certificate of
redemption. The Paranaque property was turned over by
Marcelo to Leviste upon payment by the latter of
approximately P250,000.00 as disclosed at the hearing. Leviste
needed the Paraque Property as it had sold the same and suit
had been filed against it for its recovery.

On May 6, 1975, petitioner wrote the GSIS (Exhibit "V")

informing the latter of his right to redeem the foreclosed
properties and asking that he be allowed to do so in
installments. Apparently, the GSIS had not favorably acted
thereon.

On May 13, 1975, petitioner instituted suit against Leviste

before the Court of First Instance of Rizal for "Injunction,
Damages, and Cancellation of Annotation."

On December 20, 1977, the Trial Court rendered its Decision

discussing petitioner's Complaint for lack of basis in fact and in
law, and ordering an payments made by petitioner to Leviste
forfeited in favor of the latter pursuant to their contract
providing for automatic forfeiture "in the event of failure to
comply with any of the conditions contained therein,
particularly the payment of the scheduled amortizations."

On appeal, the Appellate Court affirmed the judgment in toto,

stating in part:

It is to be noted that appellee L. P. Leviste and Co., Inc. was not

in a financial position to redeem the foreclosed property and
there was no assurance that appellant would redeem the
property within the period. In this situation, appellee has no
other alternative, but to assign the right of redemption to a
person willing and capable to assume the same, if only to
protect his interest in the said property. Likewise, when the
equity to redeem was assigned, appellant could have
preserved and protected whatever right he may have to the
property by tendering the redemption price to Marcelo. He
had up to February 24, 1976, to do so, but he did not. The
record established further that appellant did not redeem the
property. ... 1

Reconsideration sought by petitioner was met with denial by

respondent Appellate Court. Hence, the instant Petition
seeking review by certiorari before this instance.

As hereinbefore stated, we denied the Petition for lack of

merit.

Petitioner seeks reconsideration essentially on the contention

that affirmance of the Appellate Court's Decision would result
in patent injustice as he would not only forfeit the Buendia
Property to Marcelo, but would also lose the amount of
P1,895,688.50 and P300,000.00, which he paid to Leviste and
the GSIS, respectively; that it would result in the unjust
enrichment of Leviste; and that Leviste as well the GSIS and
Marcelo would be benefiting at petitioner's expense.

Considering the grounds of petitioner's Motion for

Reconsideration, the arguments adduced during the oral
argument and in the parties' respective Memoranda, we
resolve to deny reconsideration upon the following
considerations:

1. (a) The GSIS has not benefited in any way at the expense
of petitioner. What it received, by way of redemption from
respondent Marcelo, was the mortgage loan it had extended
plus interest and sundry charges.

(b) Neither has Marcelo benefited at the expense of

petitioner. Said respondent had paid to GSIS the amount P
3,232,766.94, which is not far below the sum of P
3,750,000.00, which was the consideration petitioner would
have paid to Leviste had his contract been consummated.

(c) Leviste had neither profited at the expense of petitioner,

For Losing his Buendia Property, all he had received was P
1,854,311.50 from GSIS less amounts he had paid, plus P
1,895,688.00 paid to him by petitioner, the total of which is
substantially a reasonable value of the Buendia Property.

2. It is quite true that petitioner had lost the P 1,895,688.00

he had paid to Leviste, plus P 300,000.00 he had paid to GSIS,
less the rentals he had received when in possession of the
Buendia Property. That loss is attributable to his fault in:

(a) Not having been able to submit collateral to GSIS in

substitution of the Paranaque Property;

(b) Not paying off the mortgage debt when GSIS decided to
foreclose; and
(c) Not making an earnest effort to redeem the property as
a possible redemptioner.

3. It cannot be validly said that petitioner had fully complied

with all the conditions of his contract with Leviste. For one
thing, he was not able to substitute the Paraaque Property
with another collateral for the GSIS loan. Moreover, as stated
by the Court of Appeals, "nowhere in the letter (of the GSIS)
was mentioned that a final deed of sale must first be executed
and presented before the assumption may be considered. For
if it was really the intention of GSIS, the requirement of Deed
of Sale should have been stated in its letter."

ACCORDINGLY, petitioner's Motion for Reconsideration is

hereby denied.
search

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 23769 September 16, 1925

SONG FO & COMPANY, plaintiff-appellee,

vs.
HAWAIIAN PHILIPPINE CO., defendant-appellant.

Hilado and Hilado, Ross, Lawrence and Selph and Antonio T.

Carrascoso, Jr., for appellant.
Arroyo, Gurrea and Muller for appellee.

MALCOLM, J.:

In the court of First Instance of Iloilo, Song Fo & Company,

plaintiff, presented a complaint with two causes of action for
breach of contract against the Hawaiian-Philippine Co.,
defendant, in which judgment was asked for P70,369.50, with
legal interest, and costs. In an amended answer and cross-
complaint, the defendant set up the special defense that since
the plaintiff had defaulted in the payment for the molasses
delivered to it by the defendant under the contract between
the parties, the latter was compelled to cancel and rescind the
said contract. The case was submitted for decision on a
stipulation of facts and the exhibits therein mentioned. The
judgment of the trial court condemned the defendant to pay
to the plaintiff a total of P35,317.93, with legal interest from
the date of the presentation of the complaint, and with costs.

From the judgment of the Court of First Instance the

defendant only has appealed. In this court it has made the
following assignment of errors: "I. The lower court erred in
finding that appellant had agreed to sell to the appellee
400,000, and not only 300,000, gallons of molasses. II. The
lower court erred in finding that the appellant rescinded
without sufficient cause the contract for the sale of molasses
executed by it and the appellee. III. The lower court erred in
rendering judgment in favor of the appellee and not in favor
of the appellant in accordance with the prayer of its answer
and cross-complaint. IV. The lower court erred in denying
appellant's motion for a new trial." The specified errors raise
three questions which we will consider in the order suggested
by the appellant.

1. Did the defendant agree to sell to the plaintiff 400,000

gallons of molasses or 300,000 gallons of molasses? The trial
court found the former amount to be correct. The appellant
contends that the smaller amount was the basis of the
agreement.

The contract of the parties is in writing. It is found principally

in the documents, Exhibits F and G. The First mentioned
exhibit is a letter addressed by the administrator of the
Hawaiian-Philippine Co. to Song Fo & Company on December
13, 1922. It reads:
SILAY, OCC. NEGROS, P.I.
December 13, 1922

Messrs. SONG FO AND CO.

Iloilo, Iloilo.

DEAR SIRS: Confirming our conversation we had today with

your Mr. Song Fo, who visited this Central, we wish to state as
follows:

He agreed to the delivery of 300,000 gallons of molasses at the

same price as last year under the same condition, and the
same to start after the completion of our grinding season. He
requested if possible to let you have molasses during January,
February and March or in other words, while we are grinding,
and we agreed with him that we would to the best of our
ability, altho we are somewhat handicapped. But we believe
we can let you have 25,000 gallons during each of the milling
months, altho it interfere with the shipping of our own and
planters sugars to Iloilo. Mr. Song Fo also asked if we could
supply him with another 100,000 gallons of molasses, and we
stated we believe that this is possible and will do our best to
let you have these extra 100,000 gallons during the next year
the same to be taken by you before November 1st, 1923, along
with the 300,000, making 400,000 gallons in all.

Regarding the payment for our molasses, Mr. Song Fo gave us

to understand that you would pay us at the end of each month
for molasses delivered to you.
Hoping that this is satisfactory and awaiting your answer
regarding this matter, we remain.

Yours very truly,

HAWAIIAN-PHILIPPINE COMPANY
BY R. C. PITCAIRN
Administrator.

Exhibit G is the answer of the manager of Song Fo & Company

to the Hawaiian-Philippine Co. on December 16, 1922. This
letter reads:

December 16th, 1922.

Messrs. HAWAIIAN-PHILIPPINE CO.,

Silay, Neg. Occ., P.I.

DEAR SIRS: We are in receipt of your favours dated the 9th and
the 13th inst. and understood all their contents.

In connection to yours of the 13th inst. we regret to hear that

you mentioned Mr. Song Fo the one who visited your Central,
but it was not for he was Mr. Song Heng, the representative
and the manager of Messrs. Song Fo & Co.

With reference to the contents of your letter dated the 13th

inst. we confirm all the arrangements you have stated and in
order to make the contract clear, we hereby quote below our
old contract as amended, as per our new arrangements.
(a) Price, at 2 cents per gallon delivered at the central.

(b) All handling charges and expenses at the central and at

the dock at Mambaguid for our account.

(c) For services of one locomotive and flat cars necessary for
our six tanks at the rate of P48 for the round trip dock to
central and central to dock. This service to be restricted to one
trip for the six tanks.

Yours very truly,

SONG FO & COMPANY

By __________________________
Manager.

We agree with appellant that the above quoted

correspondence is susceptible of but one interpretation. The
Hawaiian-Philippine Co. agreed to deliver to Song Fo &
Company 300,000 gallons of molasses. The Hawaiian-
Philippine Co. also believed it possible to accommodate Song
Fo & Company by supplying the latter company with an extra
100,000 gallons. But the language used with reference to the
additional 100,000 gallons was not a definite promise. Still less
did it constitute an obligation.

If Exhibit T relied upon by the trial court shows anything, it is

simply that the defendant did not consider itself obliged to
deliver to the plaintiff molasses in any amount. On the other
hand, Exhibit A, a letter written by the manager of Song Fo &
Company on October 17, 1922, expressly mentions an
understanding between the parties of a contract for P300,000
gallons of molasses.

We sustain appellant's point of view on the first question and

rule that the contract between the parties provided for the
delivery by the Hawaiian-Philippine Co. to song Fo & Company
of 300,000 gallons of molasses.

2. Had the Hawaiian-Philippine Co. the right to rescind the

contract of sale made with Song Fo & Company? The trial
judge answers No, the appellant Yes.

Turning to Exhibit F, we note this sentence: "Regarding the

payment for our molasses, Mr. Song Fo (Mr. Song Heng) gave
us to understand that you would pay us at the end of each
month for molasses delivered to you." In Exhibit G, we find
Song Fo & Company stating that they understand the contents
of Exhibit F, and that they confirm all the arrangements you
have stated, and in order to make the contract clear, we
hereby quote below our old contract as amended, as per our
new arrangements. (a) Price, at 2 cents per gallon delivered at
the central." In connection with the portion of the contract
having reference to the payment for the molasses, the parties
have agree on a table showing the date of delivery of the
molasses, the amount and date thereof, the date of receipt of
account by plaintiff, and date of payment. The table
mentioned is as follows:

Date of delivery

Account and date thereof

Date of receipt of account by plaintiff

Date of payment

1922

1923

1923

Dec. 18

P206.16

Dec. 26/22

Jan. 5

Feb. 20

Dec. 29

206.16

Jan. 3/23

do

Do
1923

Jan. 5

206.16

Jan. 9/23

Mar. 7 or 8

Mar. 31

Feb. 12

206.16

Mar. 12/23

do

Do

Feb. 27

206.16

do

do

Do
Mar. 5

206.16

do

do

Do

Mar. 16

206.16

Mar. 20/23

Apr. 2/23

Apr. 19

Mar. 24

206.16

Mar. 31/23

do

Do
Mar. 29

206.16

do

do

Do

Some doubt has risen as to when Song Fo & Company was

expected to make payments for the molasses delivered.
Exhibit F speaks of payments "at the end of each month."
Exhibit G is silent on the point. Exhibit M, a letter of March 28,
1923, from Warner, Barnes & Co., Ltd., the agent of the
Hawaiian-Philippine Co. to Song Fo & Company, mentions
"payment on presentation of bills for each delivery." Exhibit O,
another letter from Warner, Barnes & Co., Ltd. to Song Fo &
Company dated April 2, 1923, is of a similar tenor. Exhibit P, a
communication sent direct by the Hawaiian-Philippine Co. to
Song Fo & Company on April 2, 1923, by which the Hawaiian-
Philippine Co. gave notice of the termination of the contract,
gave as the reason for the rescission, the breach by Song Fo &
Company of this condition: "You will recall that under the
arrangements made for taking our molasses, you were to
meet our accounts upon presentation and at each delivery."
Not far removed from this statement, is the allegation of
plaintiff in its complaint that "plaintiff agreed to pay
defendant, at the end of each month upon presentation
accounts."
Resolving such ambiguity as exists and having in mind ordinary
business practice, a reasonable deduction is that Song Fo &
Company was to pay the Hawaiian-Philippine Co. upon
presentation of accounts at the end of each month. Under this
hypothesis, Song Fo & Company should have paid for the
molasses delivered in December, 1922, and for which
accounts were received by it on January 5, 1923, not later than
January 31 of that year. Instead, payment was not made until
February 20, 1923. All the rest of the molasses was paid for
either on time or ahead of time.

The terms of payment fixed by the parties are controlling. The

time of payment stipulated for in the contract should be
treated as of the essence of the contract. Theoretically,
agreeable to certain conditions which could easily be
imagined, the Hawaiian-Philippine Co. would have had the
right to rescind the contract because of the breach of Song Fo
& Company. But actually, there is here present no outstanding
fact which would legally sanction the rescission of the contract
by the Hawaiian-Philippine Co.

The general rule is that rescission will not be permitted for a

slight or casual breach of the contract, but only for such
breaches as are so substantial and fundamental as to defeat
the object of the parties in making the agreement. A delay in
payment for a small quantity of molasses for some twenty
days is not such a violation of an essential condition of the
contract was warrants rescission for non-performance. Not
only this, but the Hawaiian-Philippine Co. waived this
condition when it arose by accepting payment of the overdue
accounts and continuing with the contract. Thereafter, Song
Fo & Company was not in default in payment so that the
Hawaiian-Philippine co. had in reality no excuse for writing its
letter of April 2, 1923, cancelling the contract. (Warner, Barnes
& Co. vs. Inza [1922], 43 Phil., 505.)

We rule that the appellant had no legal right to rescind the

contract of sale because of the failure of Song Fo & Company
to pay for the molasses within the time agreed upon by the
parties. We sustain the finding of the trial judge in this respect.

3. On the basis first, of a contract for 300,000 gallons of

molasses, and second, of a contract imprudently breached by
the Hawaiian-Philippine Co., what is the measure of damages?
We again turn to the facts as agreed upon by the parties.

The first cause of action of the plaintiff is based on the greater

expense to which it was put in being compelled to secure
molasses from other sources. Three hundred thousand gallons
of molasses was the total of the agreement, as we have seen.
As conceded by the plaintiff, 55,006 gallons of molasses were
delivered by the defendant to the plaintiff before the breach.
This leaves 244,994 gallons of molasses undelivered which the
plaintiff had to purchase in the open market. As expressly
conceded by the plaintiff at page 25 of its brief, 100,000
gallons of molasses were secured from the Central North
Negros Sugar Co., Inc., at two centavos a gallon. As this is the
same price specified in the contract between the plaintiff and
the defendant, the plaintiff accordingly suffered no material
loss in having to make this purchase. So 244,994 gallons minus
the 100,000 gallons just mentioned leaves as a result 144,994
gallons. As to this amount, the plaintiff admits that it could
have secured it and more from the Central Victorias Milling
Company, at three and one-half centavos per gallon. In other
words, the plaintiff had to pay the Central Victorias Milling
company one and one-half centavos a gallon more for the
molasses than it would have had to pay the Hawaiian-
Philippine Co. Translated into pesos and centavos, this meant
a loss to the plaintiff of approximately P2,174.91. As the
conditions existing at the central of the Hawaiian-Philippine
Co. may have been different than those found at the Central
North Negros Sugar Co., Inc., and the Central Victorias Milling
Company, and as not alone through the delay but through
expenses of transportation and incidental expenses, the
plaintiff may have been put to greater cost in making the
purchase of the molasses in the open market, we would
concede under the first cause of action in round figures
P3,000.

The second cause of action relates to lost profits on account

of the breach of the contract. The only evidence in the record
on this question is the stipulation of counsel to the effect that
had Mr. Song Heng, the manager of Song Fo & Company, been
called as a witness, he would have testified that the plaintiff
would have realized a profit of P14,948.43, if the contract of
December 13, 1922, had been fulfilled by the defendant.
Indisputably, this statement falls far short of presenting proof
on which to make a finding as to damages.

In the first place, the testimony which Mr. Song Heng would
have given undoubtedly would follow the same line of thought
as found in the decision of the trial court, which we have found
to be unsustainable. In the second place, had Mr. Song Heng
taken the witness-stand and made the statement attributed
to him, it would have been insufficient proof of the allegations
of the complaint, and the fact that it is a part of the stipulation
by counsel does not change this result. And lastly, the
testimony of the witness Song Heng, it we may dignify it as
such, is a mere conclusion, not a proven fact. As to what items
up the more than P14,000 of alleged lost profits, whether loss
of sales or loss of customers, or what not, we have no means
of knowing.

We rule that the plaintiff is entitled to recover damages from

the defendant for breach of contract on the first cause of
action in the amount of P3,000 and on the second cause of
action in no amount. Appellant's assignments of error are
accordingly found to be well taken in part and not well taken
in part.

Agreeable to the foregoing, the judgment appealed from shall

be modified and the plaintiff shall have and recover from the
defendant the sum of P3,000, with legal interest form October
2, 1923, until payment. Without special finding as to costs in
either instance, it is so ordered.

Avancea, C.J., Johnson, Street, Villamor, Ostrand, Johns,

Romualdez and Villa-Real, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-22590 March 20, 1987

SOLOMON BOYSAW and ALFREDO M. YULO, JR., plaintiffs-

appellants,
vs.
INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and
MANUEL NIETO, JR., defendants-appellees.

Felipe Torres and Associates for plaintiffs-appellants.

V.E. Del Rosario & Associates for defendant-appellee M. Nieto,

Jr.

A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil

Promotions, Inc.

RESOLUTION

FERNAN, J.:

This is an appeal interposed by Solomon Boysaw and Alfredo

Yulo, Jr., from the decision dated July 25, 1963 and other
rulings and orders of the then Court of First Instance [CFI] of
Rizal, Quezon City, Branch V in Civil Case No. Q-5063, entitled
"Solomon Boysaw and Alfredo M. Yulo, Jr., Plaintiffs versus
Interphil Promotions, Inc., Lope Sarreal, Sr. and Manuel Nieto,
Jr., Defendants," which, among others, ordered them to jointly
and severally pay defendant-appellee Manuel Nieto, Jr., the
total sum of P25,000.00, broken down into P20,000.00 as
moral damages and P5,000.00 as attorney's fees; the
defendants-appellees Interphil Promotions, Inc. and Lope
Sarreal, Sr., P250,000.00 as unrealized profits, P33,369.72 as
actual damages and P5,000.00 as attorney's fees; and
defendant-appellee Lope Sarreal, Sr., the additional amount of
P20,000.00 as moral damages aside from costs.

The antecedent facts of the case are as follows:

On May 1, 1961, Solomon Boysaw and his then Manager,

Willie Ketchum, signed with Interphil Promotions, Inc.
represented by Lope Sarreal, Sr., a contract to engage Gabriel
"Flash" Elorde in a boxing contest for the junior lightweight
championship of the world.

It was stipulated that the bout would be held at the Rizal

Memorial Stadium in Manila on September 30, 1961 or not
later than thirty [30] days thereafter should a postponement
be mutually agreed upon, and that Boysaw would not, prior to
the date of the boxing contest, engage in any other such
contest without the written consent of Interphil Promotions,
Inc.

On May 3, 1961, a supplemental agreement on certain details

not covered by the principal contract was entered into by
Ketchum and Interphil. Thereafter, Interphil signed Gabriel
"Flash" Elorde to a similar agreement, that is, to engage
Boysaw in a title fight at the Rizal Memorial Stadium on
September 30, 1961.

On June 19, 1961, Boysaw fought and defeated Louis Avila in

a ten-round non-title bout held in Las Vegas, Nevada, U.S.A.
[pp. 26-27, t.s.n., session of March 14, 1963].

On July 2, 1961, Ketchum on his own behalf and on behalf of

his associate Frank Ruskay, assigned to J. Amado Araneta the
managerial rights over Solomon Boysaw.

Presumably in preparation for his engagement with Interphil,

Solomon Boysaw arrived in the Philippines on July 31, 1961.

On September 1, 1961, J. Amado Araneta assigned to Alfredo

J. Yulo, Jr. the managerial rights over Boysaw that he earlier
acquired from Ketchum and Ruskay. The next day, September
2, 1961, Boysaw wrote Lope Sarreal, Sr. informing him of his
arrival and presence in the Philippines.

On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal

informing him of his acquisition of the managerial rights over
Boysaw and indicating his and Boysaw's readiness to comply
with the boxing contract of May 1, 1961. On the same date, on
behalf of Interphil Sarreal wrote a letter to the Games and
Amusement Board [GAB] expressing concern over reports that
there had been a switch of managers in the case of Boysaw, of
which he had not been formally notified, and requesting that
Boysaw be called to an inquiry to clarify the situation.
The GAB called a series of conferences of the parties
concerned culminating in the issuance of its decision to
schedule the Elorde-Boysaw fight for November 4, 1961. The
USA National Boxing Association which has supervisory
control of all world title fights approved the date set by the
GAB

Yulo, Jr. refused to accept the change in the fight date,

maintaining his refusal even after Sarreal on September 26,
1961, offered to advance the fight date to October 28, 1961
which was within the 30-day period of allowable
postponements provided in the principal boxing contract of
May 1, 1961.

Early in October 1961, Yulo, Jr. exchanged communications

with one Mamerto Besa, a local boxing promoter, for a
possible promotion of the projected Elorde-Boysaw title bout.
In one of such communications dated October 6, 1961, Yulo
informed Besa that he was willing to approve the fight date of
November 4,1961 provided the same was promoted by Besa.

While an Elorde-Boysaw fight was eventually staged, the fight

contemplated in the May 1, 1961 boxing contract never
materialized.

As a result of the foregoing occurrences, on October 12, 1961,

Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel
Nieto, Jr. in the CFI of Rizal [Quezon City Branch] for damages
allegedly occasioned by the refusal of Interphil and Sarreal,
aided and abetted by Nieto, Jr., then GAB Chairman, to honor
their commitments under the boxing contract of May 1,1961.

On the first scheduled date of trial, plaintiff moved to

disqualify Solicitor Jorge Coquia of the Solicitor General's
Office and Atty. Romeo Edu of the GAB Legal Department from
appearing for defendant Nieto, Jr. on the ground that the
latter had been sued in his personal capacity and, therefore,
was not entitled to be represented by government counsel.
The motion was denied insofar as Solicitor General Coquia was
concerned, but was granted as regards the disqualification of
Atty. Edu.

The case dragged into 1963 when sometime in the early part
of said year, plaintiff Boysaw left the country without
informing the court and, as alleged, his counsel. He was still
abroad when, on May 13, 1963, he was scheduled to take the
witness stand. Thus, the lower court reset the trial for June 20,
1963. Since Boysaw was still abroad on the later date, another
postponement was granted by the lower court for July 23,
1963 upon assurance of Boysaw's counsel that should Boysaw
fail to appear on said date, plaintiff's case would be deemed
submitted on the evidence thus far presented.

On or about July 16, 1963, plaintiffs represented by a new

counsel, filed an urgent motion for postponement of the July
23, 1963 trial, pleading anew Boysaw's inability to return to
the country on time. The motion was denied; so was the
motion for reconsideration filed by plaintiffs on July 22, 1963.
The trial proceeded as scheduled on July 23, 1963 with
plaintiff's case being deemed submitted after the plaintiffs
declined to submit documentary evidence when they had no
other witnesses to present. When defendant's counsel was
about to present their case, plaintiff's counsel after asking the
court's permission, took no further part in the proceedings.

After the lower court rendered its judgment dismissing the

plaintiffs' complaint, the plaintiffs moved for a new trial. The
motion was denied, hence, this appeal taken directly to this
Court by reason of the amount involved.

From the errors assigned by the plaintiffs, as having been

committed by the lower court, the following principal issues
can be deduced:

1. Whether or not there was a violation of the fight contract

of May 1, 1961; and if there was, who was guilty of such
violation.

2. Whether or not there was legal ground for the

postponement of the fight date from September 1, 1961, as
stipulated in the May 1, 1961 boxing contract, to November
4,1961,

3. Whether or not the lower court erred in the refusing a

postponement of the July 23, 1963 trial.

4. Whether or not the lower court erred in denying the

appellant's motion for a new trial.
5. Whether or not the lower court, on the basis of the
evidence adduced, erred in awarding the appellees damages
of the character and amount stated in the decision.

On the issue pertaining to the violation of the May 1, 1961

fight contract, the evidence established that the contract was
violated by appellant Boysaw himself when, without the
approval or consent of Interphil, he fought Louis Avila on June
19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this
fact during the trial. [pp. 26-27, t.s.n., March 14, 1963].

While the contract imposed no penalty for such violation, this

does not grant any of the parties the unbridled liberty to
breach it with impunity. Our law on contracts recognizes the
principle that actionable injury inheres in every contractual
breach. Thus:

Those who in the performance of their obligations are guilty

of fraud, negligence or delay, and those who in any manner
contravene the terms thereof, are liable for damages. [Art.
1170, Civil Code].

Also:

The power to rescind obligations is implied, in reciprocal ones,

in case one of the obligors should not comply with what is
incumbent upon him. [Part 1, Art. 1191, Civil Code].

There is no doubt that the contract in question gave rise to

reciprocal obligations. "Reciprocal obligations are those which
arise from the same cause, and in which each party is a debtor
and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be
performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other"
[Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.1

The power to rescind is given to the injured party. "Where the

plaintiff is the party who did not perform the undertaking
which he was bound by the terms of the agreement to
perform 4 he is not entitled to insist upon the performance of
the contract by the defendant, or recover damages by reason
of his own breach " [Seva vs. Alfredo Berwin 48 Phil. 581,
Emphasis supplied].

Another violation of the contract in question was the

assignment and transfer, first to J. Amado Araneta, and
subsequently, to appellant Yulo, Jr., of the managerial rights
over Boysaw without the knowledge or consent of Interphil.

The assignments, from Ketchum to Araneta, and from Araneta

to Yulo, were in fact novations of the original contract which,
to be valid, should have been consented to by Interphil.

Novation which consists in substituting a new debtor in the

place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. [Art. 1293, Civil Code, emphasis
supplied].

That appellant Yulo, Jr., through a letter, advised Interphil on

September 5, 1961 of his acquisition of the managerial rights
over Boysaw cannot change the fact that such acquisition, and
the prior acquisition of such rights by Araneta were done
without the consent of Interphil. There is no showing that
Interphil, upon receipt of Yulo's letter, acceded to the
"substitution" by Yulo of the original principal obligor, who is
Ketchum. The logical presumption can only be that, with
Interphil's letter to the GAB expressing concern over reported
managerial changes and requesting for clarification on the
matter, the appellees were not reliably informed of the
changes of managers. Not being reliably informed, appellees
cannot be deemed to have consented to such changes.

Under the law when a contract is unlawfully novated by an

applicable and unilateral substitution of the obligor by
another, the aggrieved creditor is not bound to deal with the
substitute.

The consent of the creditor to the change of debtors, whether

in expromision or delegacion is an, indispensable requirement
. . . Substitution of one debtor for another may delay or
prevent the fulfillment of the obligation by reason of the
inability or insolvency of the new debtor, hence, the creditor
should agree to accept the substitution in order that it may be
binding on him.

Thus, in a contract where x is the creditor and y is the debtor,

if y enters into a contract with z, under which he transfers to z
all his rights under the first contract, together with the
obligations thereunder, but such transfer is not consented to
or approved by x, there is no novation. X can still bring his
action against y for performance of their contract or damages
in case of breach. [Tolentino, Civil Code of the Philippines, Vol.
IV, p. 3611.

From the evidence, it is clear that the appellees, instead of

availing themselves of the options given to them by law of
rescission or refusal to recognize the substitute obligor Yulo,
really wanted to postpone the fight date owing to an injury
that Elorde sustained in a recent bout. That the appellees had
the justification to renegotiate the original contract,
particularly the fight date is undeniable from the facts
aforestated. Under the circumstances, the appellees' desire to
postpone the fight date could neither be unlawful nor
unreasonable.

We uphold the appellees' contention that since all the rights

on the matter rested with the appellees, and appellants'
claims, if any, to the enforcement of the contract hung entirely
upon the former's pleasure and sufferance, the GAB did not
act arbitrarily in acceding to the appellee's request to reset the
fight date to November 4, 1961. It must be noted that
appellant Yulo had earlier agreed to abide by the GAB ruling.

In a show of accommodation, the appellees offered to

advance the November 4, 1961 fight to October 28, 1961 just
to place it within the 30- day limit of allowable postponements
stipulated in the original boxing contract.

The refusal of appellants to accept a postponement without

any other reason but the implementation of the terms of the
original boxing contract entirely overlooks the fact that by
virtue of the violations they have committed of the terms
thereof, they have forfeited any right to its enforcement.

On the validity of the fight postponement, the violations of the

terms of the original contract by appellants vested the
appellees with the right to rescind and repudiate such contract
altogether. That they sought to seek an adjustment of one
particular covenant of the contract, is under the
circumstances, within the appellee's rights.

While the appellants concede to the GAB's authority to

regulate boxing contests, including the setting of dates
thereof, [pp. 44-49, t.s.n., Jan. 17, 1963], it is their contention
that only Manuel Nieto, Jr. made the decision for
postponement, thereby arrogating to himself the prerogatives
of the whole GAB Board.

The records do not support appellants' contention. Appellant

Yulo himself admitted that it was the GAB Board that set the
questioned fight date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it
must be stated that one of the strongest presumptions of law
is that official duty has been regularly performed. In this case,
the absence of evidence to the contrary, warrants the full
application of said presumption that the decision to set the
Elorde-Boysaw fight on November 4, 1961 was a GAB Board
decision and not of Manuel Nieto, Jr. alone.

Anent the lower court's refusal to postpone the July 23, 1963
trial, suffice it to say that the same issue had been raised
before Us by appellants in a petition for certiorari and
prohibition docketed as G.R. No. L-21506. The dismissal by the
Court of said petition had laid this issue to rest, and appellants
cannot now hope to resurrect the said issue in this appeal.

On the denial of appellant's motion for a new trial, we find that

the lower court did not commit any reversible error.

The alleged newly discovered evidence, upon which the

motion for new trial was made to rest, consists merely of
clearances which Boysaw secured from the clerk of court prior
to his departure for abroad. Such evidence cannot alter the
result of the case even if admitted for they can only prove that
Boysaw did not leave the country without notice to the court
or his counsel.

The argument of appellants is that if the clearances were

admitted to support the motion for a new trial, the lower court
would have allowed the postponement of the trial, it being
convinced that Boysaw did not leave without notice to the
court or to his counsel. Boysaw's testimony upon his return
would, then, have altered the results of the case.

We find the argument without merit because it confuses the

evidence of the clearances and the testimony of Boysaw. We
uphold the lower court's ruling that:

The said documents [clearances] are not evidence to offset the

evidence adduced during the hearing of the defendants. In
fact, the clearances are not even material to the issues raised.
It is the opinion of the Court that the 'newly discovered
evidence' contemplated in Rule 37 of the Rules of Court, is
such kind of evidence which has reference to the merits of the
case, of such a nature and kind, that if it were presented, it
would alter the result of the judgment. As admitted by the
counsel in their pleadings, such clearances might have
impelled the Court to grant the postponement prayed for by
them had they been presented on time. The question of the
denial of the postponement sought for by counsel for plaintiffs
is a moot issue . . . The denial of the petition for certiorari and
prohibition filed by them, had he effect of sustaining such
ruling of the court . . . [pp. 296-297, Record on Appeal].

The testimony of Boysaw cannot be considered newly

discovered evidence for as appellees rightly contend, such
evidence has been in existence waiting only to be elicited from
him by questioning.

We cite with approval appellee's contention that "the two

qualities that ought to concur or dwell on each and every of
evidence that is invoked as a ground for new trial in order to
warrant the reopening . . . inhered separately on two
unrelated species of proof" which "creates a legal monstrosity
that deserves no recognition."

On the issue pertaining to the award of excessive damages, it

must be noted that because the appellants wilfully refused to
participate in the final hearing and refused to present
documentary evidence after they no longer had witnesses to
present, they, by their own acts prevented themselves from
objecting to or presenting proof contrary to those adduced for
the appellees.
On the actual damages awarded to appellees, the appellants
contend that a conclusion or finding based upon the
uncorroborated testimony of a lone witness cannot be
sufficient. We hold that in civil cases, there is no rule requiring
more than one witness or declaring that the testimony of a
single witness will not suffice to establish facts, especially
where such testimony has not been contradicted or rebutted.
Thus, we find no reason to disturb the award of P250,000.00
as and for unrealized profits to the appellees.

On the award of actual damages to Interphil and Sarreal, the

records bear sufficient evidence presented by appellees of
actual damages which were neither objected to nor rebutted
by appellants, again because they adamantly refused to
participate in the court proceedings.

The award of attorney's fees in the amount of P5,000.00 in

favor of defendant-appellee Manuel Nieto, Jr. and another
P5,000.00 in favor of defendants-appellees Interphil
Promotions, Inc. and Lope Sarreal, Sr., jointly, cannot also be
regarded as excessive considering the extent and nature of
defensecounsels' services which involved legal work for
sixteen [16] months.

However, in the matter of moral damages, we are inclined to

uphold the appellant's contention that the award is not
sanctioned by law and well- settled authorities. Art. 2219 of
the Civil Code provides:

Art. 2219. Moral damages may be recovered in the

following analogous cases:
1) A criminal offense resulting in physical injuries;

2) Quasi-delict causing physical injuries;

3) Seduction, abduction, rape or other lascivious acts;

4) Adultery or concubinage;

5) Illegal or arbitrary detention or arrest;

6) Illegal search;

7) Libel, slander or any other form of defamation;

8) Malicious prosecution;

9) Acts mentioned in Art. 309.

10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29,
30, 32, 34 and 35.

The award of moral damages in the instant case is not based

on any of the cases enumerated in Art. 2219 of the Civil Code.
The action herein brought by plaintiffs-appellants is based on
a perceived breach committed by the defendants-appellees of
the contract of May 1, 1961, and cannot, as such, be arbitrarily
considered as a case of malicious prosecution.

Moral damages cannot be imposed on a party litigant although

such litigant exercises it erroneously because if the action has
been erroneously filed, such litigant may be penalized for
costs.

The grant of moral damages is not subject to the whims and

caprices of judges or courts. The court's discretion in granting
or refusing it is governed by reason and justice. In order that a
person may be made liable to the payment of moral damages,
the law requires that his act be wrongful. The adverse result
of an action does not per se make the act wrongful and subject
the actor to the payment of moral damages. The law could not
have meant to impose a penalty on the right to litigate; such
right is so precious that moral damages may not be charged
on those who may exercise it erroneously. For these the law
taxes costs. [Barreto vs. Arevalo, et. al. No. L-7748, Aug. 27,
1956, 52 O.G., No. 13, p. 5818.]

WHEREFORE, except for the award of moral damages which is

herein deleted, the decision of the lower court is hereby
affirmed.

SO ORDERED.

Gutierrez, Jr., Paras, Padilla, Bidin and Cortes, JJ., concur.

G.R. No. L-28602 September 29, 1970
UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the
COURT OF FIRST INSTANCE IN QUEZON CITY, et al.,
respondents.
Office of the Solicitor General Antonio P. Barredo, Solicitor
Augusto M. Amores and Special Counsel Perfecto V.
Fernandez for petitioner.
Norberto J. Quisumbing for private respondents.
REYES, J.B.L., J.:

Three (3) orders of the Court of First Instance of Rizal (Quezon

City), issued in its Civil Case No. 9435, are sought to be
annulled in this petition for certiorari and prohibition, filed by
herein petitioner University of the Philippines (or UP) against
the above-named respondent judge and the Associated
Lumber Manufacturing Company, Inc. (or ALUMCO). The first
order, dated 25 February 1966, enjoined UP from awarding
logging rights over its timber concession (or Land Grant),
situated at the Lubayat areas in the provinces of Laguna and
Quezon; the second order, dated 14 January 1967, adjudged
UP in contempt of court, and directed Sta. Clara Lumber
Company, Inc. to refrain from exercising logging rights or
conducting logging operations on the concession; and the
third order, dated 12 December 1967, denied reconsideration
of the order of contempt.
As prayed for in the petition, a writ of preliminary injunction
against the enforcement or implementation of the three (3)
questioned orders was issued by this Court, per its resolution
on 9 February 1968.
The petition alleged the following:
That the above-mentioned Land Grant was segregated from
the public domain and given as an endowment to UP, an
institution of higher learning, to be operated and developed
for the purpose of raising additional income for its support,
pursuant to Act 3608;
That on or about 2 November 1960, UP and ALUMCO entered
into a logging agreement under which the latter was granted
exclusive authority, for a period starting from the date of the
agreement to 31 December 1965, extendible for a further
period of five (5) years by mutual agreement, to cut, collect
and remove timber from the Land Grant, in consideration of
payment to UP of royalties, forest fees, etc.; that ALUMCO cut
and removed timber therefrom but, as of 8 December 1964, it
had incurred an unpaid account of P219,362.94, which,
despite repeated demands, it had failed to pay; that after it
had received notice that UP would rescind or terminate the
logging agreement, ALUMCO executed an instrument, entitled
"Acknowledgment of Debt and Proposed Manner of
Payments," dated 9 December 1964, which was approved by
the president of UP, and which stipulated the following:
3. In the event that the payments called for in Nos. 1 and 2 of
this paragraph are not sufficient to liquidate the foregoing
indebtedness of the DEBTOR in favor of the CREDITOR, the
balance outstanding after the said payments have been
applied shall be paid by the DEBTOR in full no later than June
30, 1965;
xxx xxx xxx
5. In the event that the DEBTOR fails to comply with any of its
promises or undertakings in this document, the DEBTOR
agrees without reservation that the CREDITOR shall have the
right and the power to consider the Logging Agreement dated
December 2, 1960 as rescinded without the necessity of any
judicial suit, and the CREDITOR shall be entitled as a matter of
right to Fifty Thousand Pesos (P50,000.00) by way of and for
liquidated damages;
ALUMCO continued its logging operations, but again incurred
an unpaid account, for the period from 9 December 1964 to
15 July 1965, in the amount of P61,133.74, in addition to the
indebtedness that it had previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent
ALUMCO that it had, as of that date, considered as rescinded
and of no further legal effect the logging agreement that they
had entered in 1960; and on 7 September 1965, UP filed a
complaint against ALUMCO, which was docketed as Civil Case
No. 9435 of the Court of First Instance of Rizal (Quezon City),
for the collection or payment of the herein before stated sums
of money and alleging the facts hereinbefore specified,
together with other allegations; it prayed for and obtained an
order, dated 30 September 1965, for preliminary attachment
and preliminary injunction restraining ALUMCO from
continuing its logging operations in the Land Grant.
That before the issuance of the aforesaid preliminary
injunction UP had taken steps to have another concessionaire
take over the logging operation, by advertising an invitation to
bid; that bidding was conducted, and the concession was
awarded to Sta. Clara Lumber Company, Inc.; the logging
contract was signed on 16 February 1966.
That, meantime, ALUMCO had filed several motions to
discharge the writs of attachment and preliminary injunction
but were denied by the court;
That on 12 November 1965, ALUMCO filed a petition to enjoin
petitioner University from conducting the bidding; on 27
November 1965, it filed a second petition for preliminary
injunction; and, on 25 February 1966, respondent judge issued
the first of the questioned orders, enjoining UP from awarding
logging rights over the concession to any other party.
That UP received the order of 25 February 1966 after it had
concluded its contract with Sta. Clara Lumber Company, Inc.,
and said company had started logging operations.
That, on motion dated 12 April 1966 by ALUMCO and one Jose
Rico, the court, in an order dated 14 January 1967, declared
petitioner UP in contempt of court and, in the same order,
directed Sta. Clara Lumber Company, Inc., to refrain from
exercising logging rights or conducting logging operations in
the concession.
The UP moved for reconsideration of the aforesaid order, but
the motion was denied on 12 December 1967.
Except that it denied knowledge of the purpose of the Land
Grant, which purpose, anyway, is embodied in Act 3608 and,
therefore, conclusively known, respondent ALUMCO did not
deny the foregoing allegations in the petition. In its answer,
respondent corrected itself by stating that the period of the
logging agreement is five (5) years - not seven (7) years, as it
had alleged in its second amended answer to the complaint in
Civil Case No. 9435. It reiterated, however, its defenses in the
court below, which maybe boiled down to: blaming its former
general manager, Cesar Guy, in not turning over management
of ALUMCO, thereby rendering it unable to pay the sum of
P219,382.94; that it failed to pursue the manner of payments,
as stipulated in the "Acknowledgment of Debt and Proposed
Manner of Payments" because the logs that it had cut turned
out to be rotten and could not be sold to Sta. Clara Lumber
Company, Inc., under its contract "to buy and sell" with said
firm, and which contract was referred and annexed to the
"Acknowledgment of Debt and Proposed Manner of
Payments"; that UP's unilateral rescission of the logging
contract, without a court order, was invalid; that petitioner's
supervisor refused to allow respondent to cut new logs unless
the logs previously cut during the management of Cesar Guy
be first sold; that respondent was permitted to cut logs in the
middle of June 1965 but petitioner's supervisor stopped all
logging operations on 15 July 1965; that it had made several
offers to petitioner for respondent to resume logging
operations but respondent received no reply.
The basic issue in this case is whether petitioner U.P. can treat
its contract with ALUMCO rescinded, and may disregard the
same before any judicial pronouncement to that effect.
Respondent ALUMCO contended, and the lower court, in
issuing the injunction order of 25 February 1966, apparently
sustained it (although the order expresses no specific findings
in this regard), that it is only after a final court decree declaring
the contract rescinded for violation of its terms that U.P. could
disregard ALUMCO's rights under the contract and treat the
agreement as breached and of no force or effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated in
the "Acknowledgment of Debt and Proposed Manner of
Payments" that, upon default by the debtor ALUMCO, the
creditor (UP) has "the right and the power to consider, the
Logging Agreement dated 2 December 1960 as rescinded
without the necessity of any judicial suit." As to such special
stipulation, and in connection with Article 1191 of the Civil
Code, this Court stated in Froilan vs. Pan Oriental Shipping Co.,
et al., L-11897, 31 October 1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from
entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without court
intervention. In other words, it is not always necessary for the
injured party to resort to court for rescission of the contract.
Of course, it must be understood that the act of party in
treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made
known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other
party denies that rescission is justified, it is free to resort to
judicial action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that the
resolution of the contract was not warranted, the responsible
party will be sentenced to damages; in the contrary case, the
resolution will be affirmed, and the consequent indemnity
awarded to the party prejudiced.
In other words, the party who deems the contract violated
may consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk.
For it is only the final judgment of the corresponding court that
will conclusively and finally settle whether the action taken
was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the party
injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit
until the final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to
minimize its own damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a
reciprocal obligation, 1 since in every case where the
extrajudicial resolution is contested only the final award of the
court of competent jurisdiction can conclusively settle
whether the resolution was proper or not. It is in this sense
that judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and subject to
judicial invalidation, unless attack thereon should become
barred by acquiescence, estoppel or prescription.
Fears have been expressed that a stipulation providing for a
unilateral rescission in case of breach of contract may render
nugatory the general rule requiring judicial action (v.
Footnote, Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV,
page 140) but, as already observed, in case of abuse or error
by the rescinder the other party is not barred from questioning
in court such abuse or error, the practical effect of the
stipulation being merely to transfer to the defaulter the
initiative of instituting suit, instead of the rescinder.
In fact, even without express provision conferring the power
of cancellation upon one contracting party, the Supreme Court
of Spain, in construing the effect of Article 1124 of the Spanish
Civil Code (of which Article 1191 of our own Civil; Code is
practically a reproduction), has repeatedly held that, a
resolution of reciprocal or synallagmatic contracts may be
made extrajudicially unless successfully impugned in court.
El articulo 1124 del Codigo Civil establece la facultad de
resolver las obligaciones reciprocas para el caso de que uno de
los obligados no cumpliese lo que le incumbe, facultad que,
segun jurisprudencia de este Tribunal, surge immediatamente
despuesque la otra parte incumplio su deber, sin necesidad de
una declaracion previa de los Tribunales. (Sent. of the Tr. Sup.
of Spain, of 10 April 1929; 106 Jur. Civ. 897).
Segun reiterada doctrina de esta Sala, el Art. 1124 regula la
resolucioncomo una "facultad" atribuida a la parte
perjudicada por el incumplimiento del contrato, la cual tiene
derecho do opcion entre exigir el cumplimientoo la resolucion
de lo convenido, que puede ejercitarse, ya en la via judicial, ya
fuera de ella, por declaracion del acreedor, a reserva, claro es,
que si la declaracion de resolucion hecha por una de las partes
se impugna por la otra, queda aquella sometida el examen y
sancion de los Tribunale, que habran de declarar, en definitiva,
bien hecha la resolucion o por el contrario, no ajustada a
Derecho. (Sent. TS of Spain, 16 November 1956; Jurisp.
Aranzadi, 3, 447).
La resolucion de los contratos sinalagmaticos, fundada en el
incumplimiento por una de las partes de su respectiva
prestacion, puedetener lugar con eficacia" 1. o Por la
declaracion de voluntad de la otra hecha extraprocesalmente,
si no es impugnada en juicio luego con exito. y 2. 0 Por la
demanda de la perjudicada, cuando no opta por el
cumplimientocon la indemnizacion de danos y perjuicios
realmente causados, siempre quese acredite, ademas, una
actitud o conducta persistente y rebelde de laadversa o la
satisfaccion de lo pactado, a un hecho obstativo que de un
modoabsoluto, definitivo o irreformable lo impida, segun el
art. 1.124, interpretado por la jurisprudencia de esta Sala,
contenida en las Ss. de 12 mayo 1955 y 16 Nov. 1956, entre
otras, inspiradas por el principio del Derecho intermedio,
recogido del Canonico, por el cual fragenti fidem, fides non est
servanda. (Ss. de 4 Nov. 1958 y 22 Jun. 1959.) (Emphasis
supplied).
In the light of the foregoing principles, and considering that
the complaint of petitioner University made out a prima facie
case of breach of contract and defaults in payment by
respondent ALUMCO, to the extent that the court below
issued a writ of preliminary injunction stopping ALUMCO's
logging operations, and repeatedly denied its motions to lift
the injunction; that it is not denied that the respondent
company had profited from its operations previous to the
agreement of 5 December 1964 ("Acknowledgment of Debt
and Proposed Manner of Payment"); that the excuses offered
in the second amended answer, such as the misconduct of its
former manager Cesar Guy, and the rotten condition of the
logs in private respondent's pond, which said respondent was
in a better position to know when it executed the
acknowledgment of indebtedness, do not constitute on their
face sufficient excuse for non-payment; and considering that
whatever prejudice may be suffered by respondent ALUMCO
is susceptibility of compensation in damages, it becomes plain
that the acts of the court a quo in enjoining petitioner's
measures to protect its interest without first receiving
evidence on the issues tendered by the parties, and in
subsequently refusing to dissolve the injunction, were in grave
abuse of discretion, correctible by certiorari, since appeal was
not available or adequate. Such injunction, therefore, must be
set aside.
For the reason that the order finding the petitioner UP in
contempt of court has open appealed to the Court of Appeals,
and the case is pending therein, this Court abstains from
making any pronouncement thereon.

WHEREFORE, the writ of certiorari applied for is granted, and

the order of the respondent court of 25 February 1966,
granting the Associated Lumber Company's petition for
injunction, is hereby set aside. Let the records be remanded
for further proceedings conformably to this opinion.
Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee,
Barredo, Villamor and Makasiar, JJ., concur.
Reyes, J.B.L., Actg. C.J., is on leave.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 47206 September 27, 1989

GLORIA M. DE ERQUIAGA, administratrix of the estate of the

late SANTIAGO DE ERQUIAGA & HON. FELICIANO S.
GONZALES, petitioners,
vs.
HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO,
JOSES V. REYNOSO, JR., EERNESTO , SYLVIA REYNOSO,
LOURDES REYNOSO, CECILE REYNOSO, EDNA REYNOSO,
ERLINDA REYNOSO & EMILY REYNOSO, respondents.

Agrava, Lucero, Gineta & Roxas for petitioners.

Bausa, Ampil, Suarez, Parades & Bausa for private

respondents.

GRINO-AQUINO, J.:

This is a case that began in the Court of First Instance of

Sorsogon in 1970. Although the decision dated September 30,
1972 of the trial court (pp. 79-106, Rollo) became final and
executory because none of the parties appealed, its execution
has taken all of the past seventeen (17) years with the end
nowhere in sight. The delay in writing finis to this case is
attributable to several factors, not the least of which is the
intransigence of the defeated party. Now, worn down by this
attrital suit, both have pleaded for a decision to end this case.

Assailed in this petition for review are:

(a) the decision of the Court of Appeals dated May 31, 1976
in CA-G.R. No. SP 04811, entitled "Africa Valdez Vda. de
Reynoso et al. vs. Hon. Feliciano S. Gonzales and Santiago de
Erquiaga" (pp. 275-290, Rollo);

(b) its resolution dated August 3, 1976, denying the motion

for reconsideration (p. 298, Rollo);

(c) its resolution of August 24, 1977, ordering entry of

judgment (p. 316, Rollo); and

(d) its resolution of October 4, 1977, denying the motion to

set aside the entry of judgment.

Santiago de Erquiaga was the owner of 100% or 3,100 paid-up

shares of stock of the Erquiaga Development Corporation
which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212,
Rollo). On November 4,1968, he entered into an Agreement
with Jose L. Reynoso to sell to the latter his 3,100 shares (or
100%) of Erquiaga Development Corporation for P900,000
payable in installments on definite dates fixed in the contract
but not later than November 30, 1968. Because Reynoso failed
to pay the second and third installments on time, the total
price of the sale was later increased to P971,371.70 payable
on or before December 17, 1969. The difference of P71,371.70
represented brokers' commission and interest (CFI Decision,
pp. 75, 81, 90, 99,Rollo).

As of December 17, 1968, Reynoso was able to pay the total

sum of P410,000 to Erquiaga who thereupon transferred all his
shares (3,100 paid-up shares) in Erquiaga Development
Corporation to Reynoso, as well as the possession of the
Hacienda San Jose, the only asset of the corporation (p. 100,
Rollo). However, as provided in paragraph 3, subparagraph (c)
of the contract to sell, Reynoso pledged 1,500 shares in favor
of Erquiaga as security for the balance of his obligation (p. 100,
Rollo). Reynoso failed to pay the balance of P561,321.70 on or
before December 17, 1969, as provided in the promissory
notes he delivered to Erquiaga. So, on March 2, 1970,
Erquiaga, through counsel, formally informed Reynoso that he
was rescinding the sale of his shares in the Erquiaga
Development Corporation (CFI Decision, pp. 81-100, Rollo).

As recited by the Court of Appeals in its decision under review,

the following developments occurred thereafter:

On March 30, 1970, private respondent Santiago de Erquiaga

filed a complaint for rescission with preliminary injunction
against Jose L. Reynoso and Erquiaga Development
Corporation, in the Court of First Instance of Sorsogon, Branch
I (Civil Case No. 2446).** After issues have been joined and
after trial on the merits, the lower court rendered judgment
(on September 30, 1972),*** the dispositive portion of which
reads as follows:
In view of the foregoing, judgment is hereby rendered in favor
of the plaintiff and against the defendant Jose L. Reynoso,
rescinding the sale of 3,100 paid up shares of stock of the
Erquiaga Development Corporation to the defendant, and
ordering:

(a) The defendant to return and reconvey to the plaintiff the

3,100 paid up shares of stock of the Erquiaga Development
Corporation which now stand in his name in the books of the
corporation;

(b) The defendant to render a full accounting of the fruits he

received by virtue of said 3,100 paid up shares of stock of the
Erquiaga Development Corporation, as well as to return said
fruits received by him to plaintiff Santiago de Erquiaga;

(c) The plaintiff to return to the defendant the amount of

P100,000.00 plus legal interest from November 4,1968, and
the amount of P310,000.00 plus legal interest from December
17, 1968, until paid;

(d) The defendant to pay the plaintiff as actual damages the

amount of P12,000.00;

(e) The defendant to pay the plaintiff the amount of

P50,000.00 as attorney's fees; and

(f) The defendant to pay the costs of this suit and expenses
of litigation. (Annex A-Petition.)
The parties did not appeal therefrom and it became final and
executory.

On March 21, 1973, the CFI of Sorsogon issued an Order,

pertinent portions of which reads:

It will be noted that both parties having decided not to appeal,

the decision has become final and executory. Nevertheless,
the Court finds merit in the contention of the plaintiff that the
payment to the defendant of the total sum of P410,000.00
plus the interest, should be held in abeyance pending
rendition of the accounting by the defendant of the fruits
received by him on account of the 3,100 shares of the capital
stock of Erquiaga Development Corporation. The same may be
said with respect to the sums due the plaintiff from the
defendant for damages and attorney's fees. Indeed it is
reasonable to suppose, as contended by the plaintiff, that
when such accounting is made and the accounting, as urged
by plaintiff, should refer not only to the dividends due from
the shares of stock but to the products of the hacienda which
is the only asset of the Erquiaga Development Corporation,
certain sums may be found due to the plaintiff from the
defendant which may partially or entirely off set (sic) the
amount adjudged against him in the decision.

It is the sense of the court that the fruits referred to in the

decision include not only the dividends received, if any, on the
3,100 shares of stocks but more particularly the products
received by the defendant from the hacienda. The hacienda
and the products thereon produced constitute the physical
assets of the Erquiaga Development Corporation represented
by the shares of stock and it would be absurd to suppose that
any accounting could be made by the defendant without
necessarily taking into account the products received which
could be the only basis for determining whether dividends are
due or not on account of the investment. The hacienda and its
natural fruits as represented by the shares of stock which the
defendant received as manager and controlling stockholder of
the Erquiaga Development Corporation can not be divorced
from the certificates of stock in order to determine whether
the defendant has correctly reported the income of the
corporation or concealed part of it for his personal advantage.
It is hardly necessary for the Court to restate an obvious fact
that on both legal and equitable grounds, the Erquiaga
Development Corporation and defendant Jose Reynoso are
one and the same persons as far as the obligation to account
for the products of the hacienda is concerned,' (pp. 4-6, Annex
1, Answer.)

In the same Order, the CFI of Sorsogon appointed a receiver

upon the filing of a bond in the amount of P100,000.00. The
reasons of the lower court for appointing a receiver 'were that
the matter of accounting of the fruits received by defendant
Reynoso as directed in the decision will take time; that plaintiff
Erquiaga has shown sufficient and justifiable ground for the
appointment of a receiver in order to preserve the Hacienda
which has obviously been mismanaged by the defendant to a
point where the amortization of the loan with the
Development Bank of the Philippines has been neglected and
the arrears in payments have risen to the amount of
P503,510.70 as of October 19, 1972, and there is danger that
the Development Bank of the Philippines may institute
foreclosure proceedings to the damage and prejudice of the
plaintiff.' (p. 7, Id.)

On April 26, 1973, defendant Jose L. Reynoso died and he was

substituted by his surviving spouse Africa Valdez Vda. de
Reynoso and children, as party defendants.

Defendants filed a petition for certiorari with a prayer for a

writ of preliminary injunction seeking the annulment of the
aforementioned Order of March 21, 1973. On June 28, 1973,
the Court of Appeals rendered judgment dismissing the
petition with costs against the petitioners, ruling that said
Order is valid and the respondent court did not commit any
grave abuse of discretion in issuing the same (Annex 2, Id.).
Petitioners brought the case up to the Supreme Court on a
petition for review on certiorari which was denied by said
tribunal in a Resolution dated February 5, 1974 (Annex 3, Id.).
Petitioners' motion for reconsideration thereof was likewise
denied by the Supreme Court on March 29,1974.

Upon motion of Erquiaga, the CFI of Sorsogon issued an order,

dated February 12,1975, dissolving the receivership and
ordering the delivery of the possession of the Hacienda San
Jose to Erquiaga, the filing of bond by said Erquiaga in the
amount of P410,000.00 conditioned to the payment of
whatever may be due to the substituted heirs of deceased
defendant Reynoso (petitioners herein) after the approval of
the accounting report submitted by Reynoso. Said order
further directed herein petitioners to allow counsel for
Erquiaga to inspect, copy and photograph certain documents
related to the accounting report (Annex B, Petition).
On March 3,1975, the CFI of Sorsogon approved the
P410,000.00 bond submitted by Erquiaga and the possession,
management and control of the hacienda were turned over to
Erquiaga (Annex C, Petition). Petitioners (Reynosos) filed their
motion for reconsideration which the CFI of Sorsogon denied
in an Order, dated June 23, 1975 (Annex D, Id.).

In an Omnibus Motion, dated July 25,1975, filed by Erquiaga,

and over the objections interposed thereto by herein
petitioners (Reynosos), the CFI of Sorsogon issued an Order,
dated October 9, 1975, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, on the first count, the

defendants are directed (to deliver) to the plaintiff or his
counsel within five (5) days from receipt of this order the 1,600
shares of stock of the Erquiaga Development Corporation
which are in their possession. Should the defendants refuse or
delay in delivering such shares of stock, as prayed for, the
plaintiff is authorized:

(a) To call and hold a special meeting of the stockholders of

the Erquiaga Development Corporation to elect the members
of the Board of Directors;

(b) In the said meeting the plaintiff is authorized to vote not

only the 1,500 shares of stock in his name but also the 1,600
shares in the name and possession of the defendants;
(c) The question as to who shall be elected members of the
Board of Directors and officers of the board is left to the
discretion of the plaintiff;

(d) The members of the board and the officers who are
elected are authorized to execute any and all contracts or
agreements under such conditions as may be required by the
Development Bank for the purpose of restructuring the loan
of the Erquiaga Development Corporation with the said bank.

On the second count, the prayer to strike out all expenses

alleged[ly] incurred by the defendants in the production of the
fruits of Hacienda San Jose and declaring the obligation of the
plaintiff under paragraph (c) of the judgment to pay the
defendant the sum of P410,000.00 with interest as fully
compensated by the fruits earned by the defendants from the
property, as well as the issuance of a writ of execution against
the defendants to pay the plaintiffs P62,000.00 under
paragraphs (e) and (d) and costs of litigation under paragraph
(f) of the judgment of September 30, 1972, is denied.

The defendants are once more directed to comply with the

order of February 12, 1975, by answering the interrogatories
propounded by counsel for the plaintiff and allowing said
counsel or his representative to inspect, copy and photograph
the documents mentioned by the plaintiff during reasonable
hours of any working day within twenty (20) days from receipt
of this order, should the defendants persist in their refusal or
failure to comply with the order, the plaintiff may inform the
court seasonably so that the proper action may be taken.
(Annex J, Id.)
Hence, the present petition for certiorari, prohibition and
mandamus instituted by the substituted defendants, heirs of
the deceased defendant Jose L. Reynoso against the CFI of
Sorsogon and (plaintiff) Santiago de Erquiaga. (pp. 276- 281,
Rollo.)

On May 31, 1976, the Court of Appeals rendered judgment

holding that:

IN VIEW OF ALL THE FOREGOING, this court finds that the

respondent court had acted with grave abuse of discretion or
in excess of jurisdiction in issuing the assailed order of October
9, 1975 (Annex A, Petition) insofar only as that part of the
Order (1) giving private respondent voting rights on the 3,100
shares of stock of the Erquiaga Development Corporation
without first divesting petitioners of their title thereto and
ordering the registration of the same in the corporation books
in the name of private respondent, pursuant to Section 10,
Rule 39 of the Revised Rules of Court; (2) authorizing
corporate meetings and election of members of the Board of
Directors of said corporation and (3) refusing to order the
reimbursement of the purchase price of the 3,100 shares of
stock in the amount of P410,000.00 plus interests awarded in
said final decision of September 30, 1972 and the set-off
therewith of the amount of P62,000.00 as damages and
attorney's fees in favor of herein private respondent are
concerned. Let writs of certiorari and prohibition issue against
the aforesaid acts, and the writ of preliminary injunction
heretofore issued is hereby made permanent only insofar as
(1), (2) and (3) above are concerned. As to all other matters
involved in said Order of October 9, 1975, the issuance of writs
prayed for in the petition are not warranted and therefore
denied.

FINALLY, to give effect to all the foregoing, with a view of

putting an end to a much protracted litigation and for the best
interest of the parties, let a writ of mandamus issue,
commanding the respondent Judge to order (1) the Clerk of
Court of the CFI of Sorsogon to execute the necessary deed of
conveyance to effect the transfer of ownership of the entire
3,100 shares of stock of the Erquiaga Development
Corporation to private respondent Santiago Erquiaga in case
of failure of petitioners to comply with the Order of October
9, 1975 insofar as the delivery of the 1,600 shares of stock to
private respondent is concerned, within five (5) days from
receipt hereof; and (2) upon delivery by petitioners or transfer
by the Clerk of Court of said shares of stock to private
respondent, as the case may be, to issue a writ of execution
ordering private respondent to pay petitioners the amount of
P410,000.00 plus interests in accordance with the final
decision of September 30, 1972 in Civil Case No. 2448, setting-
off therewith the amount of P62,000.00 adjudged in favor of
private respondent, and against petitioners' predecessor-in-
interest, Jose L. Reynoso, in the same decision, as damages
and attorney's fees. (pp. 289-290, Rollo.)

It may be seen from the foregoing narration of facts that as of

the time the Court of Appeals rendered its decision on May 31,
1976 (now under review) only the following have been done
by the parties in compliance with the final judgment in the
main case (Civil Case No. 2446):
1. The Hacienda San Jose was returned to Erquiaga on
March 3, 1975 upon approval of Erquiaga's surety bond of
P410,000 in favor of Reynoso;

2. Reynoso has returned to Erquiaga only the pledged 1,500

shares of stock of the Erquiaga Development Corporation,
instead of 3,100 shares, as ordered in paragraph (a) of the final
judgment.

What the parties have not done yet are:

1. Reynoso has not returned 1,600 shares of stock to

Erquiaga as ordered in paragraph (a,) of the decision;

2. Reynoso has not rendered a full accounting of the fruits

he has received from Hacienda San Jose by virtue of the 3,100
shares of stock of the Erquiaga Development Corporation
delivered to him under the sale, as ordered in paragraph (b) of
the decision;

3. Erquiaga has not returned the sum of P100,000 paid by

Reynoso on the sale, with legal interest from November 4,
1968 and P310,000 plus legal interest from December 17,
1968, until paid (total: P410,000) as ordered in paragraph (c)
of the decision;

4. Reynoso has not paid the judgment of Pl2,000 as actual

damages in favor of Erquiaga, under paragraph (d) of the
judgment;
5. .Reynoso has not paid the sum of P50,000 as attorney's
fees to Erquiaga under paragraph (e) of the judgment; and

6. Reynoso has not paid the costs of suit and expenses of

litigation as ordered in paragraph (f) of the final judgment.

The petitioner alleges, in her petition for review, that:

I. The decision of the Court of Appeals requiring the

petitioner to pay the private respondents the sum of P410,000
plus interest, without first awaiting Reynoso's accounting of
the fruits of the Hacienda San Jose, violates the law of the case
and Article 1385 of the Civil Code, alters the final order dated
February 12, 1975 of the trial court, and is inequitous.

II. The Court of Appeals erroneously applied the

Corporation Law.

III. The Court of Appeals erred in ordering entry of its

judgment.

We address first the third assignment of error for it will be

futile to discuss the first and second if, after all, the decision
complained of is already final, and the entry of judgment
which the Court of Appeals directed to be made in its
resolution of August 24,1977 (p. 316, Rollo) was proper. After
examining the records, we find that the Court of Appeals'
decision is not yet final. The entry of judgment was
improvident for the Court of Appeals, in its resolution of
December 13, 1976, suspended the proceedings before it
"pending the parties' settlement negotiations" as prayed for
in their joint motion (p. 313, Rollo). Without however giving
them an ultimatum or setting a deadline for the submission of
their compromise agreement, the Court of Appeals, out of the
blue, issued a resolution on August 24, 1977 ordering the
Judgment Section of that Court to enter final judgment in the
case (p. 316, Rollo).

We hold that the directive was precipitate and premature.

Erquiaga received the order on September 2, 1977 and filed
on September 12, 1977 (p. 317, Rollo) a motion for
reconsideration which the Court of Appeals denied on October
4, 1977 (p. 322, Rollo). The order of denial was received on
October 14, 1977 (p. 7, Rollo). On October 28, 1977, Erquiaga
filed in this Court a timely motion for extension of time to file
a petition for review, and the petition was filed within the
extension granted by this Court.

We now address the petitioners' first and second assignments

of error.

After deliberating on the petition for review, we find no

reversible error in the Court of Appeals' decision directing the
clerk of court of the trial court to execute a deed of
conveyance to Erquiaga of the 1,600 shares of stock of the
Erquiaga Development Corporation still in Reynoso's name
and/or possession, in accordance with the procedure in
Section 10, Rule 39 of the Rules of Court. Neither did it err in
annulling the trial court's order: (1) allowing Erquiaga to vote
the 3,100 shares of Erquiaga Development Corporation
without having effected the transfer of those shares in his
name in the corporate books; and (2) authorizing Erquiaga to
call a special meeting of the stockholders of the Erquiaga
Development Corporation and to vote the 3,100 shares,
without the pre-requisite registration of the shares in his
name. It is a fundamental rule in Corporation Law (Section 35)
that a stockholder acquires voting rights only when the shares
of stock to be voted are registered in his name in the corporate
books.

Until registration is accomplished, the transfer, though valid

between the parties, cannot be effective as against the
corporation. Thus, the unrecorded transferee cannot enjoy
the status of a stockholder; he cannot vote nor be voted for,
and he will not be entitled to dividends. The Corporation will
be protected when it pays dividend to the registered owner
despite a previous transfer of which it had no knowledge. The
purpose of registration therefore is two-fold; to enable the
transferee to exercise all the rights of a stockholder, and to
inform the corporation of any change in share ownership so
that it can ascertain the persons entitled to the rights and
subject to the liabilities of a stockholder. (Corporation Code,
Comments, Notes and Selected cases by Campos & Lopez-
Campos, p. 838,1981 Edition.)

The order of respondent Court directing Erquiaga to return the

sum of P410,000 (or net P348,000 after deducting P62,000
due from Reynoso under the decision) as the price paid by
Reynoso for the shares of stock, with legal rate of interest, and
the return by Reynoso of Erquiaga's 3,100 shares with the
fruits(construed to mean not only dividends but also fruits of
the corporation's Hacienda San Jose) is in full accord with Art.
1385 of the Civil Code which provides:
ART. 1385. Rescission creates the obligation to return the
things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it can
be carried out only when he who demands rescission can
return whatever he may be obliged to restore.

Neither shall rescission take place when the things which are
the object of the contract are legally in the possession of third
persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from

the person causing the loss.

The Hacienda San Jose and 1,500 shares of stock have already
been returned to Erquiaga. Therefore, upon the conveyance
to him of the remaining 1,600 shares, Erquiaga (or his heirs)
should return to Reynoso the price of P410,000 which the
latter paid for those shares. Pursuant to the rescission decreed
in the final judgment, there should be simultaneous mutual
restitution of the principal object of the contract to sell (3,100
shares) and of the consideration paid (P410,000). This should
not await the mutual restitution of the fruits, namely: the legal
interest earned by Reynoso's P410,000 while in the possession
of Erquiaga and its counterpart: the fruits of Hacienda San Jose
which Reynoso received from the time the hacienda was
delivered to him on November 4,1968 until it was placed
under receivership by the court on March 3, 1975. However,
since Reynoso has not yet given an accounting of those fruits,
it is only fair that Erquiaga's obligation to deliver to Reynoso
the legal interest earned by his money, should await the
rendition and approval of his accounting. To this extent, the
decision of the Court of Appeals should be modified. For it
would be inequitable and oppressive to require Erquiaga to
pay the legal interest earned by Reynoso's P410,000 since
1968 or for the past 20 years (amounting to over P400,000 by
this time) without first requiring Reynoso to account for the
fruits of Erquiaga's hacienda which he allegedly squandered
while it was in his possession from November 1968 up to
March 3, 1975.

WHEREFORE, the petition for review is granted. The payment

of legal interest by Erquiaga to Reynoso on the price of
P410,000 paid by Reynoso for Erquiaga's 3,100 shares of stock
of the Erquiaga Development Corporation should be
computed as provided in the final judgment in Civil Case No.
2446 up to September 30,1972, the date of said judgment.
Since Reynoso's judgment liability to Erquiaga for attorney's
fees and damages in the total sum of P62,000 should be set off
against the price of P410,000 that Erquiaga is obligated to
return to Reynoso, the balance of the judgment in favor of
Reynoso would be only P348,000 which should earn legal rate
of interest after September 30,1972, the date of the judgment.
However, the payment of said interest by Erquiaga should
await Reynoso's accounting of the fruits received by him from
the Hacienda San Jose. Upon payment of P348,000 by
Erquiaga to Reynoso, Erquiaga's P410,000 surety bond shall be
deemed cancelled. In all other respects, the decision of the
Court of Appeals in CA-G.R. No, 04811-SP is affirmed. No
pronouncement as to costs.
SO ORDERED. Narvasa, Cruz, Gancayco and Medialdea, JJ.,
concur.
HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE and
RHOGEN BUILDERS,
Petitioners,

- versus -
G.R. No. 177685

Present:

CARPIO MORALES, J.,

Chairperson,
NACHURA,*
BRION,
VILLARAMA, JR., and
SERENO, JJ.

THE PLAZA, INC. and FGU INSURANCE CORPORATION,

Respondents.
Promulgated:

January 26, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - -x

DECISION

VILLARAMA, JR., J.:

This is a petition for review under Rule 45 of the 1997 Rules of

Civil Procedure, as amended, which seeks to reverse and set
aside the Decision[1] dated June 27, 2006 and Resolution[2]
dated April 20, 2007 of the Court of Appeals (CA) in CA-G.R. CV
No. 58790. The CA affirmed with modification the Decision[3]
dated July 3, 1997 of the Regional Trial Court (RTC) of Makati
City, Branch 63, in Civil Case Nos. 1328 (43083) and 40755.
The facts are as follows:
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation
engaged in the restaurant business, through its President, Jose
C. Reyes, entered into a contract[4] with Rhogen Builders
(Rhogen), represented by Ramon C. Gaite, for the construction
of a restaurant building in Greenbelt, Makati, Metro Manila
for the price of P7,600,000.00. On July 18, 1980, to secure
Rhogens compliance with its obligation under the contract,
Gaite and FGU Insurance Corporation (FGU) executed a surety
bond in the amount of P1,155,000.00 in favor of The Plaza. On
July 28, 1980, The Plaza paid P1,155,000.00 less withholding
taxes as down payment to Gaite. Thereafter, Rhogen
commenced construction of the restaurant building.
In a letter dated September 10, 1980, Engineer Angelito Z.
Gonzales, the Acting Building Official of the Municipality of
Makati, ordered Gaite to cease and desist from continuing
with the construction of the building for violation of Sections
301 and 302 of the National Building Code (P.D. 1096) and its
implementing rules and regulations.[5] The letter was referred
to The Plazas Project Manager, Architect Roberto L. Tayzon.
On September 15, 1980, Engr. Gonzales informed Gaite that
the building permit for the construction of the restaurant was
revoked for non-compliance with the provisions of the
National Building Code and for the additional temporary
construction without permit.[6] The Memorandum Report of
Building Inspector Victor Gregory enumerated the following
violations of Rhogen in the construction of the building:
1) No permit for Temporary Structure.
2) No notice of concrete pouring.
3) Some workers have no safety devices.
4) The Secretary and Construction Foreman refused to
[receive] the Letter of Stoppage dated September 10, 1980.
5) Mr. Ramon Gaite [is] questioning the authority of the
Building Officials Inspector.
6) Construction plans use[d] on the job site is not in
accordance to the approved plan.[7]
On September 19, 1980, the Project Manager (Tayzon) in his
Construction Memo #23 reported on his evaluation of
Progress Billing #1 submitted by Rhogen. Tayzon stated that
actual jobsite assessment showed that the finished works fall
short of Rhogens claimed percentage of accomplishment and
Rhogen was entitled to only P32,684.16 and not P260,649.91
being demanded by Rhogen. Further, he recommended that
said amount payable to Rhogen be withheld pending
compliance with Construction Memo #18, resolution of cases
regarding unauthorized withdrawal of materials from jobsite
and stoppage of work by the Municipal Engineers Office of
Makati.[8]
On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President
of The Plaza regarding his actions/observations on the
stoppage order issued. On the permit for temporary structure,
Gaite said the plans were being readied for submission to the
Engineering Department of the Municipality of Makati and the
application was being resent to Reyes for his appropriate
action. As to the notice for concrete pouring, Gaite said that
their construction set-up provides for a Project Manager to
whom the Pouring Request is first submitted and whose job is
to clear to whoever parties are involved (this could still be
worked out with the Building Inspector). Regarding the safety
devices for workers, Gaite averred that he had given strict
rules on this but in the course of construction some workers
have personal preferences. On the refusal of the secretary and
construction foreman to receive the stoppage order dated
September 10, 1980, Gaite took responsibility but insisted it
was not a violation of the National Building Code. Likewise,
questioning the authority of the Building Inspector is not a
violation of the Code although Gaite denied he ever did so.
Lastly, on the construction plans used in the jobsite not being
in accordance with the approved plan, Gaite said he had sent
Engr. Cristino V. Laurel on October 3, 1980 to Reyes office and
make a copy of the only approved plan which was in the care
of Reyes, but the latter did not give it to Engr. Laurel. Gaite
thus thought that Reyes would handle the matter by
himself.[9]
On the same day, Gaite notified Reyes that he is suspending
all construction works until Reyes and the Project Manager
cooperate to resolve the issue he had raised to address the
problem.[10] This was followed by another letter dated
November 18, 1980 in which Gaite expressed his sentiments
on their aborted project and reiterated that they can still
resolve the matter with cooperation from the side of The
Plaza.[11] In his reply-letter dated November 24, 1980, Reyes
asserted that The Plaza is not the one to initiate a solution to
the situation, especially after The Plaza already paid the
agreed down payment of P1,155,000.00, which compensation
so far exceeds the work completed by Rhogen before the
municipal authorities stopped the construction for several
violations. Reyes made it clear they have no obligation to help
Rhogen get out of the situation arising from non-performance
of its own contractual undertakings, and that The Plaza has its
rights and remedies to protect its interest.[12]
Subsequently, the correspondence between Gaite and Reyes
involved the custody of remaining bags of cement in the
jobsite, in the course of which Gaite was charged with estafa
for ordering the removal of said items. Gaite complained that
Reyes continued to be uncooperative in refusing to meet with
him to resolve the delay. Gaite further answered the estafa
charge by saying that he only acted to protect the interest of
the owner (prevent spoilage/hardening of cement) and that
Reyes did not reply to his request for exchange.[13]
On January 9, 1981, Gaite informed The Plaza that he is
terminating their contract based on the Contractors Right to
Stop Work or Terminate Contracts as provided for in the
General Conditions of the Contract. In his letter, Gaite accused
Reyes of not cooperating with Rhogen in solving the problem
concerning the revocation of the building permits, which he
described as a minor problem. Additionally, Gaite demanded
the payment of P63,058.50 from The Plaza representing the
work that has already been completed by Rhogen.[14]
On January 13, 1981, The Plaza, through Reyes, countered that
it will hold Gaite and Rhogen fully responsible for failure to
comply with the terms of the contract and to deliver the
finished structure on the stipulated date. Reyes argued that
the down payment made by The Plaza was more than enough
to cover Rhogens expenses.[15]
In a subsequent letter dated January 20, 1981, Reyes adverted
to Rhogens undertaking to complete the construction within
180 calendar days from July 16, 1980 or up to January 12,
1981, and to pay the agreed payment of liquidated damages
for every month of delay, chargeable against the performance
bond posted by FGU. Reyes invoked Section 121 of the Articles
of General Conditions granting the owner the right to
terminate the contract if the contractor fails to execute the
work properly and to make good such deficiencies and
deducting the cost from the payment due to the contractor.
Reyes also informed Gaite that The Plaza will continue the
completion of the structure utilizing the services of a
competent contractor but will charge Rhogen for liquidated
damages as stipulated in Article VIII of the Contract. After
proper evaluation of the works completed by Rhogen, The
Plaza shall then resume the construction and charge Rhogen
for all the costs and expenses incurred in excess of the
contract price. In the meantime that The Plaza is still
evaluating the extent and condition of the works performed
by Rhogen to determine whether these are done in
accordance with the approved plans, Reyes demanded from
Gaite the reimbursement of the balance of their initial
payment of P1,155,000.00 from the value of the works
correctly completed by Rhogen, or if none, to reimburse the
entire down payment plus expenses of removal and
replacement. Rhogen was also asked to turn over the jobsite
premises as soon as possible.[16] The Plaza sent copy of said
letter to FGU but the latter replied that it has no liability under
the circumstances and hence it could not act favorably on its
claim against the bond.[17]
On March 3, 1981, The Plaza notified Gaite that it could no
longer credit any payment to Rhogen for the work it had
completed because the evaluation of the extent, condition,
and cost of work done revealed that in addition to the
violations committed during the construction of the building,
the structure was not in accordance with plans approved by
the government and accepted by Ayala. Hence, The Plaza
demanded the reimbursement of the down payment, the cost
of uprooting or removal of the defective structures, the value
of owner-furnished materials, and payment of liquidated
damages.[18]
On March 26, 1981, The Plaza filed Civil Case No. 40755 for
breach of contract, sum of money and damages against Gaite
and FGU in the Court of First Instance (CFI) of Rizal.[19] The
Plaza later amended its complaint to include Cynthia G. Gaite
and Rhogen.[20] The Plaza likewise filed Civil Case No. 1328
(43083) against Ramon C. Gaite, Cynthia G. Gaite and/or
Rhogen Builders also in the CFI of Rizal for nullification of the
project development contract executed prior to the General
Construction Contract subject of Civil Case No. 40755, which
was allegedly in violation of the provisions of R.A. No. 545
(Architectural Law of the Philippines).[21] After the
reorganization of the Judiciary in 1983, the cases were
transferred to the RTC of Makati and eventually consolidated.
On July 3, 1997, Branch 63 of the RTC Makati rendered its
decision granting the claims of The Plaza against Rhogen, the
Gaites and FGU, and the cross-claim of FGU against Rhogen
and the Gaites. The trial court ruled that the Project Manager
was justified in recommending that The Plaza withhold
payment on the progress billings submitted by Rhogen based
on his evaluation that The Plaza is liable to pay only P32,684.16
and not P260,649.91. The other valid grounds for the
withholding of payment were the pending estafa case against
Gaite, non-compliance by Rhogen with Construction
Memorandum No. 18 and the non-lifting of the stoppage
order.[22]
Regarding the non-lifting of the stoppage order, which the trial
court said was based on simple infractions, the same was held
to be solely attributable to Rhogens willful inaction. Instead of
readily rectifying the violations, Rhogen continued with the
construction works thereby causing more damage. The trial
court pointed out that Rhogen is not only expected to be
aware of standard requirements and pertinent regulations on
construction work, but also expressly bound itself under the
General Construction Contract to comply with all the laws, city
and municipal ordinances and all government regulations.
Having failed to complete the project within the stipulated
period and comply with its obligations, Rhogen was thus
declared guilty of breaching the Construction Contract and is
liable for damages under Articles 1170 and 1167 of the Civil
Code.[23]
The dispositive portion of the trial courts decision reads:
WHEREFORE, in Civil Case No. 40755, defendants Ramon
Gaite, Cynthia Gaite and Rhogen Builders are jointly and
severally ordered to pay plaintiff:
1. the amount of P525,422.73 as actual damages
representing owner-furnished materials with legal interest
from the time of filing of the complaint until full payment;
2. the amount of P14,504.66 as actual damages
representing expenses for uprooting with interest from the
time of filing the complaint until full payment;
3. the amount of P1,155,000.00 as actual damages
representing the downpayment with legal interest from the
time of filing the complaint until full payment;
4. the amount of P150,000.00 for moral damages;
5. the amount of P100,000.00 for exemplary damages;
6. the amount of P500,000.00 as liquidated damages;
7. the amount of P100,000.00 as reasonable attorneys fees;
and,
8. the cost of suit.
Under the surety bond, defendants Rhogen and FGU are
jointly and severally ordered to pay plaintiff the amount of
P1,155,000.00 with legal interest from the time of filing the
complaint until full payment. In the event [that] FGU pays the
said amount, third-party defendants are jointly and severally
ordered to pay the same amount to FGU plus P50,000.00 as
reasonable attorneys fees, the latter having been forced to
litigate, and the cost of suit.
Civil Case No. 1328 is hereby ordered dismissed with no
pronouncement as to cost.
SO ORDERED.[24]
Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU
appealed to the CA.[25] In view of the death of Ramon C. Gaite
on April 21, 1999, the CA issued a Resolution dated July 12,
2000 granting the substitution of the former by his heirs
Cynthia G. Gaite, Rhoel Santiago G. Gaite, Genevieve G. Gaite
and Roman Juan G. Gaite.[26]
In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite
and Rhogen assigned the following errors, to wit:
I. THE TRIAL COURT ERRED IN DECLARING THAT THE
GROUNDS RELIED UPON BY DEFENDANT-APPELLANT RHOGEN
BUILDERS IN TERMINATING THE CONTRACT ARE UNTENABLE;
II. THE TRIAL COURT ERRED IN DECLARING THAT THE
NON-LIFTING OF THE STOPPAGE ORDER OF THE THEN
MUNICIPAL GOVERNMENT OF MAKATI WAS SOLELY
ATTRIBUTABLE TO DEFENDANT-APPELLANT RHOGENS
WILLFUL INACTION;
III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT
IT WAS THE WILLFUL INACTION OF PLAINTIFF-APPELLEE
WHICH MADE IT IMPOSSIBLE FOR DEFENDANTAPPELLANT
RHOGEN TO PERFORM ITS OBLIGATIONS UNDER THE
CONTRACT;
IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL
DAMAGES AS WELL AS MORAL, EXEMPLARY, AND LIQUIDATED
DAMAGES AND ATTORNEYS FEES SINCE THERE WERE NO
FACTUAL AND LEGAL BASES THEREFOR; AND
V. THE TRIAL COURT ERRED IN FAILING TO AWARD
ACTUAL, MORAL AND EXEMPLARY DAMAGES AND
ATTORNEYS FEES IN FAVOR OF DEFENDANTS-
APPELLANTS.[27]
For its part, FGU interposed the following assignment of
errors:
I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING
THAT DEFENDANT-APPELLANT RAMON GAITE VALIDLY
TERMINATED THE CONTRACT BETWEEN HIM AND PLAINTIFF-
APPELLEE.
II. THE REGIONAL TRIAL COURT ERRED IN HOLDING
DEFENDANT-APPELLANT RAMON GAITE RESPONSIBLE FOR
THE STOPPAGE OF THE CONSTRUCTION.
III. THE REGIONAL TRIAL COURT ERRED IN ORDERING
DEFENDANT-APPELLANT RAMON GAITE TO PAY THE AMOUNT
OF P525,422.73 FOR THE OWNER FURNISHED MATERIALS.
IV. THE REGIONAL TRIAL COURT ERRED IN ORDERING
DEFENDANT-APPELLANT RAMON GAITE TO PAY PLAINTIFF-
APPELLEE THE AMOUNT OF P14,504.66 AS ALLEGED EXPENSES
FOR UPROOTING THE WORK HE PERFORMED.
V. THE REGIONAL TRIAL COURT ERRED IN ORDERING
DEFENDANT-APPELLANT RAMON GAITE TO REFUND THE
DOWN PAYMENT OF P1,155,000.00 PLAINTIFF-APPELLEE PAID
HIM.
VI. THE REGIONAL TRIAL COURT ERRED IN AWARDING
MORAL DAMAGES TO PLAINTIFF-APPELLEE.
VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING
EXEMPLARY DAMAGES TO PLAINTIFF-APPELLEE.
VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING
LIQUIDATED DAMAGES TO PLAINTIFF-APPELLEE.
IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING
ATTORNEYS FEES TO PLAINTIFF-APPELLEE.
X. THE REGIONAL TRIAL COURT ERRED IN HOLDING
DEFENDANT-APPELLANT FGU INSURANCE CORPORATION
LIABLE TO PLAINTIFF-APPELLEE.[28]
On June 27, 2006, the CA affirmed the Decision of the trial
court but modified the award of damages as follows:
WHEREFORE, the Decision dated July 3, 1997 rendered by the
Regional Trial Court of Makati City, Branch 63 in Civil Case Nos.
40755 and 1328 is AFFIRMED with the modification that: (a)
the award for actual damages representing the owner-
furnished materials and the expenses for uprooting are
deleted, and in lieu thereof, the amount of P300,000.00 as
temperate damages is awarded; and (b) the awards for moral,
exemplary, liquidated and attorneys fees are likewise deleted.
SO ORDERED.[29]
According to the CA, The Plaza cannot now be demanded to
comply with its obligation under the contract since Rhogen has
already failed to comply with its own contractual obligation.
Thus, The Plaza had every reason not to pay the progress
billing as a result of Rhogens inability to perform its obligations
under the contract. Further, the stoppage and revocation
orders were issued on account of Rhogens own violations
involving the construction as found by the local building
official. Clearly, Rhogen cannot blame The Plaza for its own
failure to comply with its contractual obligations. The CA
stressed that Rhogen obliged itself to comply with all the laws,
city and municipal ordinances and all government regulations
insofar as they are binding upon or affect the parties [to the
contract] , the work or those engaged thereon.[30] As such, it
was responsible for the lifting of the stoppage and revocation
orders. As to Rhogens act of challenging the validity of the
stoppage and revocation orders, the CA held that it cannot be
done in the present case because under Section 307 of the
National Building Code, appeal to the Secretary of the
Department of Public Works and Highways (DPWH) whose
decision is subject to review by the Office of the President -- is
available as remedy for Rhogen.[31]

However, the CA modified the award of damages holding that

the claim for actual damages of P525,422.73 representing the
damaged owner-furnished materials was not supported by
any evidence. Instead, the CA granted temperate damages in
the amount of P300,000.00. As to moral damages, no specific
finding for the factual basis of said award was made by the trial
court, and hence it should be deleted. Likewise, liquidated
damages is not proper considering that this is not a case of
delay but non-completion of the project. The Plaza similarly
failed to establish that Rhogen and Gaite acted with malice or
bad faith; consequently, the award of exemplary damages
must be deleted. Finally, there being no bad faith on the part
of the defendants, the award of attorneys fees cannot be
sustained.[32]
The motion for reconsideration of the aforesaid Decision was
denied in the Resolution dated April 20, 2007 for lack of merit.
Hence, this appeal.
Before us, petitioners submit the following issues:
I.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when it found
that Petitioner Rhogen had no factual or legal basis to
terminate the General Construction Contract.
II.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when, as a
consequence of its finding that Petitioners did not have valid
grounds to terminate the Construction Contract, it directed
Petitioners to return the downpayment paid by The Plaza, with
legal interest.
III.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when, in
addition thereto, it awarded temperate damages to The Plaza.
IV.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when it failed to
award damages in favor of Petitioners.[33]
Petitioners contend that the CA gravely erred in not holding
that there were valid and legal grounds for Rhogen to
terminate the contract pursuant to Article 1191 of the Civil
Code and Article 123 of the General Conditions of the
Construction Contract. Petitioners claim that Rhogen sent
Progress Billing No. 1 dated September 10, 1980 and
demanded payment from The Plaza in the net amount of
P473,554.06 for the work it had accomplished from July 28,
1980 until September 7, 1980. The Plaza, however, failed to
pay the said amount. According to petitioners, Article 123 of
the General Conditions of the Construction Contract gives The
Plaza seven days from notice within which to pay the Progress
Billing; otherwise, Rhogen may terminate the contract.
Petitioners also invoke Article 1191 of the Civil Code, which
states that the power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
We deny the petition.
Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of the
other, such that the obligation of one is dependent upon the
obligation of the other. They are to be performed
simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other.
Respondent The Plaza predicated its action on Article 1191[34]
of the Civil Code, which provides for the remedy of rescission
or more properly resolution, a principal action based on
breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the provision is
the obligors failure to comply with an existing obligation. Thus,
the power to rescind is given only to the injured party. The
injured party is the party who has faithfully fulfilled his
obligation or is ready and willing to perform his obligation.[35]
The construction contract between Rhogen and The Plaza
provides for reciprocal obligations whereby the latters
obligation to pay the contract price or progress billing is
conditioned on the formers performance of its undertaking to
complete the works within the stipulated period and in
accordance with approved plans and other specifications by
the owner. Pursuant to its contractual obligation, The Plaza
furnished materials and paid the agreed down payment. It also
exercised the option of furnishing and delivering construction
materials at the jobsite pursuant to Article III of the
Construction Contract. However, just two months after
commencement of the project, construction works were
ordered stopped by the local building official and the building
permit subsequently revoked on account of several violations
of the National Building Code and other regulations of the
municipal authorities.
Petitioners reiterate their position that the stoppage order
was unlawful, citing the fact that when the new contractor
(ACK Construction, Inc.) took over the project, the local
government of Makati allowed the construction of the
building using the old building permit; moreover, the
basement depth of only two meters was retained, with no
further excavation made. They cite the testimony of the late
Ramon Gaite before the trial court that at the time, he had
incurred the ire of then Mayor of Makati because his (Gaite)
brother was the Mayors political opponent; hence, they
sought to file whatever charge they could against him in order
to call the attention of his brother. This political harassment
defense was raised by petitioners in their Amended Answer.
Gaites testimony was intended to explain the circumstances
leading to his decision to terminate the construction contract
and not to question the revocation of the building permit. As
the available remedy was already foreclosed, it was thus error
for the CA to suggest that Rhogen should have appealed the
stoppage and revocations orders issued by the municipal
authorities to the DPWH and then to the OP.[36]
Article 123 of the Articles of General Conditions states the
grounds for the termination of the work or contract by the
Contractor:
123. CONTRACTORS RIGHT TO STOP WORK OR TERMINATE
CONTRACT

If work should be stopped under order of any court, or other

public authority, for period of three (3) months through no act
or fault of Contractor or of anyone employed by him, or if
Owners Representative should fail to issue any certificate of
payment within seven (7) days after its maturity and
presentation of any sum certified by Owners Representative
or awarded arbitrator, then contractor, may, stop work or
terminate Contract, recover from Owner payment for work
executed, loss sustained upon any plant or materials,
reasonable profit, damages.[37] (Emphasis supplied.)
Petitioners may not justify Rhogens termination of the
contract upon grounds of non-payment of progress billing and
uncooperative attitude of respondent The Plaza and its
employees in rectifying the violations which were the basis for
issuance of the stoppage order. Having breached the
contractual obligation it had expressly assumed, i.e., to
comply with all laws, rules and regulations of the local
authorities, Rhogen was already at fault. Respondent The
Plaza, on the other hand, was justified in withholding payment
on Rhogens first progress billing, on account of the stoppage
order and additionally due to disappearance of owner-
furnished materials at the jobsite. In failing to have the
stoppage and revocation orders lifted or recalled, Rhogen
should take full responsibility in accordance with its
contractual undertaking, thus:
In the performance of the works, services, and obligations
subject of this Contract, the CONTRACTOR binds itself to
observe all pertinent and applicable laws, rules and
regulations promulgated by duly constituted authorities and
to be personally, fully and solely liable for any and all violations
of the same.[38] (Emphasis supplied.)
Significantly, Rhogen did not mention in its communications to
Reyes that Gaite was merely a victim of abuse by a local official
and this was the primary reason for the problems besetting
the project. On the contrary, the site appraisal inspection
conducted on February 12 and 13, 1981 in the presence of
representatives from The Plaza, Rhogen, FGU and Municipal
Engineer Victor Gregory, disclosed that in addition to the
violations committed by Rhogen which resulted in the
issuance of the stoppage order, Rhogen built the structure not
in accordance with government approved plans and/or
without securing the approval of the Municipal Engineer
before making the changes thereon.[39]
Such non-observance of laws and regulations of the local
authorities affecting the construction project constitutes a
substantial violation of the Construction Contract which
entitles The Plaza to terminate the same, without obligation
to make further payment to Rhogen until the work is finished
or subject to refund of payment exceeding the expenses of
completing the works. This is evident from a reading of Article
122 which states:
122. OWNERS RIGHT TO TERMINATE CONTRACT

A. If Contractor should be adjudged bankrupt, or if he should

make general assignment for benefit of his creditors, or if
receiver should be appointed on account of his insolvency, or
if he should persistently or repeatedly refuse or should fail,
except in cases for which extension of time is provided, to
supply enough properly skilled workmen or proper materials,
or if he should fail to make prompt payment to Sub-
Contractors or for materials of labor, or persistently disregard
laws, ordinances, or instructions of Owners Representative or
otherwise be guilty of substantial violation of any provision of
[the] Contract, then Owner, upon certification by Owners
Representative that sufficient cause exists to justify such
action, may, without prejudice to any right or remedy, after
giving Contractor seven days written notice, terminate
contract with Contractor, take possession of premises,
materials, tools, appliances, thereon, finish work by whatever
method he may deem expedient. In such cases, Contractor
shall not be entitled to receive any further payment until work
is finished.

B. If unpaid balance of Contract sum shall exceed expense of

finishing work including compensation for additional
managerial and administrative services, such excess, paid to
Contractor. Refund the difference to Owner if such expense
shall exceed unpaid balance.[40] (Emphasis supplied.)
Upon the facts duly established, the CA therefore did not err
in holding that Rhogen committed a serious breach of its
contract with The Plaza, which justified the latter in
terminating the contract. Petitioners are thus liable for
damages for having breached their contract with respondent
The Plaza. Article 1170 of the Civil Code provides that those
who in the performance of their obligations are guilty of fraud,
negligence or delay and those who in any manner contravene
the tenor thereof are liable for damages.
Petitioners assail the order for the return of down payment,
asserting that the principle of quantum meruit demands that
Rhogen as contractor be paid for the work already
accomplished.
We disagree.
Under the principle of quantum meruit, a contractor is allowed
to recover the reasonable value of the thing or services
rendered despite the lack of a written contract, in order to
avoid unjust enrichment. Quantum meruit means that in an
action for work and labor, payment shall be made in such
amount as the plaintiff reasonably deserves. To deny payment
for a building almost completed and already occupied would
be to permit unjust enrichment at the expense of the
contractor.[41]
Rhogen failed to finish even a substantial portion of the works
due to the stoppage order issued just two months from the
start of construction. Despite the down payment received
from The Plaza, Rhogen, upon evaluation of the Project
Manager, was able to complete a meager percentage much
lower than that claimed by it under the first progress billing
between July and September 1980. Moreover, after it
relinquished the project in January 1981, the site inspection
appraisal jointly conducted by the Project Manager, Building
Inspector Engr. Gregory and representatives from FGU and
Rhogen, Rhogen was found to have executed the works not in
accordance with the approved plans or failed to seek prior
approval of the Municipal Engineer. Article 1167 of the Civil
Code is explicit on this point that if a person obliged to do
something fails to do it, the same shall be executed at his cost.
Art. 1167. If a person obliged to do something fails to do it, the
same shall be executed at his cost.
This same rule shall be observed if he does it in contravention
of the tenor of the obligation. Furthermore, it may be decreed
that what has been poorly done be undone.
In addition, Article 122 of the Articles of General Conditions
provides that the contractor shall not be entitled to receive
further payment until the work is finished. As the works
completed by Rhogen were not in accordance with approved
plans, it should have been executed at its cost had it not
relinquished the project in January 1981. The CA thus did not
err in sustaining the trial courts order for the return of the
down payment given by The Plaza to Rhogen.
As to temperate damages, Article 2224 of the Civil Code
provides that temperate or moderate damages, which are
more than nominal but less than compensatory damages, may
be recovered when the court finds that some pecuniary loss
has been suffered but its amount cannot, from the nature of
the case, be proved with certainty. The rationale behind
temperate damages is precisely that from the nature of the
case, definite proof of pecuniary loss cannot be offered. When
the court is convinced that there has been such loss, the judge
is empowered to calculate moderate damages, rather than let
the complainant suffer without redress from the defendants
wrongful act.[42] Petitioners contention that such award is
improper because The Plaza could have presented receipts to
support the claim for actual damages, must fail considering
that Rhogen never denied the delivery of the owner-furnished
materials which were under its custody at the jobsite during
the work stoppage and before it terminated the contract.
Since Rhogen failed to account either for those items which it
had caused to be withdrawn from the premises, or those
considered damaged or lost due spoilage, or disappeared for
whatever reason there was no way of determining the exact
quantity and cost of those materials. Hence, The Plaza was
correctly allowed to recover temperate damages.
Upon the foregoing, we find petitioners claim for actual, moral
and exemplary damages and attorneys fees lacking in legal
basis and undeserving of further discussion.

WHEREFORE, the petition is DENIED. The Decision dated June

27, 2006 and the Resolution dated April 20, 2007 of the Court
of Appeals in CA-G.R. CV No. 58790 are AFFIRMED.
With costs against petitioners.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-3316 October 31, 1951

JOSE PONCE DE LEON, plaintiff-appellant,

vs.
SANTIAGO SYJUCO, INC., defendant-appellant,
PHILIPPINE NATIONAL BANK, defendant-appellee.

Jose D. Cortes and Claro M. Recto for plaintiff and appellant.

Ramon Diokno and Jose Diokno for defendant and appellant.
Hilarion U. Jarencio for defendant and appellee.

BAUTISTA ANGELO, J.:

This is an appeal from a decision of the Court of First Instance

of Manila absolving defendant Santiago Syjuco, Inc. of the
complaint and condemning the plaintiff to pay to said
defendant the sum of P18,000 as principal and the further sum
of P5,130 as interest thereon from August 6, 1944, to May 5,
1949, or a total of P23,130, Philippine currency, with interest
thereon at the rate of 6% per annum from May 6, 1949, until
said amount is paid in full, with costs against the plaintiff.

The facts of this case as reflected in the pleadings and the

evidence, stripped of unnecessary details, are well narrated in
the brief submitted by counsel for the Philippine National
Bank, and which for purposes of this decision are hereunder
reproduced:

The appellee, Philippine National Bank, hereinafter to be

referred to as the Bank, was the owner of two (2) parcels of
land known as Lots 871 and 872 of the Murcia Cadastre,
Negros Occidental, more particularly described in Transfer
Certificates of Titles Nos. 17176 and 17175, respectively. On
March 9, 1936 the Bank executed a contract to sell the said
properties to the plaintiff, Jose Ponce de Leon, hereinafter to
be referred to as Ponce de Leon, the total price of P26,300,
payable as follows: (a) P2,630 upon the execution of the said
deed; and (b) the balance P23,670 in ten (10) annual
amortizations, the first amortization to fall due one year after
the execution of the said contract (See annex "A" Syjuco's
Segunda Contestacion Enmendada).

On May 5, 1944, Ponce de Leon obtained a loan from Santiago

Syjuco, Inc., hereinafter to be referred to a s Syjuco, in the
amount of P200,000 in Japanese Military Notes, payable
within one (1) year from May 5, 1948. It was also provided in
said promissory note that the promisor (Ponce de Leon) could
not pay, and the payee (Syjuco) could not demand, the
payment of said note except within the aforementioned
period. To secure the payment of said obligation, Ponce de
Leon mortgaged in favor of Syjuco the parcels of land which
he agreed to purchase from the Bank (See Annex "B", Syjuco's
Segunda Contestacion Enmendada).

On May 6, 1944, Ponce de Leon paid the Bank of the balance

of the purchase price amounting to P23,670 in Japanese
Military notes and, on the same date, the Bank executed in
favor of Ponce de Leon, a deed of absolute sale of the
aforementioned parcels of land (See Annex "F", Syjuco's
Segunda Contectacion Enmendada).

The deed of sale executed by the Bank in favor of Ponce de

Leon and the deed of mortgage executed by Ponce de Leon in
favor of Syjuco were registered in the Office of the Register of
Deeds of Negros Occidental and, as a consequence of such
registration, Transfer Certificate of Title Nos. 17175 and 17176
in the name of the Bank were cancelled and Transfer
Certificate of Title No. 398 (P.R.) and No. 399 (P.R.),
respectively, were issued in the name of Ponce de Leon. The
mortgage in favor of Syjuco was annotated on the back of said
certificates.

On July 31, 1944, Ponce de Leon obtained an additional loan

from Syjuco in the amount of P16,000 in Japanese Military
notes and executed in the latter's favor of promissory note of
the same tenor as the one had previously executed (R. on
Appeal, pp. 23-24)

On several occasions in October, 1944, Ponce de Leon

tendered to Syjuco the amount of P254,880 in Japanese
military notes in full payment of his indebtedness to Syjuco.
The amount tendered included not only the interest up to the
time of the tender, but also all the interest up to May 5, 1948.
Ponce de Leon also wrote to Syjuco a letter tendering the
payment of his indebtedness, including interests up to May 5,
1948, Syjuco, however, refused to accept such repeated
tenders. During the trial, Ponce de Leon explained that he
wanted to settle his obligations because as a member of the
guerilla forces he was being hunted by the Japanese and he
was afraid of getting caught and killed (t.s.n. pp. 14-15).

In view of Syjuco's refusal to accept the payment tendered by

Ponce de Leon, the latter deposited with the Clerk of Court, of
First Instance of Manila the amount of P254,880 and, on
November 4, 1944, he filed a complaint consigning the
amount so deposited to Syjuco. To this complaint Syjuco filed
his answer. The records of this case were destroyed as a result
of the war and after the liberation the same were
reconstituted (R. on A., pp. 1-17)

On May 15, 1946, Ponce de Leon filed a petition in the Court

of First Instance of Negros Occidental for the reconstitution of
transfer Certificates of Titles Nos. 17175 and 17176 in the
name of the Bank and, in an order dated June 4, 1946, the
Court ordered the reconstitution of said titles. In compliance
with said order, the Register of Deeds of Negros Occidental
issued Certificates of Title Nos. 1297-R and 1298-R in the
names of the Bank. Ponce de Leon then filed with the Register
of Deeds a copy of the deed of sale of the properties covered
by the said certificates of title issued by the Bank in his (Ponce
de Leon's) favor and the Register of Deeds cancelled the said
Certificates of Title Nos. 1297-R and 1298-R and issued in favor
of Ponce de Leon Transfer Certificates of Title Nos. 526-N and
527-N (R. on A., pp. 48-50).

On August 16, 1946, Ponce de Leon obtained an overdraft

account from the Bank in an amount not exceeding P135,000
and, on the same date, he executed a mortgage of the two
parcels of land covered by the reconstituted Transfer
Certificates of Title Nos. 526-N and 527-N in favor of the said
Bank to secure the payment of any amount which he may
obtain from the Bank under aforementioned overdraft
account. The overdraft account was granted by the Bank to
Ponce de Leon in good faith, said Bank not being aware of the
mortgage which Ponce de Leon had executed in favor of
Syjuco during the Japanese occupation, and said Bank
believing that the said properties had no lien or encumbrance
appeared annotated on the reconstituted certificates of Title
Nos. 526-N and 527-N in the name of Ponce de Leon (See
Testimony of Atty. Endriga).

On September 28, 1946, Syjuco filed a second amended

answer to Ponce de Leon's complaint and, in its "Tercera
Reconvention", it claimed that Ponce de Leon, by
reconstituting the titles in the name of the Bank, by causing
the Register of Deeds to have the said titles transferred in his
(Ponce de Leon's name, and by subsequently mortgaging the
said properties to the Bank as a guaranty for his overdraft
account, had violated the conditions of the morgage which
Ponce de Leon has executed in its favor during the Japanese
occupation. Syjuco then prayed that the mortgage executed
by Ponce de Leon in favor of the Bank be declared null and
void. (R. on A., pp. 32-53).

Ponce de Leon objected to the inclusion of the Bank as a cross-

defendant. (R on A. pp. 55-58). Notwithstanding said
objection, however, the lower court ordered the inclusion of
the Bank as a cross-defendant (R. on A., pp. 59-60).
On June 28, 1947, the Bank filed a motion to drop on the
ground that it had been misjoined and to dismiss on the
ground that the venue was improperly laid and there is
another action pending between the same parties for the
same cause (R. on A., pp. 65-75). The said motion was denied
by the lower court in its order dated October 7, 1947 (R. on A.,
pp. 95-100). In view of such denial, the Bank filed its answer
on October 29, 1947 (R. on A., pp. 101-106).

On June 24, 1949, the lower court rendered a decision

absolving Syjuco from Ponce de Leon's complaint and
condemning Ponce de Leon to pay Syjuco the total amount of
P23,130 with interest at the legal rate from May 6, 1949, until
fully paid (R. on A., pp. 107-135). Both Ponce de Leon and
Syjuco file their appeal from this decision.

The principal questions to be determined in this appeal are:

(1) Did the lower court err in not giving validity to the
consignation made by the plaintiff of the principal and interest
of his two promissory notes with the clerk of court?; (2) did
the lower court err in reducing the principal and interest of
said promissory notes to their just proportions using as a
pattern the Ballantyne schedule in effecting the reduction?;
(3) did the lower court err in disregarding the defense of
moratorium set up by the plaintiff against the counterclaim of
defendant Syjuco?; and (4) did the lower court err in not
passing on the question of priority between the mortgage
claim of defendant Syjuco and that of the Philippine National
Bank on the same set of properties on the ground that they
are situated in a province different from that in which this
action was brought? We will discuss these issues in the order
in which they are propounded.

1. It appears that plaintiff obtained from defendant Syjuco

two loans in 944. One is for P200,000 obtained on May 5,
1944, and another for P16,000 obtained on July 31, 1944.
These two loans appear in two promissory notes signed by the
plaintiff which were couched in practically the same terms and
conditions and were secured by two deeds of mortgage
covering the same parcels of land. In said promissory notes it
was expressly agreed upon that plaintiff shall pay the loans
"within one year from May 5, 1948, . . . peso for peso in the
coin or currency of the Government of the Philippines that, at
the time of payment above fixed it is the legal tender for public
and private debts, with interests at the rate of 6% per annum,
payable in advance for the first year, and semi-annually in
advance during the succeeding years", and that, the period
above set forth having been established for the mutual benefit
of the debtor and creditor, the former binds himself to pay,
and the latter not to demand the payment of, the loans except
within the period above mentioned. And as corollary to have
the above stipulations, it was likewise agreed upon in the two
deeds of mortgage that "if either party should attempt to
annul or alter any of the stipulations of this deed or of the note
which it secures, or do anything which has for its purpose or
effect an alteration or annulment of any of said stipulations,
he binds himself to indemnify the other for the losses and
damages, which the parties hereby liquidate and fix at the
amount of P200,000".
The facts show that, on November 15, 1944, or thereabouts,
contrary to the stipulation above mentioned, plaintiff offered
to pay to the defendant not only the principal sum due on the
two promissory notes but also all the interests which said
principal sum may earn up to the dates of maturity of the two
notes, and as the defendant refused to accept the payment so
tendered, plaintiff deposited the money with the clerk of court
and brought this action to compel the defendant to accept it
to relieve himself of further liability.

The question now to be determined is, is the consignation

made by the plaintiff valid in the light of the law and the
stipulations agreed upon in the two promissory notes signed
by the plaintiff? Our answer is in the negative.

In order that cogsignation may be effective, the debtor must

first comply with certain requirements prescribed by law. The
debtor must show (1) that there was a debt due; (2) that the
consignation of the obligation had been made bacause the
creditor to whom tender of payment was made refused to
accept it, or because he was absent for incapacitated, or
because several persons claimed to be entitled to receive the
amount due (Art. 1176, Civil Code); (3) that previous notice of
the consignation have been given to the person interested in
the performance of the obligation (Art. 1177, Civil Code); (4)
that the amount due was placed at the disposal of the court
(Art 1178, Civil Code); and (5) that after the consignation had
been made the person interested was notified thereof (Art.
1178, Civil Code). In the instant case, while it is admitted a
debt existed, that the consignation was made because of the
refusal of the creditor to accept it, and the filing of the
complaint to compel its acceptance on the part of the creditor
can be considered sufficient notice of the consignation to the
creditor, nevertheless, it appears that at least two of the
above requirements have not been complied with. Thus, it
appears that plaintiff, before making the consignation with the
clerk of the court, failed to give previous notice thereof to the
person interested in the performance of the obligation. It also
appears that the obligation was not yet due and demandable
when the money was consigned, because, as already stated,
by the very express provisions of the document evidencing the
same, the obligation was to be paid within one year after May
5, 1948, and the consignation was made before this period
matured. The failure of these two requirements is enough
ground to render the consignation ineffective. And it cannot
be contended that plaintiff is justified in accelerating the
payment of the obligation because he was willing to pay the
interests due up to the date of its maturity, because, under the
law, in a monetary obligation contracted with a period, the
presumption is that the same is deemed constituted in favor
of both the creditor and the debtor unless from its tenor or
from other circumstances it appears that the period has been
established for the benefit of either one of them (Art. 1127,
Civil Code). Here no such exception or circumstance exists.

It may be argued that the creditor has nothing to lose but

everything to gain by the acceleration of payment of the
obligation because the debtor has offered to pay all the
interests up to the date it would become due, but this
argument loses force if we consider that the payment of
interests is not the only reason why a creditor cannot be
forced to accept payment contrary to the stipulation. There
are other reasons why this cannot be done. One of them is that
the creditor may want to keep his money invested safely
instead of having it in his hands (Moore vs. Cord 14 Wis. 231).
Another reason is that the creditor by fixing a period protects
himself against sudden decline in the purchasing power of the
currency loaned specially at a time when there are many
factors that influence the fluctuation of the currency
(Kemmerer on Money, pp. 9-10). And all available authorities
on the matter are agreed that, unless the creditor consents,
the debtor has no right to accelerate the time of payment even
if the premature tender "included an offer to pay principal and
interest in full" (17 A.L.R. 866-867; 23 L.R.A. (N.S.) 403; see
ruling of this Court in the recent case of Ilusorio vs. Busuego,
84 Phil., 630).

Tested by the law and authorities we have cited above, the

conclusion is inescapable that the consignation made by the
plaintiff is invalid and, therefore, did not have the effect of
relieving him of his obligation.

2. The next question to be determined is whether the lower

court erred in reducing the amount of the loans by applying
the Ballantyne schedule.

This is not the first time that this question has been raised. On
two previous occasions this Court had been called upon to rule
on a similar question and has decided that when the creditor
and the debtor have agreed on a term within which payment
of the obligation should be paid and on the currency in which
payment should be made, that stipulation should be given
force and effect unless it appears contrary to law, moral or
public order. Thus, in one case this Court said: "One who
borrowed P4,000 in Japanese military notes on October 5,
1944, to be paid one year after, in currency then prevailing,
was ordered by the Supreme Court to pay said sum after
October 5, 1945, that is, after liberation, in Philippine currency
(Roo vs. Gomez et al., 83 Phil., 890). In another case, wherein
the parties executed a deed of sale with pacto de retro of a
parcel of land for the sum of P5,000 in Japanese military notes
agreeing that within 30 days after the expiration of one year
from June 24, 1944, the aforementioned land may be
redeemed sa ganito ding halaga (at the same price), the Court
held that the "phrase sa ganito ding halaga meant the same
price of P5,000 in Japanese war notes". The Court further said,
"The parties herein gambled and speculated on the date of the
termination of the war and the liberation of the Philippines by
America. This can be gleaned from the stipulation about
redemption, particularly that portion to the effect that
redemption could be effected not before the expiration of one
year from June 24, 1844. This kind of agreement is permitted
by law. We find nothing immoral or unlawful in it" (Gomez vs.
Tabia Off. Gaz., 641; 84 Phil., 269).

In this particular case, the terms agreed upon are clearer and
more conclusive than the ones cited because the plaintiff
agreed not only to pay the obligation within one year from
May 5, 1948, but also to pay peso for peso in the coin or
currency of the Government that at the time of payment it is
the legal tender for public and private debts. This stipulation
is permitted by law because there is nothing immoral or
improper in it. And it is not oppressive because it appears that
plaintiff used a great portion of that money to pay his
obligations during the Japanese occupation as shown by the
fact that he settled his account with the Philippine National
Bank and other accounts to the tune of P100,000. It would
seem therefore clear that plaintiff has no other alternative
than to pay the defendant his obligation peso for peso in the
present currency as expressly agreed upon in the two
promissory notes in question. The decision of the lower court
on this point should, therefore, be modified.

As regards the penal clause contained in the two deeds of

mortgage herein involved, we agree to the following finding of
the court a quo: "The attempt made by the plaintiff to pay the
obligation before the arrival of the term fixed for the purpose
may be wrong; but it may be attributed to an honest belief
that the term was not binding and not to a desire to modify
the contract". This penal clause should be strictly construed.

3. As regards the third question, we find that the lower

court erred in disregarding the defense of moratorium set up
by the plaintiff against the counterclaim of the defendant on
the sole ground that this defense was not raised by the
plaintiff in his pleadings. An examination of the record shows
that the plaintiff raised this question in his pleadings. This
must have been overlooked by the court.

The lower court, therefore, should have passed upon this

defense in the light of Executive Order No. 32, which
suspended payment of all obligations contracted before
March 10, 1945. We note, however, that said moratorium
orders have already been modified by Republic Act No. 342 in
the sense of limiting the ban on obligations contracted before
the outbreak of the war to creditors who have filed claims for
reparations with the Philippine War Damage Commission,
leaving them open to obligations contracted during the
Japanese occupation (Uy vs. Kalaw Katigbak, G.R. No. L-1830,
December 1, 1949). As the obligation in question has been
contracted during enemy occupation the same is still covered
by the moratorium orders. The claim of counsel for the
defendant that the moratorium orders cannot be invoked
because they are unconstitutional cannot now be determined
it appearing that it has been raised for the first time in this
instance. This defense of moratorium was raised by plaintiff in
his reply to the amended answer of the defendant dated
August 1, 1946, and in his motion to dismiss the counterclaim
dated October 29, 1946, but the defendant did not traverse
that allegation nor raise the constitutionality of the
moratorium orders in any of its pleadings filed in the lower
court. It is a well known rule that this Court can only considera
question of constitutionality when it has been raised by any of
the parties in the lower court (Laperal vs. City of Manila, 62
Phil., 352; Macondray and Co. vs. Benito and Ocampo, 62 Phil.,
137).

4. The facts relative to the execution of the deed of

mortgage in favor of the Philippine National Bank on the two
lots in question are as follows: On March 9, 1936, the
Philippine National Bank was the owner of the lots Nos. 872
and 871 of the Murcia Cadastre, Negros Occidental, covered
by Certificates of Titles Nos. 17175 and 17176 respectively. On
the same date, the Bank sold the two lots to the plaintiff and
as a result Transfer Certificates of Titles Nos. 398 and 399 were
issued in the name of the plaintiff. On May 5, 1944, plaintiff
mortgaged these two lots to defendant Syjuco to guarantee
the payment of two loans, one for P200,000 and another for
P16,000. The mortgage was registered in accordance with the
law. Then liberation came. Plaintiff taking advantage of the
destruction of the records of the office of the Register of
Deeds of Negros Occidental, obtained from the Court of First
Instance of said province the 33 reconstitution of Transfer
Certificate of Titles Nos. 17175 and 17176 and by virtue
thereof, the register of deeds issued transfer certificates of
titles Nos. 1297-R and 1298-R in the name of the Philippine
National Bank. Then he secured the cancellation of the titles
last named and the issuance of Transfer Certificates of Titles
Nos. 526-N and 527-N in his name without informing the court
of the encumbrance existing in favor of defendant Syjuco.
After securing the new titles in his name, plaintiff obtained a
loan from the Philippine National Bank for the sum of
P135,000 on the security of the property covered by said
reconstituted titles. On said titles no encumbrance appears
annotated, but it was noted thereon that they would be
subject to whatever claim may be filed by virtue of documents
or instruments previously registered but which, for some
reason, do not appear annotated thereon, as required by a
circular of the Department of Justice.

From the foregoing facts, it clearly appears that the mortgage

executed in favor of the defendant Syjuco is prior in point of
time and in point of registration to that executed in favor of
the Philippine National Bank, let alone the fact that when the
later mortgage was executed, the Bank must have known, as
it was its duty to find out, that there was a warning appearing
in reconstituted titles that the same were subject to whatever
encumbrance may exist which for one reason or another does
not appear in said titles. With such warning, the Bank should
have taken the necessary precaution to inquire into the
existence of any hidden transaction or encumbrance that
might affect the property that was being offered in security
such as the one existing in favor of the defendant, and when
the Bank accepted as security the titles offered by the plaintiff
without any further inquiry, it assumed the risk and the
consequences resulting therefrom. Moreover, it also appears
that this same question of priority has already been threshed
out and determined by the Court of First Instance of Negros
Occidental in the cadastral proceedings covered the two lots
in question wherein the court ordered the cancellation of the
reconstituted titles issued in the name of the plaintiff and the
reconstitution of the former titles copies of which were in the
possession of defendant Syjuco, subject only to the
requirement that the mortgage in favor of the Philippine
National Bank be annotated on said new titles. In other words,
the court declared valid the titles originally issued in the name
of the plaintiff wherein the encumbrance in favor of the
defendant Syjuco appears and declared invalid the
reconstituted titles secured by plaintiff through fraud and
misinterpretation. This order is now final because no appeal
has been taken therefrom by any interested party.

We have, therefore, no other alternative than to declare that

the mortgage claim of the defendant Syjuco is entitled to
priority over that of the Philippine National Bank. This
question can be threshed out here regardless of venue
because the counterclaim is but ancillary to the main case (1
Moran, Comments on the Rules of Court, 2nd ed., 201).
In view of the foregoing, the decision appealed from should be
modified in the sense of ordering the plaintiff to pay the
defendant Syjuco the sum of P216,000, Philippine currency,
value of two promissory notes, with interest thereon at the
rate of 6% per annum from May 6, 1949, until said amount is
paid in full. It is further ordered that should said amount,
together with the corresponding interests, be not paid within
90 days from the date this judgment in accordance with law,
with costs against the plaintiff.

However, this judgment shall be held in abeyance, or no order

for the execution thereof shall be issued, until after the
moratorium orders shall have been lifted.

Feria, Bengzon, Tuason, Reyes, and Jugo, JJ., concur.

[G.R. No. 136913. May 12, 2000]

ANITA C. BUCE, petitioner, vs. THE HONORABLE COURT OF

APPEALS, SPS. BERNARDO C. TIONGCO and ARACELI TIONGCO,
SPS. DIONISIO TIONGCO and LUCILA TIONGCO, and JOSE M.
TIONGCO, respondents.

DECISION

DAVIDE, JR., C.J.: Ncm

The basic issue in this petition is whether the parties intended

an automatic renewal of the lease contract[1] when they
agreed that the lease shall be for a period of fifteen years
"subject to renewal for another ten (10) years."

Petitioner leased a 56-square meter parcel of land located at

2068 Quirino Avenue, Pandacan, Manila. The lease contract
was for a period of fifteen years to commence on 1 June 1979
and to end on 1 June 1994 "subject to renewal for another ten
(10) years, under the same terms and conditions." Petitioner
then constructed a building and paid the required monthly
rental of P200. Private respondents, through their
administrator Jose Tiongco, later demanded a gradual
increase in the rental until it reached P400 in 1985. For July
and August 1991, petitioner paid private respondents P1,000
as monthly rental.[2]

On 6 December 1991, private respondents counsel wrote

petitioner informing her of the increase in the rent to
P1,576.58 effective January 1992 pursuant to the provisions of
the Rent Control Law.[3] Petitioner, however, tendered checks
dated 5 October 1991,[4] 5 November 1991,[5] 5 December
1991,[6] 5 January 1992,[7] 31 May 1992,[8] and 2 January
1993[9] for only P400 each, payable to Jose Tiongco as
administrator. As might be expected, private respondents
refused to accept the same.

On 9 August 1993, petitioner filed with the Regional Trial Court

of Manila a complaint for specific performance with prayer for
consignation, which was docketed as Civil Case No. 93-67135.
She prayed that private respondents be ordered to accept the
rentals in accordance with the lease contract and to respect
the lease of fifteen years, which was renewable for another
ten years, at the rate of P200 a month.

In their Answer, private respondents countered that

petitioner had already paid the monthly rent of P1,000 for July
and August 1991. Under Republic Act No. 877, as amended,
rental payments should already be P1,576.58[10] per month;
hence, they were justified in refusing the checks for P400 that
petitioner tendered. Moreover, the phrase in the lease
contract authorizing renewal for another ten years does not
mean automatic renewal; rather, it contemplates a mutual
agreement between the parties. Ncmmis

During the pendency of the controversy, counsel for private

respondents wrote petitioner reminding her that the contract
expired on 1 June 1994 and demanding that she pay the
rentals in arrears, which then amounted to P33,000.
On 29 August 1995, the RTC declared the lease contract
automatically renewed for ten years and considered as
evidence thereof (a) the stipulations in the contract giving the
lessee the right to construct buildings and improvements and
(b) the filing by petitioner of the complaint almost one year
before the expiration of the initial term of fifteen years. It then
fixed the monthly rent at P400 from 1 June 1990 to 1 June
1994; P1,000 from 1 June 1994 until 1 June 1999; and P1,500
for the rest of the period or from 1 June 2000 to 1 June 2004,
reasoning that the continuous increase of rent from P200 to
P250 then P300, P400 and finally P1,000 caused "an inevitable
novation of their contract."[11]

On appeal, the Court of Appeals reversed the decision of the

RTC, and ordered petitioner to immediately vacate the leased
premises on the ground that the contract expired on 1 June
1994 without being renewed and to pay the rental arrearages
at the rate of P1,000 monthly.[12]

According to the Court of Appeals, the phrase in the contract

"this lease shall be for a period of fifteen (15) years effective
June 1, 1979, subject to renewal for another ten (10) years,
under the same terms and conditions" is unclear as to who
may exercise the option to renew. The stipulation allowing the
construction of a building and other improvements and the
fact that the complaint was filed a year before the expiration
of the contract are not indicative of automatic renewal. It
applied the ruling in Fernandez v. Court of Appeals[13] that
without a stipulation that the option to renew the lease is
solely for the benefit of one party any renewal of a lease
contract must be upon the agreement of the parties. Since
private respondents were not agreeable to an extension, the
original term of the lease ended on 1 June 1994. Private
respondents refusal to accept petitioners checks for P400 was
justified because although the original contract specified a
monthly rental of P200, the tender and acceptance of the
increased rental of P1,000 novated the contract of lease; thus,
petitioner was estopped from claiming that the monthly rental
is otherwise.

The Court of Appeals denied petitioners motion for

reconsideration. Hence this petition. Scncm

Petitioner contends that by ordering her to vacate the

premises, the Appellate Court went beyond the bounds of its
authority because the case she filed before the RTC was for
"Specific Performance" not unlawful detainer. The power to
order the lessee to vacate the leased premises is lodged in
another forum. Additionally, private respondents did not pray
for the ejectment of petitioners from the leased premises in
their Answer with Counterclaim; well-settled is the rule that a
court cannot award relief not prayed for in the complaint or
compulsory counterclaim.

Petitioner further maintains that the phrase "renewable for

another ten years at the option of both parties" in the
Fernandez case clearly indicated the intention of the parties to
renew the contract only upon mutual agreement. Whereas in
this case the contract states, "[T]his lease shall be for a period
of fifteen (15) years effective June 1, 1979, subject to renewal
for another ten (10) years, under the same terms and
conditions," making this stipulation subject to interpretation
with due regard to the contemporaneous and subsequent acts
of the parties. The stipulation in the contract allowing the
lessee to construct buildings and improvements; her filing of
the complaint a year before the expiration of the initial 15-
year term; and private respondents acceptance of the
increased rental are contemporaneous and subsequent acts
that signify the intention of the parties to renew the contract.

On the other hand, private respondents aver that even if the

original petition filed before the RTC was not for unlawful
detainer, the order of the Court of Appeals requiring
petitioner to vacate the premises is but a logical consequence
of its finding that the lease contract had expired. To require
another litigation would constitute multiplicity of suits;
besides, petitioner has no other reason to stay in the premises.
There is no basis why Fernandez should not be applied to the
case at bar. Absent contrary stipulation in reciprocal contracts,
the period of lease is deemed to be for the benefit of both
parties. Sdaamiso

Private respondents argue that the alleged contemporaneous

and subsequent acts do not determine the real intention of
the parties as regards renewal of the lease contract. Had they
intended an automatic renewal of the lease contract they
would have agreed on a 25-year period instead. Correlatively,
private respondents letter reminding petitioner of the
expiration of the contract on 1 June 1994 and demanding
payment of the rentals in arrears signifies that they are no
longer interested in renewing the contract. Also petitioners
refusal to pay the increased rental of P1,000 as early as 1991
and private respondents refusal to accept the P400 tendered
constituted a disagreement on the rate of rental; hence, any
renewal is out of the question.

The basic issue, as agreed upon by the parties, is the correct

interpretation of the contract provision "this lease shall be for
a period of fifteen (15) years effective June 1, 1979, subject to
renewal for another ten (10) years, under the same terms and
conditions."

The literal meaning of the stipulations shall control if the terms

of the contract are clear and leave no doubt upon the
intention of the contracting parties.[14] However, if the terms
of the agreement are ambiguous resort is made to contract
interpretation which is the determination of the meaning
attached to written or spoken words that make the
contract.[15] Also, to ascertain the true intention of the
parties, their actions, subsequent or contemporaneous, must
be principally considered.[16]

The phrase "subject to renewal for another ten (10) years" is

unclear on whether the parties contemplated an automatic
renewal or extension of the term, or just an option to renew
the contract; and if what exists is the latter, who may exercise
the same or for whose benefit it was stipulated.

In this jurisdiction, a fine delineation exists between renewal

of the contract and extension of its period. Generally, the
renewal of a contract connotes the death of the old contract
and the birth or emergence of a new one. A clause in a lease
providing for an extension operates of its own force to create
an additional term, but a clause providing for a renewal merely
creates an obligation to execute a new lease contract for the
additional term. As renewal of the contract contemplates the
cessation of the old contract, then it is necessary that a new
one be executed between the parties.[17] Sdaad

There is nothing in the stipulations in the contract and the

parties actuation that shows that the parties intended an
automatic renewal or extension of the term of the contract.
Even the RTC conceded that the issue of automatic renewal is
debatable. The fact that the lessee was allowed to introduce
improvements on the property is not indicative of the
intention of the lessors to automatically extend the contract.
Considering the original 15-year duration of the contract,
structures would have necessarily been constructed, added,
or built on the property, which in its previous state was an idle
56-square meter lot in the heart of Manila. Petitioner leased
the property for the purpose of turning it into a commercial
establishment and to which it has been transformed as Anitas
Grocery and Store. Neither the filing of the complaint a year
before the expiration of the 15-year term nor private
respondents acceptance of the increased rentals has any
bearing on the intention of the parties regarding renewal. It
must be recalled that the filing of the complaint was even
spawned by private respondents refusal to accept the
payment of monthly rental in the amount of only P400.

Now on the applicability of Fernandez v. Court of Appeals to

the case at bar. Although the factual scenario in that case with
regard to the renewal option is slightly off-tangent to the case
under consideration because the intention of the parties
therein for future mutual agreement was clearly discernible in
their contract, we cannot completely disregard the
pronouncement of this Court in that case; thus:

[I]n a reciprocal contract like a lease, the period must be

deemed to have been agreed upon for the benefit of both
parties, absent language showing that the term was
deliberately set for the benefit of the lessee or lessor
alone.[18] We are not aware of any presumption in law that
the term was deliberately set for the benefit of the lessee
alone. Koh and Cruz in effect rested upon such a presumption.
But that presumption cannot reasonably be indulged in
casually in an era of rapid economic change, marked by,
among other things, volatile costs of living and fluctuations in
the value of domestic currency. The longer the period the
more clearly unreasonable such a presumption would be. In
an age like that we live in, very specific language is necessary
to show an intent to grant a unilateral faculty to extend or
renew a contract of lease to the lessee alone or to the lessor
alone for that matter.[19] Scsdaad

In the case at bar, it was not specifically indicated who may

exercise the option to renew, neither was it stated that the
option was given for the benefit of herein petitioner. Thus,
pursuant to the Fernandez ruling and Article 1196 of the Civil
Code, the period of the lease contract is deemed to have been
set for the benefit of both parties. Renewal of the contract
may be had only upon their mutual agreement or at the will of
both of them. Since the private respondents were not
amenable to a renewal, they cannot be compelled to execute
a new contract when the old contract terminated on 1 June
1994. It is the owner-lessors prerogative to terminate the
lease at its expiration.[20] The continuance, effectivity and
fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the lessee
between continuing the payment of the rentals or not,
completely depriving the owner of any say in the matter.
Mutuality does not obtain in such a contract of lease and no
equality exists between the lessor and the lessee since the life
of the contract would be dictated solely by the lessee.[21]

After the lease terminated on 1 June 1994 without any

agreement for renewal being reached, petitioner became
subject to ejectment from the premises.[22] It must be noted,
however, that private respondents did not include in their
Answer with Counterclaim a prayer for the restoration of
possession of the leased premises. Neither did they file with
the proper Metropolitan Trial Court an unlawful detainer
suit[23] against petitioner after the expiration of the lease
contact. Moreover, the issues agreed upon by the parties to
be resolved during the pre-trial were the correct
interpretation of the contract and the validity of private
respondents refusal to accept petitioners payment of P400 as
monthly rental.[24] They later limited the issue to the first, i.e.,
the correct interpretation of the contract.[25] The issue of
possession of the leased premises was not among the issues
agreed upon by the parties or threshed out before the court a
quo. Neither was it raised by private respondents on appeal.

Accordingly, as correctly contended by the petitioner, the

Court of Appeals went beyond the bounds of its authority[26]
when after interpreting the questioned provision of the lease
contract in favor of the private respondents it proceeded to
order petitioner to vacate the subject premises.

WHEREFORE, the instant petition is partly GRANTED. The

assailed decision of the Court of Appeals is REVERSED insofar
as it ordered the petitioner to immediately vacate the leased
premises, without prejudice, however, to the filing by the
private respondents of an action for the recovery of
possession of the subject property.

No costs.

SO ORDERED. DAVIDE, JR.

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22558 May 31, 1967

GREGORIO ARANETA, INC., petitioner,

vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD.,
respondent.

Araneta and Araneta for petitioner.

Rosauro Alvarez and Ernani Cruz Pao for respondent.

REYES, J.B.L., J.:

Petition for certiorari to review a judgment of the Court of

Appeals, in its CA-G.R. No. 28249-R, affirming with
modification, an amendatory decision of the Court of First
Instance of Manila, in its Civil Case No. 36303, entitled
"Philippine Sugar Estates Development Co., Ltd., plaintiff,
versus J. M. Tuason & Co., Inc. and Gregorio Araneta, Inc.,
defendants."

As found by the Court of Appeals, the facts of this case are:

J. M. Tuason & Co., Inc. is the owner of a big tract land situated
in Quezon City, otherwise known as the Sta. Mesa Heights
Subdivision, and covered by a Torrens title in its name. On July
28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.) sold
a portion thereof with an area of 43,034.4 square meters,
more or less, for the sum of P430,514.00, to Philippine Sugar
Estates Development Co., Ltd. The parties stipulated, among
in the contract of purchase and sale with mortgage, that the
buyer will

Build on the said parcel land the Sto. Domingo Church and
Convent

while the seller for its part will

Construct streets on the NE and NW and SW sides of the land

herein sold so that the latter will be a block surrounded by
streets on all four sides; and the street on the NE side shall be
named "Sto. Domingo Avenue;"

The buyer, Philippine Sugar Estates Development Co., Ltd.,

finished the construction of Sto. Domingo Church and
Convent, but the seller, Gregorio Araneta, Inc., which began
constructing the streets, is unable to finish the construction of
the street in the Northeast side named (Sto. Domingo Avenue)
because a certain third-party, by the name of Manuel Abundo,
who has been physically occupying a middle part thereof,
refused to vacate the same; hence, on May 7, 1958, Philippine
Sugar Estates Development Co., Lt. filed its complaint against
J. M. Tuason & Co., Inc., and instance, seeking to compel the
latter to comply with their obligation, as stipulated in the
above-mentioned deed of sale, and/or to pay damages in the
event they failed or refused to perform said obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta,
Inc. answered the complaint, the latter particularly setting up
the principal defense that the action was premature since its
obligation to construct the streets in question was without a
definite period which needs to he fixed first by the court in a
proper suit for that purpose before a complaint for specific
performance will prosper.

The issues having been joined, the lower court proceeded with
the trial, and upon its termination, it dismissed plaintiff's
complaint (in a decision dated May 31, 1960), upholding the
defenses interposed by defendant Gregorio Araneta,
Inc.1wph1.t

Plaintiff moved to reconsider and modify the above decision,

praying that the court fix a period within which defendants will
comply with their obligation to construct the streets in
question.

Defendant Gregorio Araneta, Inc. opposed said motion,

maintaining that plaintiff's complaint did not expressly or
impliedly allege and pray for the fixing of a period to comply
with its obligation and that the evidence presented at the trial
was insufficient to warrant the fixing of such a period.

On July 16, 1960, the lower court, after finding that "the
proven facts precisely warrants the fixing of such a period,"
issued an order granting plaintiff's motion for reconsideration
and amending the dispositive portion of the decision of May
31, 1960, to read as follows:
WHEREFORE, judgment is hereby rendered giving defendant
Gregorio Araneta, Inc., a period of two (2) years from notice
hereof, within which to comply with its obligation under the
contract, Annex "A".

Defendant Gregorio Araneta, Inc. presented a motion to

reconsider the above quoted order, which motion, plaintiff
opposed.

On August 16, 1960, the lower court denied defendant

Gregorio Araneta, Inc's. motion; and the latter perfected its
appeal Court of Appeals.

In said appellate court, defendant-appellant Gregorio Araneta,

Inc. contended mainly that the relief granted, i.e., fixing of a
period, under the amendatory decision of July 16, 1960, was
not justified by the pleadings and not supported by the facts
submitted at the trial of the case in the court below and that
the relief granted in effect allowed a change of theory after
the submission of the case for decision.

Ruling on the above contention, the appellate court declared

that the fixing of a period was within the pleadings and that
there was no true change of theory after the submission of the
case for decision since defendant-appellant Gregorio Araneta,
Inc. itself squarely placed said issue by alleging in paragraph 7
of the affirmative defenses contained in its answer which
reads

7. Under the Deed of Sale with Mortgage of July 28, 1950,

herein defendant has a reasonable time within which to
comply with its obligations to construct and complete the
streets on the NE, NW and SW sides of the lot in question; that
under the circumstances, said reasonable time has not
elapsed;

Disposing of the other issues raised by appellant which were

ruled as not meritorious and which are not decisive in the
resolution of the legal issues posed in the instant appeal
before us, said appellate court rendered its decision dated
December 27, 1963, the dispositive part of which reads

IN VIEW WHEREOF, judgment affirmed and modified; as a

consequence, defendant is given two (2) years from the date
of finality of this decision to comply with the obligation to
construct streets on the NE, NW and SW sides of the land sold
to plaintiff so that the same would be a block surrounded by
streets on all four sides.

Unsuccessful in having the above decision reconsidered,

defendant-appellant Gregorio Araneta, Inc. resorted to a
petition for review by certiorari to this Court. We gave it due
course.

We agree with the petitioner that the decision of the Court of

Appeals, affirming that of the Court of First Instance is legally
untenable. The fixing of a period by the courts under Article
1197 of the Civil Code of the Philippines is sought to be
justified on the basis that petitioner (defendant below) placed
the absence of a period in issue by pleading in its answer that
the contract with respondent Philippine Sugar Estates
Development Co., Ltd. gave petitioner Gregorio Araneta, Inc.
"reasonable time within which to comply with its obligation to
construct and complete the streets." Neither of the courts
below seems to have noticed that, on the hypothesis stated,
what the answer put in issue was not whether the court should
fix the time of performance, but whether or not the parties
agreed that the petitioner should have reasonable time to
perform its part of the bargain. If the contract so provided,
then there was a period fixed, a "reasonable time;" and all that
the court should have done was to determine if that
reasonable time had already elapsed when suit was filed if it
had passed, then the court should declare that petitioner had
breached the contract, as averred in the complaint, and fix the
resulting damages. On the other hand, if the reasonable time
had not yet elapsed, the court perforce was bound to dismiss
the action for being premature. But in no case can it be
logically held that under the plea above quoted, the
intervention of the court to fix the period for performance was
warranted, for Article 1197 is precisely predicated on the
absence of any period fixed by the parties.

Even on the assumption that the court should have found that
no reasonable time or no period at all had been fixed (and the
trial court's amended decision nowhere declared any such
fact) still, the complaint not having sought that the Court
should set a period, the court could not proceed to do so
unless the complaint in as first amended; for the original
decision is clear that the complaint proceeded on the theory
that the period for performance had already elapsed, that the
contract had been breached and defendant was already
answerable in damages.
Granting, however, that it lay within the Court's power to fix
the period of performance, still the amended decision is
defective in that no basis is stated to support the conclusion
that the period should be set at two years after finality of the
judgment. The list paragraph of Article 1197 is clear that the
period can not be set arbitrarily. The law expressly prescribes
that

the Court shall determine such period as may under the

circumstances been probably contemplated by the parties.

All that the trial court's amended decision (Rec. on Appeal, p.

124) says in this respect is that "the proven facts precisely
warrant the fixing of such a period," a statement manifestly
insufficient to explain how the two period given to petitioner
herein was arrived at.

It must be recalled that Article 1197 of the Civil Code involves

a two-step process. The Court must first determine that "the
obligation does not fix a period" (or that the period is made to
depend upon the will of the debtor)," but from the nature and
the circumstances it can be inferred that a period was
intended" (Art. 1197, pars. 1 and 2). This preliminary point
settled, the Court must then proceed to the second step, and
decide what period was "probably contemplated by the
parties" (Do., par. 3). So that, ultimately, the Court can not fix
a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown
to have intended. As the record stands, the trial Court appears
to have pulled the two-year period set in its decision out of
thin air, since no circumstances are mentioned to support it.
Plainly, this is not warranted by the Civil Code.

In this connection, it is to be borne in mind that the contract

shows that the parties were fully aware that the land
described therein was occupied by squatters, because the fact
is expressly mentioned therein (Rec. on Appeal, Petitioner's
Appendix B, pp. 12-13). As the parties must have known that
they could not take the law into their own hands, but must
resort to legal processes in evicting the squatters, they must
have realized that the duration of the suits to be brought
would not be under their control nor could the same be
determined in advance. The conclusion is thus forced that the
parties must have intended to defer the performance of the
obligations under the contract until the squatters were duly
evicted, as contended by the petitioner Gregorio Araneta, Inc.

The Court of Appeals objected to this conclusion that it would

render the date of performance indefinite. Yet, the
circumstances admit no other reasonable view; and this very
indefiniteness is what explains why the agreement did not
specify any exact periods or dates of performance.

It follows that there is no justification in law for the setting the

date of performance at any other time than that of the
eviction of the squatters occupying the land in question; and
in not so holding, both the trial Court and the Court of Appeals
committed reversible error. It is not denied that the case
against one of the squatters, Abundo, was still pending in the
Court of Appeals when its decision in this case was rendered.
In view of the foregoing, the decision appealed from is
reversed, and the time for the performance of the obligations
of petitioner Gregorio Araneta, Inc. is hereby fixed at the date
that all the squatters on affected areas are finally evicted
therefrom.

Costs against respondent Philippine Sugar Estates

Development, Co., Ltd. So ordered.

Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, J.P.,

Sanchez and Castro, JJ., concur.
search

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 112127 July 17, 1995

CENTRAL PHILIPPINE UNIVERSITY, petitioner,

vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N.
LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND
REMARENE LOPEZ, respondents.

BELLOSILLO, J.:

CENTRAL PHILIPPINE UNIVERSITY filed this petition for review

on certiorari of the decision of the Court of Appeals which
reversed that of the Regional Trial Court of Iloilo City directing
petitioner to reconvey to private respondents the property
donated to it by their predecessor-in-interest.

Sometime in 1939, the late Don Ramon Lopez, Sr., who was
then a member of the Board of Trustees of the Central
Philippine College (now Central Philippine University [CPU]),
executed a deed of donation in favor of the latter of a parcel
of land identified as Lot No. 3174-B-1 of the subdivision plan
Psd-1144, then a portion of Lot No. 3174-B, for which Transfer
Certificate of Title No. T-3910-A was issued in the name of the
donee CPU with the following annotations copied from the
deed of donation

1. The land described shall be utilized by the CPU exclusively

for the establishment and use of a medical college with all its
buildings as part of the curriculum;

2. The said college shall not sell, transfer or convey to any

third party nor in any way encumber said land;

3. The said land shall be called "RAMON LOPEZ CAMPUS",

and the said college shall be under obligation to erect a
cornerstone bearing that name. Any net income from the land
or any of its parks shall be put in a fund to be known as the
"RAMON LOPEZ CAMPUS FUND" to be used for improvements
of said campus and erection of a building thereon. 1

On 31 May 1989, private respondents, who are the heirs of

Don Ramon Lopez, Sr., filed an action for annulment of
donation, reconveyance and damages against CPU alleging
that since 1939 up to the time the action was filed the latter
had not complied with the conditions of the donation. Private
respondents also argued that petitioner had in fact negotiated
with the National Housing Authority (NHA) to exchange the
donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private
respondents to file the action had prescribed; that it did not
violate any of the conditions in the deed of donation because
it never used the donated property for any other purpose than
that for which it was intended; and, that it did not sell, transfer
or convey it to any third party.

On 31 May 1991, the trial court held that petitioner failed to

comply with the conditions of the donation and declared it null
and void. The court a quo further directed petitioner to
execute a deed of the reconveyance of the property in favor
of the heirs of the donor, namely, private respondents herein.

Petitioner appealed to the Court of Appeals which on 18 June

1993 ruled that the annotations at the back of petitioner's
certificate of title were resolutory conditions breach of which
should terminate the rights of the donee thus making the
donation revocable.

The appellate court also found that while the first condition
mandated petitioner to utilize the donated property for the
establishment of a medical school, the donor did not fix a
period within which the condition must be fulfilled, hence,
until a period was fixed for the fulfillment of the condition,
petitioner could not be considered as having failed to comply
with its part of the bargain. Thus, the appellate court rendered
its decision reversing the appealed decision and remanding
the case to the court of origin for the determination of the
time within which petitioner should comply with the first
condition annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in
holding that the quoted annotations in the certificate of title
of petitioner are onerous obligations and resolutory
conditions of the donation which must be fulfilled non-
compliance of which would render the donation revocable; (b)
in holding that the issue of prescription does not deserve
"disquisition;" and, (c) in remanding the case to the trial court
for the fixing of the period within which petitioner would
establish a medical college. 2

We find it difficult to sustain the petition. A clear perusal of

the conditions set forth in the deed of donation executed by
Don Ramon Lopez, Sr., gives us no alternative but to conclude
that his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the
donation itself, e.g., when a donation imposes a burden
equivalent to the value of the donation. A gift of land to the
City of Manila requiring the latter to erect schools, construct a
children's playground and open streets on the land was
considered an onerous donation. 3 Similarly, where Don
Ramon Lopez donated the subject parcel of land to petitioner
but imposed an obligation upon the latter to establish a
medical college thereon, the donation must be for an onerous
consideration.

Under Art. 1181 of the Civil Code, on conditional obligations,

the acquisition of rights, as well as the extinguishment or loss
of those already acquired, shall depend upon the happening
of the event which constitutes the condition. Thus, when a
person donates land to another on the condition that the
latter would build upon the land a school, the condition
imposed was not a condition precedent or a suspensive
condition but a resolutory one. 4 It is not correct to say that
the schoolhouse had to be constructed before the donation
became effective, that is, before the donee could become the
owner of the land, otherwise, it would be invading the
property rights of the donor. The donation had to be valid
before the fulfillment of the condition. 5 If there was no
fulfillment or compliance with the condition, such as what
obtains in the instant case, the donation may now be revoked
and all rights which the donee may have acquired under it shall
be deemed lost and extinguished.

The claim of petitioner that prescription bars the instant

action of private respondents is unavailing.

The condition imposed by the donor, i.e., the building of a

medical school upon the land donated, depended upon the
exclusive will of the donee as to when this condition shall be
fulfilled. When petitioner accepted the donation, it bound
itself to comply with the condition thereof. Since the time
within which the condition should be fulfilled depended upon
the exclusive will of the petitioner, it has been held that its
absolute acceptance and the acknowledgment of its obligation
provided in the deed of donation were sufficient to prevent
the statute of limitations from barring the action of private
respondents upon the original contract which was the deed of
donation. 6

Moreover, the time from which the cause of action accrued

for the revocation of the donation and recovery of the
property donated cannot be specifically determined in the
instant case. A cause of action arises when that which should
have been done is not done, or that which should not have
been done is done. 7 In cases where there is no special
provision for such computation, recourse must be had to the
rule that the period must be counted from the day on which
the corresponding action could have been instituted. It is the
legal possibility of bringing the action which determines the
starting point for the computation of the period. In this case,
the starting point begins with the expiration of a reasonable
period and opportunity for petitioner to fulfill what has been
charged upon it by the donor.

The period of time for the establishment of a medical college

and the necessary buildings and improvements on the
property cannot be quantified in a specific number of years
because of the presence of several factors and circumstances
involved in the erection of an educational institution, such as
government laws and regulations pertaining to education,
building requirements and property restrictions which are
beyond the control of the donee.

Thus, when the obligation does not fix a period but from its
nature and circumstances it can be inferred that a period was
intended, the general rule provided in Art. 1197 of the Civil
Code applies, which provides that the courts may fix the
duration thereof because the fulfillment of the obligation itself
cannot be demanded until after the court has fixed the period
for compliance therewith and such period has arrived. 8

This general rule however cannot be applied considering the

different set of circumstances existing in the instant case.
More than a reasonable period of fifty (50) years has already
been allowed petitioner to avail of the opportunity to comply
with the condition even if it be burdensome, to make the
donation in its favor forever valid. But, unfortunately, it failed
to do so. Hence, there is no more need to fix the duration of a
term of the obligation when such procedure would be a mere
technicality and formality and would serve no purpose than to
delay or lead to an unnecessary and expensive multiplication
of suits. 9 Moreover, under Art. 1191 of the Civil Code, when
one of the obligors cannot comply with what is incumbent
upon him, the obligee may seek rescission and the court shall
decree the same unless there is just cause authorizing the
fixing of a period. In the absence of any just cause for the court
to determine the period of the compliance, there is no more
obstacle for the court to decree the rescission claimed.

Finally, since the questioned deed of donation herein is

basically a gratuitous one, doubts referring to incidental
circumstances of a gratuitous contract should be resolved in
favor of the least transmission of rights and interests. 10
Records are clear and facts are undisputed that since the
execution of the deed of donation up to the time of filing of
the instant action, petitioner has failed to comply with its
obligation as donee. Petitioner has slept on its obligation for
an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that petitioner as
donee should now return the donated property to the heirs of
the donor, private respondents herein, by means of
reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo,
Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the
decision of the Court of Appeals of 18 June 1993 is accordingly
MODIFIED. Consequently, petitioner is directed to reconvey to
private respondents Lot No. 3174-B-1 of the subdivision plan
Psd-1144 covered by Transfer Certificate of Title No. T-3910-A
within thirty (30) days from the finality of this judgment.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-7721 March 25, 1914

INCHAUSTI & CO., plaintiff-appellant,

vs.
GREGORIO YULO, defendant-appellee.

Hausserman, Cohn and Fisher for appellant.

Rohde and Wright for appellee.
Bruce, Lawrence, Ross and Block, Amici Curiae, for Manuel,
Francisco and Carmen Yulo.

ARELLANO, C.J.:

This suit is brought for the recovery of a certain sum of money,

the balance of a current account opened by the firm of
Inchausti & Company with Teodoro Yulo and after his death
continued with his widow and children, whose principal
representative is Gregorio Yulo. Teodoro Yulo, a property
owner of Iloilo, for the exploitation and cultivation of his
numerous haciendas in the province of Occidental Negros, had
been borrowing money from the firm of Inchausti & Company
under specific conditions. On April 9, 1903; Teodoro Yulo died
testate and for the execution of the provisions of his will he
had appointed as administrators his widow and five of his
sons, Gregorio Yulo being one of the latter. He thus left a
widow, Gregoria Regalado, who died on October 22d of the
following year, 1904, there remaining of the marriage the
following legitimate children: Pedro, Francisco, Teodoro,
Manuel, Gregorio, Mariano, Carmen, Concepcion, and Jose
Yulo y Regalado. Of these children Concepcion and Jose were
minors, while Teodoro was mentally incompetent. At the
death of their predecessor in interest, Teodoro Yulo, his
widow and children held the conjugal property in common
and at the death of this said widow, Gregoria Regalado, these
children preserved the same relations under the name of Hijos
de T. Yulo continuing their current account with Inchausti &
Company in the best and most harmonious reciprocity until
said balance amounted to two hundred thousand pesos. In for
the payment of the disbursements of money which until that
time it had been making in favor of its debtors, the Yulos.

First. Gregorio Yulo, for himself and in representation of his

brothers Pedro Francisco, Manuel, Mariano, and Carmen,
executed on June 26, 1908, a notarial document (Exhibit S)
whereby all admitted their indebtedness to Inchausti &
Company in the sum of P203,221.27 and, in order to secure
the same with interest thereon at 10 per cent per annum, they
especially mortgaged an undivided six-ninth of their thirty-
eight rural properties, their remaining urban properties,
lorchas, and family credits which were listed, obligating
themselves to make a forma inventory and to describe in due
form all the said properties, as well as to cure all the defects
which might prevent the inscription of the said instrument in
the registry of property and finally to extend by the necessary
formalities the aforesaid mortgage over the remaining three-
ninths part of all the property and rights belonging to their
other brothers, the incompetent Teodoro, and the minors
Concepcion and Jose.

Second. On January 11, 1909, Gregorio Yulo in representation

of Hijos de T. Yulo answered a letter of the firm of Inchausti &
Company in these terms: "With your favor of the 2d inst. we
have received an abstract of our current account with your
important firm, closed on the 31st of last December, with
which we desire to express our entire conformity as also with
the balance in your favor of P271,863.12." On July 17, 1909,
Inchausti & Company informed Hijos de T. Yulo of the
reduction of the said balance to P253,445.42, with which
balance Hijos de T. Yulo expressed its conformity by means of
a letter of the 19th of the same month and year. Regarding
this conformity a new document evidencing the mortgage
credit was formalized.

Third. On August 12, 1909, Gregorio Yulo, for himself and in

representation of his brother Manuel Yulo, and in their own
behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and
Concepcion Yulo, the latter being of age at the time, executed
the notarial instrument (Exhibit X). Through this, the said
persons, including Concepcion Yulo ratified all the contents of
the prior document of June 26, 1908, severally and jointly
acknowledged and admitted their indebtedness to Inchausti &
Company for the net amount of two hundred fifty-three
thousand four hundred forty-five pesos and forty-two
centavos (P253,445.42) which they obligated themselves to
pay, with interest at ten per cent per annum, in five
installments at the rate of fifty thousand pesos (P50,000),
except the last, this being fifty-three thousand four hundred
forty-five pesos and forty-two centavos (P53,445.42),
beginning June 30, 1910, continuing successively on the 30th
of each June until the last payment on June 30, 1914. Among
other clauses, they expressly stipulated the following:

Fifth. The default in payment of any of the installments

established in clause 3, or the noncompliance of any of the
other obligations which by the present document and that of
June 26, 1908, we, the Yulos, brothers and sisters, have
assumed, will result in the maturity of all the said installments,
and as a consequence thereof, if they so deem expedient
Messrs. Inchausti & Company may exercise at once all the
rights and actions which to them appertain in order to obtain
the immediate and total payment of our debt, in the same
manner that they would have so done at the maturity of the
said installments.

Fifteenth. All the obligations which by this, as well as by the

document of June 26, 1908, concern us, will be understood as
having been contradicted in solidum by all of us, the Yulos,
brothers and sisters.

Sixteenth. It is also agreed that this instrument shall be

confirmed and ratified in all its parts, within the present week,
by our brother Don Mariano Yulo y Regalado who resides in
Bacolod, otherwise it will not be binding on Messrs. Inchausti
& Company who can make use of their rights to demand and
obtain immediate payment of their credit without any further
extension or delay, in accordance with what we have agreed.
Fourth. This instrument was neither ratified nor confirmed
by Mariano Yulo.

Fifth. The Yulos, brothers and sisters, who executed the

preceding instrument, did not pay the first installment of the
obligation.

Sixth. Therefore, on March 27, 1911, Inchausti & Company

brought an ordinary action in the Court of First Instance of
Iloilo, against Gregorio Yulo for the payment of the said
balance due of two hundred fifty-three thousand, four
hundred forty-five pesos and forty-two centavos P253,445.42)
with interest at ten per cent per annum, on that date
aggregating forty-two thousand, nine hundred forty-four
pesos and seventy-six centavos (P42,944.76)

Seventh. But, on May 12, 1911, Francisco, Manuel, and

Carmen Yulo y Regalado executed in favor Inchausti &
Company another notarial instrument in recognition of the
debt and obligation of payment in the following terms: "First,
the debt is reduce for them to two hundred twenty-five
thousand pesos (P225,000); second, the interest is likewise
reduced for them to 6 percent per annum, from March 15,
1911; third, the installments are increase to eight, the first of
P20,000, beginning on June 30, 1911, and the rest of P30,000
each on the same date of each successive year until the total
obligation shall be finally and satisfactorily paid on June 30,
1919," it being expressly agreed "that if any of the partial
payments specified in the foregoing clause be not paid at its
maturity, the amount of the said partial payment together
with its interest shall bear interest at the rate of 15 per cent
per annum from the date of said maturity, without the
necessity of demand until its complete payment;" that "if
during two consecutive years the partial payments agreed
upon be not made, they shall lose the right to make use of the
period granted to them for the payment of the debt or the part
thereof which remains unpaid, and that Messrs. Inchausti &
Company may consider the total obligation due and
demandable, and proceed to collect the same together with
the interest for the delay above stipulated through all legal
means." (4th clause.)

Thus was it stipulated between Inchausti & Company and the

said three Yulos, brothers and sisters by way of compromise
so that Inchausti & Company might, as it did, withdraw the
claims pending in the special proceedings for the probate of
the will of Don Teodoro Yulo and of the intestacy of Doa
Gregoria Regalado stipulating expressly however in the
sixth clause that "Inchausti & Company should include in their
suit brought in the Court of First Instance of Iloilo against Don
Gregorio Yulo, his brother and joint co-obligee, Don Pedro
Yulo, and they will procure by all legal means and in the least
time possible a judgment in their favor against the said Don
Gregorio and Don Pedro, sentencing the later to pay the total
amount of the obligation acknowledged by them in the
aforementioned instrument of August 12, 1909; with the
understanding that if they should deem it convenient for their
interests, Don Francisco, Don Manuel, and Doa Carmen Yulo
may appoint an attorney to cooperate with the lawyers of
Inchausti & Company in the proceedings of the said case."
Eighth. Matters being thus on July 10, 1911, Gregorio Yulo
answered the complaint and alleged as defenses; first, that an
accumulation of interest had taken place and that compound
interest was asked for the Philippine currency at par with
Mexican; second, that in the instrument of August 21, 1909,
two conditions were agreed one of which ought to be
approved by the Court of First Instance, and the other ratified
and confirmed by the other brother Mariano Yulo, neither of
which was complied with; third , that with regard to the same
debt claims were presented before the commissioners in the
special proceedings over the inheritances of Teodoro Yulo and
Gregoria Regalado, though later they were dismissed, pending
the present suit; fourth and finally, that the instrument of
August 12, 1909, was novated by that of May 12, 1911,
executed by Manuel, Francisco and Carmen Yulo.

Ninth. The Court of First Instance of Iloilo decided the case

"in favor of the defendant without prejudice to the plaintiff's
bringing within the proper time another suit for his
proportional part of the joint debt, and that the plaintiff pay
the costs." (B. of E., 21.)

The plaintiff appealed from this judgment by bill of exceptions

and before this court made the following assignment of errors:

I. That the court erred in considering the contract of May

12, 1911, as constituting a novation of that of August 12, 1909.

II. That the court erred in rendering judgment in favor of the

defendant.
III. And that the court erred n denying the motion for a new
trial.

"No one denies in this case," says the trial judge, "that the
estate of Teodoro Yulo or his heirs owe Inchausti & Company
an amount of money, the object of this action, namely,
P253,445.42" (B. of E. 18). "The fact is admitted," says the
defendant, "that the plaintiff has not collected the debt, and
that the same is owing" (Brief, 33). "In the arguments of the
attorneys," the judge goes on, "it was really admitted that the
plaintiff had a right to bring an action against Gregorio Yulo, as
one of the conjoint and solidary obligors in the contract of
August 12, 1909; but the defendant says that the plaintiff has
no right to sue him alone, since after the present suit was
brought, the plaintiff entered into a compromise with the
other conjoint and solidary debtors, the result being the new
contract of May 12, 1911, by virtue of which the payments
were extended, the same constituting a novation of the
contract which gave him the same privileges that were given
his conjoint and solidary codebtors. This (the judge concludes)
is the only question brought up by the parties." (B. of E., 19.)

And this is the only one which the Supreme Court has to solve
by virtue of the assignments of errors alleged. Consequently,
there is no need of saying anything regarding the first three
defenses of the answer, nor regarding the lack of the signature
of Mariano Yulo ratifying and confirming the instrument of
August 12, 1909, upon which the appellee still insists in his
brief for this appeal; although it will not be superfluous to
state the doctrine that a condition, such as is contained in the
sixteenth clause of the said contract (third point in the
statement of facts), is by no means of suspensive but a
resolutory condition; the effect of the failure of compliance
with the said clause, that is to say, the lack of the ratification
and confirmance by Mariano Yulo being not to suspend but to
resolve the contract, leaving Inchausti & Company at liberty,
as stipulated, "to make use of its rights to demand and obtain
the immediate payment of its credit."

The only question indicated in the decision of the inferior

court involves, however, these others: First, whether the
plaintiff can sue Gregorio Yulo alone, there being other
obligors; second, if so, whether it lost this right by the fact of
its having agreed with the other obligors in the reduction of
the debt, the proroguing of the obligation and the extension
of the time for payment, in accordance with the instrument of
May 12, 1911; third, whether this contract with the said three
obligors constitutes a novation of that of August 12, 1909,
entered into with the six debtors who assumed the payment
of two hundred fifty-three thousand and some odd pesos, the
subject matter of the suit; and fourth, if not so, whether it
does have any effect at all in the action brought, and in this
present suit.

With respect to the first it cannot be doubted that, the debtors

having obligated themselves in solidum, the creditor can bring
its action in toto against any one of them, inasmuch as this was
surely its purpose in demanding that the obligation contracted
in its favor should be solidary having in mind the principle of
law that, "when the obligation is constituted as a conjoint and
solidary obligation each one of the debtors is bound to
perform in full the undertaking which is the subject matter of
such obligation." (Civil Code, articles 1137 and 1144.)

And even though the creditor may have stipulated with some
of the solidary debtors diverse installments and conditions, as
in this case, Inchausti & Company did with its debtors Manuel,
Francisco, and Carmen Yulo through the instrument of May
12, 1911, this does not lead to the conclusion that the
solidarity stipulated in the instrument of August 12, 1909 is
broken, as we already know the law provides that "solidarity
may exist even though the debtors are not bound in the same
manner and for the same periods and under the same
conditions." (Ibid, article 1140.) Whereby the second point is
resolved.

With respect to the third, there can also be no doubt that the
contract of May 12, 1911, does not constitute a novation of
the former one of August 12, 1909, with respect to the other
debtors who executed this contract, or more concretely, with
respect to the defendant Gregorio Yulo: First, because "in
order that an obligation may be extinguished by another
which substitutes it, it is necessary that it should be so
expressly declared or that the old and the new be
incompatible in all points" (Civil Code, article 1204); and the
instrument of May 12, 1911, far from expressly declaring that
the obligation of the three who executed it substitutes the
former signed by Gregorio Yulo and the other debtors,
expressly and clearly stated that the said obligation of
Gregorio Yulo to pay the two hundred and fifty-three
thousand and odd pesos sued for exists, stipulating that the
suit must continue its course and, if necessary, these three
parties who executed the contract of May 12, 1911, would
cooperate in order that the action against Gregorio Yulo might
prosper (7th point in the statement of facts), with other
undertakings concerning the execution of the judgment which
might be rendered against Gregorio Yulo in this same suit. "It
is always necessary to state that it is the intention of the
contracting parties to extinguish the former obligation by the
new one" (Judgment in cassation, July 8, 1909). There exist no
incompatibility between the old and the new obligation as will
be demonstrated in the resolution of the last point, and for the
present we will merely reiterate the legal doctrine that an
obligation to pay a sum of money is not novated in a new
instrument wherein the old is ratified, by changing only the
term of payment and adding other obligations not
incompatible with the old one. (Judgments in cassation of June
28, 1904 and of July 8, 1909.)

With respect to the last point, the following must be borne in

mind:

Facts. First. Of the nine children of T. Yulo, six executed the

mortgage of August 12, 1909, namely, Gregorio, Pedro,
Francisco, Manuel, Carmen, and Concepcion, admitting a debt
of P253,445.42 at 10 per cent per annum and mortgaging six-
ninths of their hereditary properties. Second. Of those six
children, Francisco, Manuel and Carmen executed the
instrument of May 12, 1911, wherein was obtained a
reduction of the capital to 225,000 pesos and of the interest
to 6 per cent from the 15th of March of the same year of 1911.
Third. The other children of T. Yulo named Mariano, Teodoro,
and Jose have not taken part in these instruments and have
not mortgaged their hereditary portions. Fourth. By the first
instrument the maturity of the first installment was June 30,
1910, whereas by the second instrument, Francisco, Manuel,
and Carmen had in their favor as the maturity of the first
installment of their debt, June 30, 1912, and Fifth, on March
27, 1911, the action against Gregorio Yulo was already filed
and judgment was pronounced on December 22, 1911, when
the whole debt was not yet due nor even the first installment
of the same respective the three aforesaid debtors, Francisco,
Manuel, and Carmen.

In jure it would follow that by sentencing Gregorio Yulo to pay

253,445 pesos and 42 centavos of August 12, 1909, this
debtor, if he should pay all this sum, could not recover from
his joint debtors Francisco, Manuel, and Carmen their
proportional parts of the P253,445.42 which he had paid,
inasmuch as the three were not obligated by virtue of the
instrument of May 12, 1911, to pay only 225,000 pesos, thus
constituting a violation of Gregorio Yulo's right under such
hypothesis, of being reimbursed for the sum paid by him, with
the interest of the amounts advanced at the rate of one-sixth
part from each of his five codebtors. (Civ. Code, article 1145,
par. 2). This result would have been a ponderous obstacle
against the prospering of the suit as it had been brought. It
would have been very just then to have absolved the solidary
debtor who having to pay the debt in its entirety would not be
able to demand contribution from his codebtors in order that
they might reimburse him pro rata for the amount advanced
for them by him. But such hypothesis must be put out of
consideration by reason of the fact that occurred during the
pendency of the action, which fact the judge states in his
decision. "In this contract of May last," he says, "the amount
of the debt was reduced to P225,000 and the attorney of the
plaintiff admits in his plea that Gregorio Yulo has a right to the
benefit of this reduction." (B. of E., 19.) This is a fact which this
Supreme Court must hold as firmly established, considering
that the plaintiff in its brief, on page 27, corroborates the same
in these words: "What effect," it says, "could this contract
have over the rights and obligations of the defendant Gregorio
Yulo with respect to the plaintiff company? In the first place,
we are the first to realize that it benefits him with respect to
the reduction of the amount of the debt. The obligation being
solidary, the remission of any part of the debt made by a
creditor in favor of one or more of the solidary debtors
necessarily benefits the others, and therefore there can be no
doubt that, in accordance with the provision of article 1143 of
the Civil Code, the defendant has the right to enjoy the
benefits of the partial remission of the debt granted by the
creditor."

Wherefore we hold that although the contract of May 12,

1911, has not novated that of August 12, 1909, it has affected
that contract and the outcome of the suit brought against
Gregorio Yulo alone for the sum of P253,445.42; and in
consequence thereof, the amount stated in the contract of
August 12, 1909, cannot be recovered but only that stated in
the contract of May 12, 1911, by virtue of the remission
granted to the three of the solidary debtors in this instrument,
in conformity with what is provided in article 1143 of the Civil
Code, cited by the creditor itself.
If the efficacy of the later instrument over the former touching
the amount of the debt had been recognized, should such
efficacy not likewise be recognized concerning the maturity of
the same? If Francisco, Manuel, and Carmen had been
included in the suit, they could have alleged the defense of the
nonmaturity of the installments since the first installment did
not mature until June 30, 1912, and without the least doubt
the defense would have prospered, and the three would have
been absolved from the suit. Cannot this defense of the
prematurity of the action, which is implied in the last special
defense set up in the answer of the defendant Gregorio Yulo
be made available to him in this proceeding?

The following commentary on article 1140 of the Civil Code

sufficiently answers this question: ". . . . Before the
performance of the condition, or before the execution of a
term which affects one debtor alone proceedings may be had
against him or against any of the others for the remainder
which may be already demandable but the conditional
obligation or that which has not yet matured cannot be
demanded from any one of them. Article 1148 confirms the
rule which we now enunciate inasmuch as in case the total
claim is made by one creditor, which we believe improper if
directed against the debtor affected by the condition or the
term, the latter can make use of such exceptions as are
peculiarly personal to his own obligation; and if against the
other debtors, they might make use of those exceptions, even
though they are personal to the other, inasmuch as they
alleged they are personal to the other, inasmuch as they
alleged them in connection with that part of the responsibility
attaching in a special manner to the other." (8 Manresa, Sp.
Civil Code, 196.)

Article 1148 of the Civil Code. "The solidary debtor may

utilize against the claims of the creditor of the defenses arising
from the nature of the obligation and those which are
personal to him. Those personally pertaining to the others
may be employed by him only with regard to the share of the
debt for which the latter may be liable."

Gregorio Yulo cannot allege as a defense to the action that it

is premature. When the suit was brought on March 27, 1911,
the first installment of the obligation had already matured of
June 30, 1910, and with the maturity of this installment, the
first not having been paid, the whole debt had become
mature, according to the express agreement of the parties,
independently of the resolutory condition which gave the
creditor the right to demand the immediate payment of the
whole debt upon the expiration of the stipulated term of one
week allowed to secure from Mariano Yulo the ratification and
confirmation of the contract of August 12, 1909.

Neither could he invoke a like exception for the shares of his

solidary codebtors Pedro and Concepcion Yulo, they being in
identical condition as he.

But as regards Francisco, Manuel, and Carmen Yulo, none of

the installments payable under their obligation, contracted
later, had as yet matured. The first payment, as already stated,
was to mature on June 30, 1912. This exception or personal
defense of Francisco, Manuel, and Carmen Yulo "as to the part
of the debt for which they were responsible" can be sent up
by Gregorio Yulo as a partial defense to the action. The part of
the debt for which these three are responsible is three-sixths
of P225,000 or P112,500, so that Gregorio Yulo may claim that,
even acknowledging that the debt for which he is liable is
P225,000, nevertheless not all of it can now be demanded of
him, for that part of it which pertained to his codebtors is not
yet due, a state of affairs which not only prevents any action
against the persons who were granted the term which has not
yet matured, but also against the other solidary debtors who
being ordered to pay could not now sue for a contribution, and
for this reason the action will be only as to the P112,500.

Against the propriety and legality of a judgment against

Gregorio Yulo for this sum, to wit, the three-sixths part of the
debt which forms the subject matter of the suit, we do not
think that there was any reason or argument offered which
sustains an opinion that for the present it is not proper to
order him to pay all or part of the debt, the object of the
action.

It has been said in the brief of the appellee that the

prematurity of the action is one of the defenses derived from
the nature of the obligation, according to the opinion of the
commentator of the Civil Code, Mucius Scaevola, and
consequently the defendant Gregorio Yulo may make use of it
in accordance with article 1148 of the said Code. It may be so
and yet, taken in that light, the effect would not be different
from that already stated in this decision; Gregorio Yulo could
not be freed from making any payment whatever but only
from the payment of that part of the debt which corresponds
to his codebtors Francisco, Manuel, and Carmen. The same
author, considering the case of the opposing contention of
two solidary debtors as to one of whom the obligation is pure
and unconditional and as to the other it is conditional and is
not yet demandable, and comparing the disadvantages which
must flow from holding that the obligation is demandable with
these which must follow if the contrary view is adopted, favors
this solution of the problem:

There is a middle ground, (he says), from which we can safely

set out, to wit, that the creditor may of course, demand the
payment of his credit against the debtor not favored by any
condition or extension of time." And further on, he decides the
question as to whether the whole debt may be recovered or
only that part unconditionally owing or which has already
matured, saying, "Without failing to proceed with juridical
rigor, but without falling into extravagances or monstrosities,
we believe that the solution of the difficulty is perfectly
possible. How? By limiting the right of the creditor to the
recovery of the amount owed by the debtors bound
unconditionally or as to whom the obligation has matured,
and leaving in suspense the right to demand the payment of
the remainder until the expiration of the term of the
fulfillment of the condition. But what then is the effect of
solidarity? How can this restriction of right be reconciled with
the duty imposed upon each one of the debtors to answer for
the whole obligation? Simply this, by recognizing in the
creditor the power, upon the performance of the condition or
the expiration of the term of claiming from any one or all of
the debtors that part of the obligation affected by those
conditions. (Scaevola, Civil Code, 19, 800 and 801.)
It has been said also by the trial judge in his decision that if a
judgment be entered against Gregorio Yulo for the whole debt
of P253,445.42, he cannot recover from Francisco, Manuel,
and Carmen Yulo that part of the amount which is owed by
them because they are obliged to pay only 225,000 pesos and
this is eight installments none of which was due. For this
reason he was of the opinion that he (Gregorio Yulo) cannot
be obliged to pay his part of the debt before the contract of
May 12, 1911, may be enforced, and "consequently he
decided the case in favor of the defendant, without prejudice
to the plaintiff proceeding in due time against him for his
proportional part of the joint debt." (B. of E., 21 and 22.)

But in the first place, taking into consideration the conformity

of the plaintiff and the provision of article 1143 of the Civil
Code, it is no longer possible to sentence the defendant to pay
the P253,445.42 of the instrument of August 12, 1909, but, if
anything, the 225,000 of the instrument of May 12, 1911.

In the second place, neither is it possible to curtail the

defendant's right of recovery from the signers of the
instrument of May 12, 1911, for he was justly exonerated from
the payment of that part of the debt corresponding to them
by reason of there having been upheld in his favor the
exception of an unmatured installment which pertains to
them.

In the third place, it does not seem just, Mucius Scaevola

considers it "absurd," that, there being a debtor who is
unconditionally obligated as to when the debt has matured,
the creditor should be forced to await the realization of the
condition (or the expiration of the term.) Not only is there no
reason for this, as stated by the author, but the court would
even fail to consider the special law of the contract, neither
repealed nor novated, which cannot be omitted without
violating article 1091 of the Civil Code according to which "the
obligations arising from contracts have the force of law
between the contracting parties and must be complied with in
accordance with the tenor of the same." Certain it is that the
trial court, in holding that this action was premature but might
be brought in the time, regarded the contract of August 12,
1909, as having been expressly novated; but it is absolutely
impossible in law to sustain such supposed novation, in
accordance with the legal principles already stated, and
nevertheless the obligation of the contract of May 12, 1911,
must likewise be complied with in accordance with its tenor,
which is contrary in all respects to the supposed novation, by
obliging the parties who signed the contract to carry on the
suit brought against Gregorio Yulo. The contract of May 12,
1911, has affected the action and the suit, to the extent that
Gregorio Yulo has been able to make in his favor the defense
of remission of part of the debt, thanks to the provision of
article 1148, because it is a defense derived from the nature
of the obligation, so that although the said defendant was not
party to the contract in question, yet because of the principle
of solidarity he was benefited by it.

The defendant Gregorio Yulo cannot be ordered to pay the

P253,445.42 claimed from him in the suit here, because he has
been benefited by the remission made by the plaintiff to three
of his codebtors, many times named above.
Consequently, the debt is reduced to 225,000 pesos.

But, as it cannot be enforced against the defendant except as

to the three-sixths part which is what he can recover from his
joint codebtors Francisco, Manuel, and Carmen, at present,
judgment can be rendered only as to the P112,500.

We therefore sentence the defendant Gregorio Yulo to pay

the plaintiff Inchausti & Company P112,500, with the interest
stipulated in the instrument of May 12, 1911, from March 15,
1911, and the legal interest on this interest due, from the time
that it was claimed judicially in accordance with article 1109 of
the Civil Code, without any special finding as to costs. The
judgment appealed from is reversed. So ordered.

Carson, Trent, and Araullo, JJ., concur.

THIRD DIVISION
[G.R. No. 155173. November 23, 2004]

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge

Philippines, Inc.), LUZON CONTINENTAL LAND CORPORATION,
CONTINENTAL OPERATING CORPORATION and PHILIP
ROSEBERG, petitioners, vs. CONTINENTAL CEMENT
CORPORATION, GREGORY T. LIM and ANTHONY A. MARIANO,
respondents.
DECISION
PANGANIBAN, J.:

May defendants in civil cases implead in their counterclaims

persons who were not parties to the original complaints? This
is the main question to be answered in this controversy.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules

of Court, seeking to nullify the May 22, 2002[2] and the
September 3, 2002 Orders[3] of the Regional Trial Court (RTC)
of Quezon City (Branch 80) in Civil Case No. Q-00-41103. The
decretal portion of the first assailed Order reads:

WHEREFORE, in the light of the foregoing as earlier stated, the

plaintiffs motion to dismiss claims is granted. Accordingly, the
defendants claims against Mr. Lim and Mr. Mariano captioned
as their counterclaims are dismissed.[4]

The second challenged Order denied petitioners Motion for

Reconsideration.
The Facts

Briefly, the origins of the present controversy can be traced to

the Letter of Intent (LOI) executed by both parties on August
11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc.
(Lafarge) -- on behalf of its affiliates and other qualified
entities, including Petitioner Luzon Continental Land
Corporation (LCLC) -- agreed to purchase the cement business
of Respondent Continental Cement Corporation (CCC). On
October 21, 1998, both parties entered into a Sale and
Purchase Agreement (SPA). At the time of the foregoing
transactions, petitioners were well aware that CCC had a case
pending with the Supreme Court. The case was docketed as
GR No. 119712, entitled Asset Privatization Trust (APT) v.
Court of Appeals and Continental Cement Corporation.

In anticipation of the liability that the High Tribunal might

adjudge against CCC, the parties, under Clause 2 (c) of the SPA,
allegedly agreed to retain from the purchase price a portion of
the contract price in the amount of P117,020,846.84 -- the
equivalent of US$2,799,140. This amount was to be deposited
in an interest-bearing account in the First National City Bank
of New York (Citibank) for payment to APT, the petitioner in
GR No. 119712.

However, petitioners allegedly refused to apply the sum to the

payment to APT, despite the subsequent finality of the
Decision in GR No. 119712 in favor of the latter and the
repeated instructions of Respondent CCC. Fearful that
nonpayment to APT would result in the foreclosure, not just of
its properties covered by the SPA with Lafarge but of several
other properties as well, CCC filed before the Regional Trial
Court of Quezon City on June 20, 2000, a Complaint with
Application for Preliminary Attachment against petitioners.
Docketed as Civil Case No. Q-00-41103, the Complaint prayed,
among others, that petitioners be directed to pay the APT
Retained Amount referred to in Clause 2 (c) of the SPA.

Petitioners moved to dismiss the Complaint on the ground

that it violated the prohibition on forum-shopping.
Respondent CCC had allegedly made the same claim it was
raising in Civil Case No. Q-00-41103 in another action, which
involved the same parties and which was filed earlier before
the International Chamber of Commerce. After the trial court
denied the Motion to Dismiss in its November 14, 2000 Order,
petitioners elevated the matter before the Court of Appeals in
CA-GR SP No. 68688.

In the meantime, to avoid being in default and without

prejudice to the outcome of their appeal, petitioners filed
their Answer and Compulsory Counterclaims ad Cautelam
before the trial court in Civil Case No. Q-00-41103. In their
Answer, they denied the allegations in the Complaint. They
prayed -- by way of compulsory counterclaims against
Respondent CCC, its majority stockholder and president
Gregory T. Lim, and its corporate secretary Anthony A.
Mariano -- for the sums of (a) P2,700,000 each as actual
damages, (b) P100,000,000 each as exemplary damages, (c)
P100,000,000 each as moral damages, and (d) P5,000,000
each as attorneys fees plus costs of suit.
Petitioners alleged that CCC, through Lim and Mariano, had
filed the baseless Complaint in Civil Case No. Q-00-41103 and
procured the Writ of Attachment in bad faith. Relying on this
Courts pronouncement in Sapugay v. CA,[5] petitioners prayed
that both Lim and Mariano be held jointly and solidarily liable
with Respondent CCC.

On behalf of Lim and Mariano who had yet to file any

responsive pleading, CCC moved to dismiss petitioners
compulsory counterclaims on grounds that essentially
constituted the very issues for resolution in the instant
Petition.

Ruling of the Trial Court

On May 22, 2002, the Regional Trial Court of Quezon City

(Branch 80) dismissed petitioners counterclaims for several
reasons, among which were the following: a) the
counterclaims against Respondents Lim and Mariano were not
compulsory; b) the ruling in Sapugay was not applicable; and
c) petitioners Answer with Counterclaims violated procedural
rules on the proper joinder of causes of action.[6]

Acting on the Motion for Reconsideration filed by petitioners,

the trial court -- in an Amended Order dated September 3,
2002[7] -- admitted some errors in its May 22, 2002 Order,
particularly in its pronouncement that their counterclaim had
been pleaded against Lim and Mariano only. However, the RTC
clarified that it was dismissing the counterclaim insofar as it
impleaded Respondents Lim and Mariano, even if it included
CCC.
Hence this Petition.[8]

Issues

In their Memorandum, petitioners raise the following issues

for our consideration:

[a] Whether or not the RTC gravely erred in refusing to rule

that Respondent CCC has no personality to move to dismiss
petitioners compulsory counterclaims on Respondents Lim
and Marianos behalf.

[b] Whether or not the RTC gravely erred in ruling that (i)
petitioners counterclaims against Respondents Lim and
Mariano are not compulsory; (ii) Sapugay v. Court of Appeals
is inapplicable here; and (iii) petitioners violated the rule on
joinder of causes of action.[9]

For clarity and coherence, the Court will resolve the foregoing
in reverse order.

The Courts Ruling

The Petition is meritorious.

First Issue:
Counterclaims and
Joinder of Causes of Action.

Petitioners Counterclaims
Compulsory

Counterclaims are defined in Section 6 of Rule 6 of the Rules

of Civil Procedure as any claim which a defending party may
have against an opposing party. They are generally allowed in
order to avoid a multiplicity of suits and to facilitate the
disposition of the whole controversy in a single action, such
that the defendants demand may be adjudged by a
counterclaim rather than by an independent suit. The only
limitations to this principle are (1) that the court should have
jurisdiction over the subject matter of the counterclaim, and
(2) that it could acquire jurisdiction over third parties whose
presence is essential for its adjudication.[10]

A counterclaim may either be permissive or compulsory. It is

permissive if it does not arise out of or is not necessarily
connected with the subject matter of the opposing partys
claim.[11] A permissive counterclaim is essentially an
independent claim that may be filed separately in another
case.

A counterclaim is compulsory when its object arises out of or

is necessarily connected with the transaction or occurrence
constituting the subject matter of the opposing partys claim
and does not require for its adjudication the presence of third
parties of whom the court cannot acquire jurisdiction.[12]

Unlike permissive counterclaims, compulsory counterclaims

should be set up in the same action; otherwise, they would be
barred forever. NAMARCO v. Federation of United Namarco
Distributors[13] laid down the following criteria to determine
whether a counterclaim is compulsory or permissive: 1) Are
issues of fact and law raised by the claim and by the
counterclaim largely the same? 2) Would res judicata bar a
subsequent suit on defendants claim, absent the compulsory
counterclaim rule? 3) Will substantially the same evidence
support or refute plaintiffs claim as well as defendants
counterclaim? 4) Is there any logical relation between the
claim and the counterclaim? A positive answer to all four
questions would indicate that the counterclaim is compulsory.

Adopted in Quintanilla v. CA[14] and reiterated in Alday v. FGU

Insurance Corporation,[15] the compelling test of
compulsoriness characterizes a counterclaim as compulsory if
there should exist a logical relationship between the main
claim and the counterclaim. There exists such a relationship
when conducting separate trials of the respective claims of the
parties would entail substantial duplication of time and effort
by the parties and the court; when the multiple claims involve
the same factual and legal issues; or when the claims are
offshoots of the same basic controversy between the parties.

We shall now examine the nature of petitioners counterclaims

against respondents with the use of the foregoing parameters.

Petitioners base their counterclaim on the following

allegations:

Gregory T. Lim and Anthony A. Mariano were the persons

responsible for making the bad faith decisions for, and causing
plaintiff to file this baseless suit and to procure an
unwarranted writ of attachment, notwithstanding their
knowledge that plaintiff has no right to bring it or to secure
the writ. In taking such bad faith actions, Gregory T. Lim was
motivated by his personal interests as one of the owners of
plaintiff while Anthony A. Mariano was motivated by his sense
of personal loyalty to Gregory T. Lim, for which reason he
disregarded the fact that plaintiff is without any valid cause.

Consequently, both Gregory T. Lim and Anthony A. Mariano

are the plaintiffs co-joint tortfeasors in the commission of the
acts complained of in this answer and in the compulsory
counterclaims pleaded below. As such they should be held
jointly and solidarily liable as plaintiffs co-defendants to those
compulsory counterclaims pursuant to the Supreme Courts
decision in Sapugay v. Mobil.

xxxxxxxxx

The plaintiffs, Gregory T. Lim and Anthony A. Marianos bad

faith filing of this baseless case has compelled the defendants
to engage the services of counsel for a fee and to incur costs
of litigation, in amounts to be proved at trial, but in no case
less than P5 million for each of them and for which plaintiff
Gregory T. Lim and Anthony A. Mariano should be held jointly
and solidarily liable.

The plaintiffs, Gregory T. Lims and Anthony A. Marianos

actions have damaged the reputations of the defendants and
they should be held jointly and solidarily liable to them for
moral damages of P100 million each.
In order to serve as an example for the public good and to
deter similar baseless, bad faith litigation, the plaintiff,
Gregory T. Lim and Anthony A. Mariano should be held jointly
and solidarily liable to the defendants for exemplary damages
of P100 million each. [16]

The above allegations show that petitioners counterclaims for

damages were the result of respondents (Lim and Mariano)
act of filing the Complaint and securing the Writ of Attachment
in bad faith. Tiu Po v. Bautista[17] involved the issue of
whether the counterclaim that sought moral, actual and
exemplary damages and attorneys fees against respondents
on account of their malicious and unfounded complaint was
compulsory. In that case, we held as follows:

Petitioners counterclaim for damages fulfills the necessary

requisites of a compulsory counterclaim. They are damages
claimed to have been suffered by petitioners as a
consequence of the action filed against them. They have to be
pleaded in the same action; otherwise, petitioners would be
precluded by the judgment from invoking the same in an
independent action. The pronouncement in Papa vs. Banaag
(17 SCRA 1081) (1966) is in point:

Compensatory, moral and exemplary damages, allegedly

suffered by the creditor in consequence of the debtors action,
are also compulsory counterclaim barred by the dismissal of
the debtors action. They cannot be claimed in a subsequent
action by the creditor against the debtor.
Aside from the fact that petitioners counterclaim for damages
cannot be the subject of an independent action, it is the same
evidence that sustains petitioners counterclaim that will
refute private respondents own claim for damages. This is an
additional factor that characterizes petitioners counterclaim
as compulsory.[18]

Moreover, using the compelling test of compulsoriness, we

find that, clearly, the recovery of petitioners counterclaims is
contingent upon the case filed by respondents; thus,
conducting separate trials thereon will result in a substantial
duplication of the time and effort of the court and the parties.

Since the counterclaim for damages is compulsory, it must be

set up in the same action; otherwise, it would be barred
forever. If it is filed concurrently with the main action but in a
different proceeding, it would be abated on the ground of litis
pendentia; if filed subsequently, it would meet the same fate
on the ground of res judicata.[19]

Sapugay v. Court of Appeals

Applicable to the Case at Bar

Sapugay v. Court of Appeals finds application in the present

case. In Sapugay, Respondent Mobil Philippines filed before
the trial court of Pasig an action for replevin against Spouses
Marino and Lina Joel Sapugay. The Complaint arose from the
supposed failure of the couple to keep their end of their
Dealership Agreement. In their Answer with Counterclaim,
petitioners alleged that after incurring expenses in
anticipation of the Dealership Agreement, they requested the
plaintiff to allow them to get gas, but that it had refused. It
claimed that they still had to post a surety bond which, initially
fixed at P200,000, was later raised to P700,000.

The spouses exerted all efforts to secure a bond, but the

bonding companies required a copy of the Dealership
Agreement, which respondent continued to withhold from
them. Later, petitioners discovered that respondent and its
manager, Ricardo P. Cardenas, had intended all along to award
the dealership to Island Air Product Corporation.

In their Answer, petitioners impleaded in the counterclaim

Mobil Philippines and its manager -- Ricardo P. Cardenas -- as
defendants. They prayed that judgment be rendered, holding
both jointly and severally liable for pre-operation expenses,
rental, storage, guarding fees, and unrealized profit including
damages. After both Mobil and Cardenas failed to respond to
their Answer to the Counterclaim, petitioners filed a Motion
to Declare Plaintiff and its Manager Ricardo P. Cardenas in
Default on Defendants Counterclaim.

Among the issues raised in Sapugay was whether Cardenas,

who was not a party to the original action, might nevertheless
be impleaded in the counterclaim. We disposed of this issue
as follows:

A counterclaim is defined as any claim for money or other

relief which a defending party may have against an opposing
party. However, the general rule that a defendant cannot by a
counterclaim bring into the action any claim against persons
other than the plaintiff admits of an exception under Section
14, Rule 6 which provides that when the presence of parties
other than those to the original action is required for the
granting of complete relief in the determination of a
counterclaim or cross-claim, the court shall order them to be
brought in as defendants, if jurisdiction over them can be
obtained. The inclusion, therefore, of Cardenas in petitioners
counterclaim is sanctioned by the rules.[20]

The prerogative of bringing in new parties to the action at any

stage before judgment is intended to accord complete relief
to all of them in a single action and to avert a duplicity and
even a multiplicity of suits thereby.

In insisting on the inapplicability of Sapugay, respondents

argue that new parties cannot be included in a counterclaim,
except when no complete relief can be had. They add that [i]n
the present case, Messrs. Lim and Mariano are not necessary
for petitioners to obtain complete relief from Respondent CCC
as plaintiff in the lower court. This is because Respondent CCC
as a corporation with a separate [legal personality] has the
juridical capacity to indemnify petitioners even without
Messrs. Lim and Mariano.[21]

We disagree. The inclusion of a corporate officer or

stockholder -- Cardenas in Sapugay or Lim and Mariano in the
instant case -- is not premised on the assumption that the
plaintiff corporation does not have the financial ability to
answer for damages, such that it has to share its liability with
individual defendants. Rather, such inclusion is based on the
allegations of fraud and bad faith on the part of the corporate
officer or stockholder. These allegations may warrant the
piercing of the veil of corporate fiction, so that the said
individual may not seek refuge therein, but may be held
individually and personally liable for his or her actions.

In Tramat Mercantile v. Court of Appeals,[22] the Court held

that generally, it should only be the corporation that could
properly be held liable. However, circumstances may warrant
the inclusion of the personal liability of a corporate director,
trustee, or officer, if the said individual is found guilty of bad
faith or gross negligence in directing corporate affairs.

Remo Jr. v. IAC[23] has stressed that while a corporation is an

entity separate and distinct from its stockholders, the
corporate fiction may be disregarded if used to defeat public
convenience, justify a wrong, protect fraud, or defend crime.
In these instances, the law will regard the corporation as an
association of persons, or in case of two corporations, will
merge them into one. Thus, there is no debate on whether, in
alleging bad faith on the part of Lim and Mariano the
counterclaims had in effect made them indispensable parties
thereto; based on the alleged facts, both are clearly parties in
interest to the counterclaim.[24]

Respondents further assert that Messrs. Lim and Mariano

cannot be held personally liable [because their assailed acts]
are within the powers granted to them by the proper board
resolutions; therefore, it is not a personal decision but rather
that of the corporation as represented by its board of
directors.[25] The foregoing assertion, however, is a matter of
defense that should be threshed out during the trial; whether
or not fraud is extant under the circumstances is an issue that
must be established by convincing evidence.[26]

Suability and liability are two distinct matters. While the Court
does rule that the counterclaims against Respondent CCCs
president and manager may be properly filed, the
determination of whether both can in fact be held jointly and
severally liable with respondent corporation is entirely
another issue that should be ruled upon by the trial court.

However, while a compulsory counterclaim may implead

persons not parties to the original complaint, the general rule
-- a defendant in a compulsory counterclaim need not file any
responsive pleading, as it is deemed to have adopted the
allegations in the complaint as its answer -- does not apply.
The filing of a responsive pleading is deemed a voluntary
submission to the jurisdiction of the court; a new party
impleaded by the plaintiff in a compulsory counterclaim
cannot be considered to have automatically and unknowingly
submitted to the jurisdiction of the court. A contrary ruling
would result in mischievous consequences whereby a party
may be indiscriminately impleaded as a defendant in a
compulsory counterclaim; and judgment rendered against it
without its knowledge, much less participation in the
proceedings, in blatant disregard of rudimentary due process
requirements.

The correct procedure in instances such as this is for the trial

court, per Section 12 of Rule 6 of the Rules of Court, to order
[such impleaded parties] to be brought in as defendants, if
jurisdiction over them can be obtained, by directing that
summons be served on them. In this manner, they can be
properly appraised of and answer the charges against them.
Only upon service of summons can the trial court obtain
jurisdiction over them.

In Sapugay, Cardenas was furnished a copy of the Answer with

Counterclaim, but he did not file any responsive pleading to
the counterclaim leveled against him. Nevertheless, the Court
gave due consideration to certain factual circumstances,
particularly the trial courts treatment of the Complaint as the
Answer of Cardenas to the compulsory counterclaim and of his
seeming acquiescence thereto, as evidenced by his failure to
make any objection despite his active participation in the
proceedings. It was held thus:

It is noteworthy that Cardenas did not file a motion to dismiss

the counterclaim against him on the ground of lack of
jurisdiction. While it is a settled rule that the issue of
jurisdiction may be raised even for the first time on appeal,
this does not obtain in the instant case. Although it was only
Mobil which filed an opposition to the motion to declare in
default, the fact that the trial court denied said motion, both
as to Mobil and Cardenas on the ground that Mobils complaint
should be considered as the answer to petitioners compulsory
counterclaim, leads us to the inescapable conclusion that the
trial court treated the opposition as having been filed in behalf
of both Mobil and Cardenas and that the latter had adopted
as his answer the allegations raised in the complaint of Mobil.
Obviously, it was this ratiocination which led the trial court to
deny the motion to declare Mobil and Cardenas in default.
Furthermore, Cardenas was not unaware of said incidents and
the proceedings therein as he testified and was present during
trial, not to speak of the fact that as manager of Mobil he
would necessarily be interested in the case and could readily
have access to the records and the pleadings filed therein.

By adopting as his answer the allegations in the complaint

which seeks affirmative relief, Cardenas is deemed to have
recognized the jurisdiction of the trial court over his person
and submitted thereto. He may not now be heard to repudiate
or question that jurisdiction.[27]

Such factual circumstances are unavailing in the instant case.

The records do not show that Respondents Lim and Mariano
are either aware of the counterclaims filed against them, or
that they have actively participated in the proceedings
involving them. Further, in dismissing the counterclaims
against the individual respondents, the court a quo -- unlike in
Sapugay -- cannot be said to have treated Respondent CCCs
Motion to Dismiss as having been filed on their behalf.

Rules on Permissive Joinder of Causes

of Action or Parties Not Applicable

Respondent CCC contends that petitioners counterclaims

violated the rule on joinder of causes of action. It argues that
while the original Complaint was a suit for specific
performance based on a contract, the counterclaim for
damages was based on the tortuous acts of respondents.[28]
In its Motion to Dismiss, CCC cites Section 5 of Rule 2 and
Section 6 of Rule 3 of the Rules of Civil Procedure, which we
quote:
Section 5. Joinder of causes of action. A party may in one
pleading assert, in the alternative or otherwise, as many
causes of action as he may have against an opposing party,
subject to the following conditions:

(a) The party joining the causes of action shall comply with the
rules on joinder of parties; x x x

Section 6. Permissive joinder of parties. All persons in whom

or against whom any right to relief in respect to or arising out
of the same transaction or series of transactions is alleged to
exist whether jointly, severally, or in the alternative, may,
except as otherwise provided in these Rules, join as plaintiffs
or be joined as defendants in one complaint, where any
question of law or fact common to all such plaintiffs or to all
such defendants may arise in the action; but the court may
make such orders as may be just to prevent any plaintiff or
defendant from being embarrassed or put to expense in
connection with any proceedings in which he may have no
interest.

The foregoing procedural rules are founded on practicality and

convenience. They are meant to discourage duplicity and
multiplicity of suits. This objective is negated by insisting -- as
the court a quo has done -- that the compulsory counterclaim
for damages be dismissed, only to have it possibly re-filed in a
separate proceeding. More important, as we have stated
earlier, Respondents Lim and Mariano are real parties in
interest to the compulsory counterclaim; it is imperative that
they be joined therein. Section 7 of Rule 3 provides:
Compulsory joinder of indispensable parties. Parties in
interest without whom no final determination can be had of
an action shall be joined either as plaintiffs or defendants.

Moreover, in joining Lim and Mariano in the compulsory

counterclaim, petitioners are being consistent with the
solidary nature of the liability alleged therein.

Second Issue:
CCCs Personality to Move to Dismiss
the Compulsory Counterclaims

Characterizing their counterclaim for damages against

Respondents CCC, Lim and Mariano as joint and solidary,
petitioners prayed:

WHEREFORE, it is respectfully prayed that after trial judgment

be rendered:

1. Dismissing the complaint in its entirety;

2. Ordering the plaintiff, Gregory T. Lim and Anthony A.

Mariano jointly and solidarily to pay defendant actual
damages in the sum of at least P2,700,000.00;

3. Ordering the plaintiff, Gregory T. Lim and Anthony A,

Mariano jointly and solidarily to pay the defendants LPI, LCLC,
COC and Roseberg:
a. Exemplary damages of P100 million each;
b. Moral damages of P100 million each; and
c. Attorneys fees and costs of suit of at least P5 million each.

Other reliefs just and equitable are likewise prayed for.[29]

Obligations may be classified as either joint or solidary. Joint

or jointly or conjoint means mancum or mancomunada or pro
rata obligation; on the other hand, solidary obligations may be
used interchangeably with joint and several or several. Thus,
petitioners usage of the term joint and solidary is confusing
and ambiguous.

The ambiguity in petitioners counterclaims notwithstanding,

respondents liability, if proven, is solidary. This
characterization finds basis in Article 1207 of the Civil Code,
which provides that obligations are generally considered joint,
except when otherwise expressly stated or when the law or
the nature of the obligation requires solidarity. However,
obligations arising from tort are, by their nature, always
solidary. We have assiduously maintained this legal principle
as early as 1912 in Worcester v. Ocampo,[30] in which we
held:

x x x The difficulty in the contention of the appellants is that

they fail to recognize that the basis of the present action is
tort. They fail to recognize the universal doctrine that each
joint tort feasor is not only individually liable for the tort in
which he participates, but is also jointly liable with his tort
feasors. x x x

It may be stated as a general rule that joint tort feasors are all
the persons who command, instigate, promote, encourage,
advise, countenance, cooperate in, aid or abet the commission
of a tort, or who approve of it after it is done, if done for their
benefit. They are each liable as principals, to the same extent
and in the same manner as if they had performed the wrongful
act themselves. x x x

Joint tort feasors are jointly and severally liable for the tort
which they commit. The persons injured may sue all of them
or any number less than all. Each is liable for the whole
damages caused by all, and all together are jointly liable for
the whole damage. It is no defense for one sued alone, that
the others who participated in the wrongful act are not joined
with him as defendants; nor is it any excuse for him that his
participation in the tort was insignificant as compared to that
of the others. x x x

Joint tort feasors are not liable pro rata. The damages can not
be apportioned among them, except among themselves. They
cannot insist upon an apportionment, for the purpose of each
paying an aliquot part. They are jointly and severally liable for
the whole amount. x x x

A payment in full for the damage done, by one of the joint tort
feasors, of course satisfies any claim which might exist against
the others. There can be but satisfaction. The release of one
of the joint tort feasors by agreement generally operates to
discharge all. x x x

Of course the court during trial may find that some of the
alleged tort feasors are liable and that others are not liable.
The courts may release some for lack of evidence while
condemning others of the alleged tort feasors. And this is true
even though they are charged jointly and severally.

In a joint obligation, each obligor answers only for a part of the

whole liability; in a solidary or joint and several obligation, the
relationship between the active and the passive subjects is so
close that each of them must comply with or demand the
fulfillment of the whole obligation.[31] The fact that the
liability sought against the CCC is for specific performance and
tort, while that sought against the individual respondents is
based solely on tort does not negate the solidary nature of
their liability for tortuous acts alleged in the counterclaims.
Article 1211 of the Civil Code is explicit on this point:

Solidarity may exist although the creditors and the debtors

may not be bound in the same manner and by the same
periods and conditions.

The solidary character of respondents alleged liability is

precisely why credence cannot be given to petitioners
assertion. According to such assertion, Respondent CCC
cannot move to dismiss the counterclaims on grounds that
pertain solely to its individual co-debtors.[32] In cases filed by
the creditor, a solidary debtor may invoke defenses arising
from the nature of the obligation, from circumstances
personal to it, or even from those personal to its co-debtors.
Article 1222 of the Civil Code provides:

A solidary debtor may, in actions filed by the creditor, avail

itself of all defenses which are derived from the nature of the
obligation and of those which are personal to him, or pertain
to his own share. With respect to those which personally
belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are
responsible. (Emphasis supplied).

The act of Respondent CCC as a solidary debtor -- that of filing

a motion to dismiss the counterclaim on grounds that pertain
only to its individual co-debtors -- is therefore allowed.

However, a perusal of its Motion to Dismiss the counterclaims

shows that Respondent CCC filed it on behalf of Co-
respondents Lim and Mariano; it did not pray that the
counterclaim against it be dismissed. Be that as it may,
Respondent CCC cannot be declared in default. Jurisprudence
teaches that if the issues raised in the compulsory
counterclaim are so intertwined with the allegations in the
complaint, such issues are deemed automatically joined.[33]
Counterclaims that are only for damages and attorneys fees
and that arise from the filing of the complaint shall be
considered as special defenses and need not be answered.[34]

CCCs Motion to Dismiss the

Counterclaim on Behalf of
Respondents Lim and
Mariano Not Allowed

While Respondent CCC can move to dismiss the counterclaims

against it by raising grounds that pertain to individual
defendants Lim and Mariano, it cannot file the same Motion
on their behalf for the simple reason that it lacks the requisite
authority to do so. A corporation has a legal personality
entirely separate and distinct from that of its officers and
cannot act for and on their behalf, without being so
authorized. Thus, unless expressly adopted by Lim and
Mariano, the Motion to Dismiss the compulsory counterclaim
filed by Respondent CCC has no force and effect as to them.

In summary, we make the following pronouncements:

1. The counterclaims against Respondents CCC, Gregory T. Lim

and Anthony A. Mariano are compulsory.

2. The counterclaims may properly implead Respondents

Gregory T. Lim and Anthony A. Mariano, even if both were not
parties in the original Complaint.

3. Respondent CCC or any of the three solidary debtors (CCC,

Lim or Mariano) may include, in a Motion to Dismiss, defenses
available to their co-defendants; nevertheless, the same
Motion cannot be deemed to have been filed on behalf of the
said co-defendants.

4. Summons must be served on Respondents Lim and Mariano

before the trial court can obtain jurisdiction over them.

WHEREFORE, the Petition is GRANTED and the assailed Orders

REVERSED. The court of origin is hereby ORDERED to take
cognizance of the counterclaims pleaded in petitioners
Answer with Compulsory Counterclaims and to cause the
service of summons on Respondents Gregory T. Lim and
Anthony A. Mariano. No costs.
SO ORDERED.

Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur.

Corona, J., on leave.
PHILIPPINE SUPREME COURT DECISIONS

EN BANC

[G.R. No. 11307. October 5, 1918. ]

ROMAN JAUCIAN, Plaintiff-Appellant, v. FRANCISCO QUEROL,

administrator of the intestate estate of the deceased
Hermenegildo Rogero, Defendant-Appellee.

Manly, Goddard & Lockwood, for Appellant.

Albert E. Somersille, for Appellee.

This appeal by bill of exceptions was brought to reverse a

judgment of the Court of First Instance of the Province of
Albay whereby said court has refused to allow a claim in favor
of the plaintiff, Roman Jaucian, against the estate of
Hermenegilda Rogero upon the facts hereinbelow stated.

In October, 1908, Lino Dayandante and Hermenegilda Rogero

executed a private writing in which they acknowledged
themselves to be indebted to Roman Jaucian in the sum of
P13,332.33. The terms of this obligation are fully set out at
page 38 of the bill of exceptions. Its first clause is in the
following words:jgc:chanrobles.com.ph

"We jointly and severally acknowledge our indebtedness in

the sum of P13,332.33 Philippine currency (a balance made
October 23, 1908) bearing interest at the rate of 10 per cent
per annum to Roman Jaucian, of age, a resident of the
municipality of Ligao, Province of Albay, Philippine Islands and
married to Pilar Tell."cralaw virtua1aw library

Hermenegilda Rogero signed this document in the capacity of

surety for Lino Dayandante; but as clearly appears from the
instrument itself both debtors bound themselves jointly and
severally to the creditor, and there is nothing in the terms of
the obligation itself to show that the relation between the two
debtors was that of principal and surety.

In November, 1909, Hermenegilda Rogero brought an action

in the Court of First Instance of Albay against Jaucian, asking
that the document in question be canceled as to her upon the
ground that her signature was obtained by means of fraud. In
his answer to the complaint, Jaucian, by way of cross-
complaint, asked for judgment against the plaintiff for the
amount due upon the obligation, which appears to have
matured at that time. Judgment was rendered in the Court of
First Instance in favor of the plaintiff, from which judgment the
defendant appealed to the Supreme Court.

In his appeal to this court, Jaucian did not assign as error the
failure of the lower court to give him judgment on his cross-
demand, and therefore the decision upon the appeal was
limited to the issues concerning the validity of the document.

While the case was pending in the Supreme Court,

Hermenegilda Rogero died and the administrator of her estate
was substituted as the party plaintiff and appellee. On
November 25, 1913, the Supreme Court rendered its decision
reversing the judgment of the trial court and holding that the
disputed claim was valid. 1

During the pendency of the appeal, proceedings were had in

the Court of First Instance of Albay for the administration of
the estate of Hermenegilda Rogero; Francisco Querol was
named administrator; and a committee was appointed to pass
upon claims against the estate. This committee made its
report on September 3, 1912. On March 24, 1914, or about a
year and a half after the filing of the report of the committee
on claims against the Rogero estate, Jaucian entered an
appearance in the estate proceedings, and filed with the court
a petition in which he averred the execution of the document
of October, 1908, by the deceased, the failure of her coobligor
Dayandante, to pay any part of the debt, except P100 received
from him in March, 1914, and the complete insolvency of
Dayandante. Upon these facts Jaucian prayed the court for an
order directing the administrator of the Rogero estate to pay
him the principal sum of P13,332.33, plus P7,221.66, as
interest thereon from October 24, 1908, to March 24, 1914
with interest on the principal sum from March 24, 1914 at 10
per cent per annum, until paid.

A copy of this petition was served upon the administrator of

the estate, who, on March 30, 1914, appeared by his attorney
and opposed the granting of the petition upon the grounds
that the claim had never been presented to the committee on
claims for allowance; that more than eighteen months had
passed since the filing of the report of the committee, and that
the court was therefore without jurisdiction to entertain the
demand of the claimant. A hearing was had upon the petition
before the Honorable P. M. Moir, then sitting in the Court of
First Instance of Albay. On April 13, 1914, he rendered his
decision, in which, after reciting the facts substantially as
above set forth, he said:jgc:chanrobles.com.ph

"During the pendency of that action (the cancellation suit) in

the Supreme Court Hermenegilda Rogero died, and Francisco
Querol was named administrator of the estate, and he was
made a party defendant to the action then pending in the
Supreme Court. As such he had full knowledge of the claim
presented and was given an opportunity to make his defense.
It is presumed that defense was made in the Supreme Court.

"No contingent claim was filed before the commissioners by

Roman Jaucian, who seems to have rested content with the
action pending. Section 746 et seq. of the Code of Civil
Procedure provides for the presentation of contingent claims,
against the estate. This claim is a contingent claim, because,
according to the decision of the Supreme Court, Hermenegilda
Rogero was a surety of Lino Dayandante. The object of
presenting the claim to the commissioners is simply to allow
them to pass on the claim and to give the administrator an
opportunity to defend the estate against the claim. This having
been given by the administrator defending the suit in the
Supreme Court, the court considers this a substantial
compliance with the law, and the said defense having been
made by the administrator, he cannot now come into court
and hide behind a technicality and say that the claim had not
been presented to the commissioners and that, the
commissioners having long since made report, the claim
cannot be referred to the commissioners and therefore the
claim of Roman Jaucian is barred. The court considers that
paragraph (e) of the opposition is well taken and that there
must be legal action taken against Lino Dayandante to
determine whether or not he is insolvent, and that declaration
under oath to the effect that he has no property except P100
worth of property, which he has ceded to Roman Jaucian, is
not sufficient.

"Hermenegilda Rogero having been simply surety for Lino

Dayandante, the administrator has a right to require that
Roman Jaucian produce a judgment for his claim against Lino
Dayandante, in order that the said administrator may be
subrogated to the rights of Jaucian against Dayandante. The
simple affidavit of the principal debtor that he had no property
except P100 worth of property which he has ceded to the
creditor is not sufficient for the court to order the surety to
pay the debt of the principal. When this action shall have been
taken against Lino Dayandante and an execution returned no
effects, then the claim of Jaucian against the estate will be
ordered paid or any balance that may be due to him."cralaw
virtua1aw library

Acting upon the suggestions contained in this order Jaucian

brought an action against Dayandante and recovered a
judgment against him for the full amount of the obligation
evidenced by the document of October 24, 1918. Execution
was issued upon this judgment, but was returned by the
sheriff wholly unsatisfied, no property of the judgment debtor
having been found.
On October 28, 1914, counsel for Jaucian filed another
petition in the proceedings upon the estate of Hermenegilda
Rogero, in which they averred, upon the grounds last stated
that Dayandante was insolvent, and renewed the prayer of the
original petition. It was contended that the court, by its order
of April 13, 1914, had "admitted the claim."cralaw virtua1aw
library

The petition was again opposed by the administrator of the

estate upon the grounds (a) that the claim was not admitted
by the order of April 13, 1914, and that "the statement of the
court with regard to the admissibility of the claim was mere
dictum;" and (b) "that the said claim during the life and after
the death of Hermenegilda Rogero, which occurred on August
2, 1911, was a mere contingent claim against the property of
the said Hermenegilda Rogero, was not reduced to judgment
during the lifetime of said Hermenegilda Rogero, and was not
presented to the commissioners on claims during the period
of six months from which they were appointed in this estate,
said commissioners having given due and lawfull notice of
their sessions and more than one year having expired since the
report of the said commissioners; and this credit is outlawed
or prescribed, and that this court has no jurisdiction to
consider this claim."cralaw virtua1aw library

On November 24, 1914, the Honorable J. C. Jenkins, then

sitting in the Court of First Instance of Albay, after hearing
argument, entered an order refusing to grant Jaucians
petition. To this ruling the appellant excepted and moved for
a rehearing. On December 11, 1914, the judge a quo entered
an order denying the rehearing and setting forth at length, the
reasons upon which he based his denial of the petition. These
grounds were briefly, that as the claim had never been
presented to the committee on claims, it was barred; that the
court had no jurisdiction to entertain it; that the decision of
the Supreme Court in the action brought by the deceased
against Jaucian did not decide anything except that the
document therein disputed was a valid instrument.

In this court the appellant contends that the trial judge erred
(a) in refusing to give effect to the order made by the
Honorable P. M. Moir, dated April 13, 1914; and (b) in refusing
to order the administrator of the estate of Hermenegilda
Rogero to pay the appellant the amount demanded by him.
The contention with regard to the order of April 13, 1914, is
that no appeal from it having been taken, it became final.

An examination of the order in question, however, leads us to

conclude that it was not a final order, and therefore it was not
appealable. In effect, it held that whatever rights Jaucian
might have against the estate of Rogero were subject to the
performance of a condition precedent, namely, that he should
first exhaust this remedy against Dayandante. The court
regarded Dayandante as the principal debtor, and the
deceased as a surety only liable for such deficiency as might
result after the exhaustion of the assets of the principal
coobligor. The pivotal fact upon which the order was based
was the failure of appellant to show that he had exhausted his
remedy against Dayandante, and this failure the court
regarded as a complete bar to the granting of the petition at
that time. The court made no order requiring the appellee to
make any payment whatever, and that part of the opinion,
upon which the order was based which contained statements
of what the court intended to do when the petition should be
renewed, was not binding upon him or any other judge by
whom he might be succeeded. Regardless of what may be our
views with respect to the jurisdiction of the court to have
granted the relief demanded by appellant in any event, it is
quite clear from what we have stated that the order of April
13, 1914, required no action by the administrator at that time,
was not final, and therefore was not appealable. We therefore
conclude that no rights were conferred by the said order of
April 13, 1914, and that it did not preclude the administrator
from making opposition to the petition of the appellant when
it was renewed.

Appellant contends that his claim against the deceased was

contingent. His theory is that the deceased was merely a
surety of Dayandante. His argument is that as section 746 of
the Code of Civil Procedure provides that contingent claims
may be presented with the proof to the committee," it follows
that such presentation is optional. Appellant, furthermore,
contends that if a creditor holding a contingent claim does not
see fit to avail himself of the privilege thus provided, there is
nothing in the law which says that his claim is barred or
prescribed, and that such creditor, under section 748 of the
Code of Civil Procedure, at any time within two years from the
time allowed other creditors to present their claims, may, if
his claim becomes absolute within that period present it to the
court for allowance. On the other hand counsel for appellee
contends (1) that contingent claims like absolute claims are
barred for non-presentation to the committee but (2) that the
claim in question was in reality an absolute claim and
therefore indisputably barred.

The second contention takes logical precedence over the first

and our view of its conclusiveness renders any consideration
of the first point entirely unnecessary to a determination of
the case. Bearing in mind that the deceased Hermenegilda
Rogero, though surety for Lino Dayandante, was nevertheless
bound jointly and severally with him in the obligation, the
following provisions of law are here pertinent.

Article 1822 of the Civil Code provides:jgc:chanrobles.com.ph

"By security a person binds himself to pay or perform for a

third person in case the latter should fail to do so.

"If the surety binds himself jointly with the principal debtor,
the provisions of section fourth, chapter third, title first, of this
book shall be observed."cralaw virtua1aw library

Article 1144 of the same code provides:jgc:chanrobles.com.ph

"A creditor may sue any of the joint and several (solidarios)
debtors or all of them simultaneously. The claims instituted
against one shall not be an obstacle for those that may be later
presented against the others, as long as it does not appear that
the debt has been collected in full."cralaw virtua1aw library

Article 1830 of the same code provides:jgc:chanrobles.com.ph

"The surety can not be compelled to pay a creditor until
application has been previously made of all the property of the
debtor."cralaw virtua1aw library

Article 1831 provides:jgc:chanrobles.com.ph

"This application can not take place

"(1) . . . (2) If he has jointly bound himself with the debtor . . .

."cralaw virtua1aw library

The foregoing articles of the Civil Code make it clear that

Hermenegilda Rogero was liable absolutely and
unconditionally for the full amount of the obligation without
any right to demand the exhaustion of the property of the
principal debtor previous to its payment. Her position so far as
the creditor was concerned was exactly the same as if she had
been the principal debtor.

The absolute character of the claim and the duty of the

committee to have allowed it in full as such against the estate
of Hermenegilda Rogero had it been opportunely presented
and found t be a valid claim is further established by section
698 of the Code of Civil Procedure, which
provides:jgc:chanrobles.com.ph

"When two or more persons are indebted on a joint contract,

or upon a judgment founded on a joint contract, and either of
them dies, his estate shall be liable therefore, and it shall be
allowed by the committee as if the contract had been with him
alone or the judgment against him alone. But the estate shall
have the right to recover contribution from the other joint
debtor."cralaw virtua1aw library

In the official Spanish translation of the Code of Civil

Procedure, the sense of the English word "joint," as used in
two places in the section above quoted, is rendered b the
Spanish word "mancomunadamente." This is incorrect. The
sense of the word "joint," as here used, would be more
properly translated in Spanish by the word "solidaria," though
even this word does not express the meaning of the English
with entire fidelity.

The section quoted, it should be explained, was originally

taken by the author, or compiler, of our Code of Civil
Procedure from the statutes of the State of Vermont; and the
word "joint" is, therefore, here used in the sense which
attaches to it in the common law. Now, in the common law
system there is no conception of obligation corresponding to
the divisible joint obligation contemplated in article 1138 of
the Civil Code. This article declares in effect that, if not
otherwise expressly determined, every obligation in which
there are numerous debtors we here ignore plurality of
creditors shall be considered divided into a many parts as
there are debtors, and each part shall be deemed to be the
distinct obligation of one of the respective debtors. In other
words, the obligation is apportionable among the debtors; and
in case of the simple joint contract neither debtor can be
required to satisfy more than his

In the common law system every debtor in a joint obligation is

liable in solidum for the whole; and the only legal peculiarity
worthy of remark concerning the "joint" contract at common
law is that the creditor is required to sue all the debtors at
once. To avoid the inconvenience of this procedural
requirement and to permit the creditor in a joint contract to
do what the creditor in a solidary obligation can do under
article 1144 of the Civil Code, it is not unusual for the parties
to a common law contract to stipulate that the debtors shall
be "jointly and severally" liable. The force of this expression is
to enable the creditor to sue any one of the debtors or all
together at pleasure.

It will thus be seen that the purpose of section 698 of the Code
of Civil Procedure, considered as a product of common law
ideas, is not to convert an apportionable joint obligation into
a solidary joint obligation for the idea of the benefit of
division is totally foreign to the common law system but to
permit the creditor to proceed at once separately against the
estate of the deceased debtor, without attempting to draw
the other debtors into intestate or testamentary proceedings.
The joint contract of the common law is and always has been
a solidary obligation so far as the extent of the debtors liability
is concerned.

In Spanish law the comprehensive and generic term by which

to indicate multiplicity of obligation, arising from plurality of
debtors or creditors, is mancomunidad, which term includes
(1) mancomunidad simple, or mancomunidad properly such,
and (2) mancomunidad solidaria. In other words the Spanish
system recognizes two species of multiple obligation, namely,
the apportionable joint obligation and the solidary joint
obligation. The solidary obligation is, therefore, merely a form
of joint obligation.

The idea of the benefit of division as a feature of the simple

joint obligation appears to be a peculiar creation of Spanish
jurisprudence. No such idea prevailed in the Roman law, and
it is not recognized either in the French or in the Italian system.

"This conception is a badge of honor to Spanish legislation,

honorably shared with the Spanish-American, since French
and Italian codes do not recognize the distinction or
difference, just expounded, between the two sorts of multiple
obligation. . . ." (Giorgi, Theory of Obligations, Span. ed., vol. I,
p. 77, note.)

Considered with reference to comparative jurisprudence,

liability in solidum appears to be the normal characteristic of
the multiple obligation, while the benefit of division in the
Spanish system is an illustration of the abnormal, evidently
resulting from the operation of a positive rule created by the
lawgiver. This exceptional feature of the simple joint
obligation in Spanish law dates from an early period; and the
rule in question is expressed with simplicity and precision in a
passage transcribed into the Novisima Recopilacion as
follows:jgc:chanrobles.com.ph

"If two persons bind themselves by contract, simply and not

otherwise, to do or accomplish something, it is thereby to be
understood that each is bound for one-half, unless it is
specified in the contract that each is bound in solidum, or it is
agreed among themselves that they shall be bound in some
other manner, and this notwithstanding any customary law to
the contrary; . . ." (Law X, tit. I, book X, Novisima Recopilacion,
copied from law promulgated at Madrid in 1488 by Henry IV.)

The foregoing exposition of the conflict between the juridical

conceptions of liability incident to the multiple obligation, as
embodied respectively in the common law system and the
Spanish Civil Code, prepares us for a few words of comment
upon the problem of translating the terms which we have
been considering from English into Spanish or from Spanish
into English.

The Spanish expression to be chosen as the equivalent of the

English word "joint" or "jointly" must, of course, depend upon
the idea to be conveyed; and it must be remembered that the
matter to be translated may be an enunciation either of a
common law conception or of a civil law idea. In Sharruf v.
Tayabas Land Co. and Ginainati (37 Phil Rep., 655), a judge of
one of the Courts of First Instance in these Islands rendered
judgment in English declaring the defendants to be "Jointly
liable. It was held that he meant "jointly" in the sense of
"mancomunadamente," because the obligation upon which
the judgment was based was apportionable under article 1138
of the Civil Code. This mode of translation does not, however,
hold good where the word to be translated has reference to a
multiple common law obligation, as in article 698 of the Code
of Civil Procedure. Here it is necessary to render the word
"joint" by the Spanish word "solidaria."cralaw virtua1aw
library
In translating the Spanish word "mancomunada" into English
a similar difficulty is presented. In the Philippine Islands at
least we must probably continue to tolerate the use of the
English word "joint" as an approximate English equivalent,
ambiguous as it may be to a reader indoctrinated with the
ideas of the common law. The Latin phrase pro rata is a make
shift, the use of which is not to be commended. The Spanish
word "solidaria" is properly rendered in English by the word
"solidary," though it is not inaccurate here to use the
compound expression "joint and several." The use of the Latin
phrase in solidum" is also permissible. We close these
observations with the suggestion that a person writing in
English may at times find it conducive to precision to use the
expanded expressions "apportionable joint obligation" and
"solidary joint obligation," as conveying the full juridical sense
of "obligacion mancamunada" and "obligacion solidaria,"
respectively.

From what has been said it is clear that Hermenegilda Rogero,

and her estate after her death, was liable absolutely for the
whole obligation, under section 698 of the Code of Civil
Procedure; and if the claim had been duly presented to the
committee for allowance it should have been allowed, just as
if the contract had been with her alone.

It is thus apparent that by the express and incontrovertible

provisions both of the Civil Code and the Code of Civil
Procedure, this claim was an absolute claim. Applying section
695 of the Code of Civil Procedure, this court has frequently
decided that such claims are barred if not presented to the
committee in time (In re estate of Garcia Pascual, 11 Phil. Rep.,
34; Ortiga Bros. & Co. v. Enage and Yap Tico, 18 Phil. Rep., 345,
351; Santos v. Manarang, 27 Phil. Rep., 209, 213); and we are
of the opinion that, for this reason, the claim was properly
rejected by Judge Jenkins.

There is no force, in our judgment, in the contention that the

pendency of the suit instituted by the deceased for the
cancellation of the document in which the obligation in
question was recorded was a bar to the presentation of the
claim against the estate. The fact that the lower court had
declared the document void was not conclusive, as its
judgment was not final, and even assuming that if the claim
had been presented to the committee for allowance, it would
have been rejected and that the decision of the committee
would have been sustained by the Court of First Instance, the
rights of the creditor could have been protected by an appeal
from that decision.

Appellant apparently takes the position that had his claim

been filed during the pendency of the cancellation suit, it
would have been met with the plea of another suit pending
and that this plea would have been successful. This view of the
law is contrary to the doctrine of the decision in the case of
Hongkong & Shanghai Banking Corporation v. Aldecoa & Co.
([1915], 30 Phil. Rep., 255)

Furthermore, even had Jaucian, in his appeal from the decision

in the cancellation suit, endeavored to obtain judgment on his
cross-complaint, the death of the debtor would probably have
required the discontinuance of the action presented by the
cross-complaint or counterclaim, under section 703.
As already observed the case is such as not to require the court
to apply sections 746-749, inclusive, of the Code of Civil
Procedure, nor to determine the conditions under which
contingent claims are barred. But a few words of comment
may be added to show further that the solidary obligation
upon which this proceeding is based is not a contingent claim,
such as is contemplated in those sections.

The only concrete illustration of a contingent claim given in

section 746 is the case where a person is liable as surety for
the deceased, that is, where the principal debtor is dead. This
is a very different situation from that presented in the
concrete case now before us, where the surety is the person
who is dead. In the illustration put in section 746 where the
principal debtor is dead and the surety is the party preferring
the claim against the estate of the deceased it is obvious
that the surety has no claim against the estate of the principal
debtor, unless he himself satisfies the obligation in whole or in
part upon which both are bound. It is at this moment, and not
before, that the obligation of the principal to indemnify the
surety arises (art. 1838, Civil Code); and by virtue of such
payment the surety is subrogated in all the rights which the
creditor had against the debtor (art. 1839, same Gode).

Another simple illustration of a contingent liability is found in

the case of the indorser of a negotiable instrument, who is not
liable until his liability is fixed by dishonor and notice, or
protest and notice, in conformity with the requirements of
law. Until this event happens there is a mere possibility of a
liability, which in fact may never become fixed at all. The
claims of all persons who assume the responsibility of mere
guarantors is as against their principles of the same
contingent character.

It is possible that "contingency," in the cases contemplated in

section 746, may depend upon other facts than those which
relate to the creation or inception of liability. It may be, for
instance, that the circumstance that a liability is subsidiary,
and the execution has to be postponed after judgment is
obtained until the exhaustion of the assets of the person or
entity primarily liable, makes a claim contingent within the
meaning of said section; but upon this point it is unnecessary
to express an opinion, It is enough to say that where, as in the
case now before us, liability extends unconditionally to the
entire amount stated in the obligation, or, in other words,
where the debtor is liable in solidum and without
postponement of execution, the liability is not contingent but
absolute

For the reasons stated, the decision of the trial court denying
appellants petition and his motion for a new trial was correct
and must be affirmed. No costs will be allowed on this appeal.
So ordered.

Arellano, C.J., Torres, Johnson, Araullo and Avancea, JJ.,

concur.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-7185 August 31, 1955

REHABILITATION FINANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and REALTY INVESTMENTS, INC.,
respondents.

Sixto de la Costa and Jose M. Garcia for petitioner.

Juan T. Chuidian for respondents.

REYES, A., J.:

On June 17, 1948, Delfin Dominguez signed a contract with

Realty Investments, Inc., to purchase a registered lot
belonging to the latter, making a down payment of P39.98 and
promising to pay the balance of the stipulated price in 119
monthly installments. Some three months thereafter, to
finance the improvement of a house Dominguez had built on
the lot of Rehabilitation Finance Corporationhereafter
called the RFCagreed to loan him P10,000 on the security of
a mortgage upon said house and lot, and, at his instance,
wrote Realty Investments a letter, dated September 17, 1948,
requesting that the necessary documents for the transfer of
title of the vendee be executed so that the same could be
registered together with mortgage, this with the assurance
that as soon as title to the lot had been issued in the name of
Dominguez and the mortgage in favor of the RFC registered as
first lien on the lot and the building thereon, the RFC would
pay Realty Investments "the balance of the purchase price of
the lot in the amount of P3,086.98." Complying with RFC's
request and relying on its assurance of payment, Realty
Investments, on the 20th of that same month, deeded over
the lot to Dominguez "free of all liens and incumbrances" and
thereafter the mortgage deed, which Dominguez had
executed in favor of RFC three days before, was recorded in
the Registry of Deeds for the City of Manila as first lien on the
lot and the building thereon.

It would appear that once the mortgage was registered, the

RFC let Dominguez have P6,500 out of the proceeds of his
loan, but that the remainder of the loan was never released
because Dominguez defaulted in the payment of the
amortizations due on the amount he had already received,
and as a consequence the RFC foreclosed the mortgage,
bought the mortgaged property in the foreclosure sale, and
obtained title thereto upon failure of the mortgagor to
exercise his right of redemption.

Required to make good its promise to pay Realty Investments

the balance of the purchase price of the lot, the RFC refused,
and so Realty Investments commenced the present action in
the Court of First Instance of Manila for the recovery of the
said balance from either Delfin Dominguez or the RFC.

The trial court allowed recovery from Dominguez, but

absolved the RFC from the complaint. But on appeal, the Court
of Appeals reversed that verdict, declared the judgment
against Dominguez void for having been rendered after his
exclusion from the case, and sentenced the RFC to pay plaintiff
the amount claimed together with interests and costs. From
this judgment the RFC has appealed to this Court.

We find no merit in the appeal. While the amount sought to

be recovered by plaintiff was originally owing from
Dominguez, being the balance of the purchase price of the lot
he had agreed to buy, the obligation of paying it to plaintiff has
already been assumed by the RFC with no other condition than
that title to the lot be first conveyed to Dominguez and RFC's
mortgage lien thereon registered, and that condition has
already been fulfilled.

It is, however, contended for the RFC that its obligation to pay
"has been modified, if not extinguished" by plaintiff's letter of
September 20, 1948, which reads as follows:

September 20, 1948

The R. F. C.
Manila

SIRS:

In connection with your guarantee to pay us the balance of

P3,086.98 of the account of Mr. Delfin Dominguez for the
purchase of lot No. 15, block 7 of our Riverside Subdivision,
which lot has been conveyed to him on the strength of your
guaranty to us the said balance, we want to inform you that,
at the request of Mr. Dominguez, we are agreeable to have
that amount paid us at the second release of proceeds of his
loan, which he informs us will be on or about October 15,
1948.

Yours truly,

REALTY INVESTMENTS, INC.

C. M. HONSKINS & CO., INC.
Managing Agents

By: (Sgd.) A. B. Aquino

President

Passing upon the above contention, the Court of Appeals says:

"As narrated in the statement of the case, both Dominguez
and the appellee kept appellant ignorant on the terms and
conditions of their agreement concerning the loan of P10,000
and of the manner that sum was to be released, and in such
circumstances plaintiff's letter of September 20, 1948, cannot
be construed in the manner contended by appellee and
sustained by the court, for plaintiff merely said in substance
and effect that it was agreeable to have the balance of
P3,086.98 of the account of Delfin Dominguez paid to it 'at the
second release of proceeds of his loan, which he (Dominguez)
informs us will be on or about October 15, 1948.' Defendant-
appellee should know that it would be absurd for the plaintiff
to waive appellee's guaranty contained in its letter of
September 17, 1948, wherein Governor E. Ealdama bound the
Rehabilitation Finance Corporation to pay the unpaid balance
of the purchase price of the lot in question after title thereof
was transferred in the name of Dominguez free from any
incumbrance. If the Rehabilitation Finance Corporation was
not to make any further release of funds on the loan, or if such
release was to be subject to future developments, it was the
duty of the Rehabilitation Finance Corporation to answer the
latter's letter of September 20, 1948, and to inform appellant
of the terms and conditions of the loan, but the officers of the
appellee failed to do this. For this reason, appellee's
contention in this respect is most unfair and cannot be upheld
by the courts of justice. It was the Rehabilitation Finance
Corporation that induced plaintiff to issue title to the lot free
from all encumbrances to Dominguez on its guaranty, and it
cannot now without any fault of the plaintiff keep the lot in
question and Dominguez' building without paying anything to
the plaintiff. Under the circumstance of the case, appellant
was not under any obligation of assuming Dominguez' right of
redemption of the property foreclosed just to save said lot,
payment for which was guaranteed by the Rehabilitation
Finance Corporation."

We are in accord with the above pronouncement. Plaintiff was

induced to part with his title to a piece of real property upon
RFC's assurance that it would itself pay the balance of the
purchase price due from the purchaser after its mortgage lien
thereon had been registered. Lulled by that assurance,
plaintiff thereafter looked to the RFC, instead of the purchase,
for payment. It is true that plaintiff later expressed willingness
to have the payment made at a later date, whenso it was
informed by the buyer"the second release of proceeds of his
loan" would take place. But it is evident that this period of
grace was granted by plaintiff in the belief that the
information furnished by the buyer was true, and, as found by
the Court of Appeals (and this finding is conclusive upon this
Court), RFC never made plaintiff know that said information
was not correct. In those circumstances, we do not think it fair
to construe plaintiff's letter to be anything more than a mere
assent to a deferment of payment, and such assent should not
be taken as willingness on its part to have the payment made
only if and when there was to be second release of proceeds
of the loan. It would be unreasonable to suppose that the
creditor, already assured of payment by the RFC itself, would
want to create uncertainty by making such payment
dependent upon a contingency.

In view of the foregoing, the decision appealed from is

affirmed, with costs against the RFC.

Bengzon, Acting, C. J. Padilla, Montemayor, Jugo, Labrador,

Concepcion and Reyes, J. B. L., JJ., concur.
PHILIPPINE SUPREME COURT DECISIONS

FIRST DIVISION

[G.R. No. 93010. August 30, 1990.]

NICENCIO TAN QUIOMBING, Petitioner, v. COURT OF

APPEALS, and Sps. FRANCISCO and MANUELITA A. SALIGO,
Respondents.

M.B. Tomacruz Law Office for Petitioner.

Jose J. Francisco for Private Respondents.

DECISION

CRUZ, J.:

May one of the two solidary creditors sue by himself alone for
the recovery of amounts due to both of them without joining
the other creditor as a co-plaintiff? In such a case, is the
defendant entitled to the dismissal of the complaint on the
ground of non-joinder of the second creditor as an
indispensable party? More to the point, is the second solidary
creditor an indispensable party?

These questions were raised in the case at bar, with both the
trial and respondent courts ruling in favor of the defendants.
The petitioner is now before us, claiming that the said courts
committed reversible error and misread the applicable laws in
dismissing his complaint.

This case stemmed from a "Construction and Service

Agreement" 1 concluded on August 30, 1983, whereby
Nicencio Tan Quiombing and Dante Biscocho, as the First
Party, jointly and severally bound themselves to construct a
house for private respondents Francisco and Manuelita Saligo,
as the Second Party, for the contract price of P137,940.00,
which the latter agreed to pay.

On October 10, 1984, Quiombing and Manuelita Saligo

entered into a second written agreement 2 under which the
latter acknowledged the completion of the house and
undertook to pay the balance of the contract price in the
manner prescribed in the said second agreement.

On November 19, 1984, Manuelita Saligo signed a promissory

note for P125,363.50 representing the amount still due from
her and her husband, payable on or before December 31,
1984, to Nicencio Tan Quiombing. 3

On October 9, 1986, Quiombing filed a complaint for recovery

of the said amount, plus charges and interests, which the
private respondents had acknowledged and promised to pay
but had not, despite repeated demands as the balance
of the contract price for the construction of their house. 4

Instead of filing an answer, the defendants moved to dismiss

the complaint on February 4, 1987, contending that Biscocho
was an indispensable party and therefore should have been
included as a co-plaintiff. The motion was initially denied but
was subsequently reconsidered and granted by the trial court.
The complaint was dismissed, but without prejudice to the
filing of an amended complaint to include the other solidary
creditor as a co-plaintiff. 5

Rather than file the amended complaint, Quiombing chose to

appeal the order of dismissal to the respondent court, where
he argued that as a solidary creditor he could act by himself
alone in the enforcement of his claim against the private
respondents. Moreover, the amounts due were payable only
to him under the second agreement, where Biscocho was not
mentioned at all.cralawnad

The respondent court sustained the trial court and held that it
was not correct at that point to assume that Quiombing and
Biscocho were solidary obligees only. It noted that as they had
also assumed the reciprocal obligation of constructing the
house, they should also be considered obligors of the private
respondents under the contract. If, as was possible, the
answer should allege a breach of the agreement, "the trial
court cannot decide the dispute without the involvement of
Biscocho whose rights will necessarily be affected since he is a
part of the First Party."cralaw virtua1aw library

Refuting the petitioners second contention, the respondent

court declared that the "second agreement referred to the
Construction and Service Agreement as its basis and
specifically stated that it (was) merely a `part of the original
agreement." 6
The concept of the solidary obligation requires a brief
restatement.

Distinguishing it from the joint obligation, Tolentino makes the

following observations in his distinguished work on the Civil
Code:chanrob1es virtual 1aw library

A joint obligation is one in which each of the debtors is liable

only for a proportionate part of the debt, and each creditor is
entitled only to a proportionate part of the credit. A solidary
obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole
obligation. Hence, in the former, each creditor can recover
only his share of the obligation, and each debtor can be made
to pay only his part; whereas, in the latter, each creditor may
enforce the entire obligation, and each debtor may be obliged
to pay it in full. 7

The same work describes the concept of active solidarity

thus:chanrob1es virtual 1aw library

The essence of active solidarity consists in the authority of

each creditor to claim and enforce the rights of all, with the
resulting obligation of paying every one what belongs to him;
there is no merger, much less a renunciation of rights, but only
mutual representation. 8

It would follow from these observations that the question of

who should sue the private respondents was a personal issue
between Quiombing and Biscocho in which the spouses Saligo
had no right to interfere. It did not matter who as between
them filed the complaint because the private respondents
were liable to either of the two as a solidary creditor for the
full amount of the debt. Full satisfaction of a judgment
obtained against them by Quiombing would discharge their
obligation to Biscocho, and vice versa; hence, it was not
necessary for both Quiombing and Biscocho to file the
complaint. Inclusion of Biscocho as a co-plaintiff, when
Quiombing was competent to sue by himself alone, would be
a useless formality.chanrobles.com:cralaw:red

Article 1212 of the Civil Code provides:chanrob1es virtual 1aw

library

Each one of the solidary creditors may do whatever may be

useful to the others, but not anything which may be prejudice
to the latter.

Suing for the recovery of the contract price is certainly a useful

act that Quiombing could do by himself alone.

Parenthetically, it must be observed that the complaint having

been filed by the petitioner, whatever amount is awarded
against the debtor must be paid exclusively to him, pursuant
to Article 1214. This provision states that "the debtor may pay
any of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by any one of them, payment
should be made to him."cralaw virtua1aw library

If Quiombing eventually collects the amount due from the

solidary debtors, Biscocho may later claim his share thereof,
but that decision is for him alone to make. It will affect only
the petitioner as the other solidary creditor and not the
private respondents, who have absolutely nothing to do with
this matter. As far as they are concerned, payment of the
judgment debt to the complainant will be considered payment
to the other solidary creditor even if the latter was not a party
to the suit.

Regarding the possibility that the private respondents might

plead breach of contract in their answer, we agree with the
petitioner that it is premature to consider this conjecture
for such it is at this stage. The possibility may seem remote,
indeed, since they have actually acknowledged the completion
of the house in the second agreement, where they also agreed
to pay the balance of the contract price. At any rate, the
allegation, if made and proved, could still be enforceable
against the petitioner alone as one of the solidary debtors,
subject to his right of recourse against Biscocho.

The respondent court was correct in ruling that the second

agreement, which was concluded alone by the petitioner with
the private respondents, was based on the original
Construction and Service Agreement. So too in fact was the
promissory note later signed by Manuelita Saligo since it was
for the amount owing on the construction cost. However, this
matter is not really that important now in view of our
conclusion that the complaint could have been filed alone by
the petitioner.

The rest of the pieces should easily fall into place.

Section 7, Rule 3 of the Rules of Court mandates the inclusion
of indispensable parties as follows:chanrob1es virtual 1aw
library

Sec. 7. Compulsory joinder of indispensable parties.

Parties in interest without whom no final determination can
be had of an action shall be joined either as plaintiffs or
defendants.

Indispensable parties are those with such an interest in the

controversy that a final decree would necessarily affect their
rights, so that the court cannot proceed without their
presence. Necessary parties are those whose presence is
necessary to adjudicate the whole controversy, but whose
interests are so far separable that a final decree can be made
in their absence without affecting them. 9 (Necessary parties
are now called proper parties under the 1964 amendments of
the Rules of Court.) 10

According to Justice Jose Y. Feria, "where the obligation of the

parties is solidary, either one of the parties is indispensable,
and the other is not even necessary (now proper) because
complete relief may be obtained from either." 11

We hold that, although he signed the original Construction

and Service Agreement, Biscocho need not be included as a
co-plaintiff in the complaint filed by the petitioner against the
private respondents. Quiombing as solidary creditor can by
himself alone enforce payment of the construction costs by
the private respondents and as a solidary debtor may by
himself alone be held liable for any possible breach of contract
that may be proved by the private respondents. In either case,
the participation of Biscocho is not at all necessary, much less
indispensable.

WHEREFORE, the petition is GRANTED. The decision of the

respondent court dated March 27, 1990, is SET ASIDE, and the
Regional Trial Court of Antipolo, Rizal, is directed to REINSTATE
Civil Case No. 913-A. Costs against the private respondents.
[G.R. No. 96405. June 26, 1996]

BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS

and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

SECOND DIVISION
[G.R. No. 96405. June 26, 1996]

BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS

and PHILIPPINE BANK OF COMMUNICATIONS, respondents.
SYLLABUS

1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; DOES

NOT SPECIFY THAT THE WRITTEN AGREEMENT BE A PUBLIC
INSTRUMENT.- Clearly, the rule does not specify that the
written agreement be a public document. What is required is
that the agreement be in writing as the rule is in fact founded
on "long experience that written evidence is so much more
certain and accurate than that which rests in fleeting memory
only, that it would be unsafe, when parties have expressed the
terms of their contract in writing, to admit weaker evidence to
control and vary the stronger and to show that the parties
intended a different contract from that expressed in the
writing signed by them" [FRANCISCO, THE RULES OF COURT OF
THE PHILIPPINES, Vol. VII, Part I, 1990 ed., p. 179] Thus, for the
parol evidence rule to apply, a written contract need not be in
any particular form, or be signed by both parties. As a general
rule, bills, notes and other instruments of a similar nature are
not subject to be varied or contradicted by parol or extrinsic
evidence.
2. CIVIL LAW; OBLIGATIONS; SOLIDARY OR JOINT AND
SEVERAL OBLIGATION, DEFINED.- A solidary or joint and
several obligation is one in which each debtor is liable for the
entire obligation, and each creditor is entitled to demand the
whole obligation. [TOLENTINO, CIVIL CODE OF THE
PHILIPPINES, Vol. IV, 1991 ed., p. 217] Section 4, Chapter 3,
Title 1, Book IV of the Civil Code states the law on joint and
several obligations. Under Art. 1207 thereof, when there are
two or more debtors in one and the same obligation, the
presumption is that the obligation is joint so that each of the
debtors is liable only for the proportionate part of the debt.
There is a solidary liability only when the obligation expressly
so states, when the law so provides or when the nature of the
obligation so requires. [Sesbreo v. Court of Appeals, G.R. No.
89252, May 24, 1993, 222 SCRA 466, 481.]

3. ID.; GUARANTY; GUARANTOR AS DISTINGUISHED FROM

SOLIDARY DEBTOR.- While a guarantor may bind himself
solidarily with the principal debtor, the liability of a guarantor
is different from that of a solidary debtor. Thus, Tolentino
explains: "A guarantor who binds himself in solidum with the
principal debtor under the provisions of the second paragraph
does not become a solidary co-debtor to all intents and
purposes. There is a difference between a solidary co-debtor,
and a fiador in solidum (surety). The latter, outside of the
liability he assumes to pay the debt before the property of the
principal debtor has been exhausted, retains all the other
rights, actions and benefits which pertain to him by reason of
the fiansa; while a solidary co-debtor has no other rights than
those bestowed upon him in Section 4, Chapter 3, Title 1, Book
IV of the Civil Code." [Tolentino, Civil Code of the Philippines,
Vol. V, 1992 ed., p. 502]

APPEARANCES OF COUNSEL

Emilio G. Abrogena for petitioner.

Teogenes X. Velez for private respondent.
DECISION

ROMERO, J.:

This is a petition for review on certiorari of the decision of the

Court of Appeals affirming that of the Regional Trial Court of
Misamis Oriental, Branch 18,[1] which disposed of Civil Case
No. 10507 for collection of a sum of money and damages, as
follows:

"WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is

adjudged solidarily liable and ordered to pay to the plaintiff
Philippine Bank of Communications, Cagayan de Oro City, the
amount of FIFTY THOUSAND PESOS (P50,000.00),with interest
thereon from May 5, 1983 at 16% per annum until fully paid;
and 6% per annum on the total amount due, as liquidated
damages or penalty from May 5, 1983 until fully paid; plus 10%
of the total amount due for expenses of litigation and
attorney's fees; and to pay the costs.

The counterclaim, as well as the cross claim, are dismissed for

lack of merit.

SO ORDERED."
Petitioner's liability resulted from the promissory note in the
amount of P50,000.00 which he signed with Rene C. Naybe
and Gregorio D. Pantanosas on February 3, 1983, holding
themselves jointly and severally liable to private respondent
Philippine Bank of Communications, Cagayan de Oro City
branch. The promissory note was due on May 5, 1983.

Said due date expired without the promissors having paid their
obligation. Consequently, on November 14, 1983 and on June
8, 1984, private respondent sent petitioner telegrams
demanding payment thereof.[2] On December 11, 1984
private respondent also sent by registered mail a final letter of
demand to Rene C. Naybe. Since both obligors did not respond
to the demands made, private respondent filed on January 24,
1986 a complaint for collection of the sum of P50,000.00
against the three obligors.

On November 25, 1986, the complaint was dismissed for

failure of the plaintiff to prosecute the case. However, on
January 9, 1987, the lower court reconsidered the dismissal
order and required the sheriff to serve the summonses. On
January 27, 1987, the lower court dismissed the case against
defendant Pantanosas as prayed for by the private respondent
herein. Meanwhile, only the summons addressed to petitioner
was served as the sheriff learned that defendant Naybe had
gone to Saudi Arabia.

In his answer, petitioner alleged that sometime in January

1983, he was approached by his friend, Rudy Campos, who
told him that he was a partner of Pio Tio, the branch manager
of private respondent in Cagayan de Oro City, in the falcata
logs operation business. Campos also intimated to him that
Rene C. Naybe was interested in the business and would
contribute a chainsaw to the venture. He added that, although
Naybe had no money to buy the equipment Pio Tio had
assured Naybe of the approval of a loan he would make with
private respondent. Campos then persuaded petitioner to act
as a "co-maker" in the said loan. Petitioner allegedly acceded
but with the understanding that he would only be a co-maker
for the loan of P5,000.00.

Petitioner alleged further that five (5) copies of a blank

promissory note were brought to him by Campos at his office.
He affixed his signature thereto but in one copy, he indicated
that he bound himself only for the amount of P5,000.00. Thus,
it was by trickery, fraud and misrepresentation that he was
made liable for the amount of P50,000.00.

In the aforementioned decision of the lower court, it noted

that the typewritten figure "P50,000-" clearly appears directly
below the admitted signature of the petitioner in the
promissory note.[3] Hence, the latter's uncorroborated
testimony on his limited liability cannot prevail over the
presumed regularity and fairness of the transaction, under
Sec. 5 (q) of Rule 131. The lower court added that it was
"rather odd" for petitioner to have indicated in a copy and not
in the original, of the promissory note, his supposed obligation
in the amount of P5,000.00 only. Finally, the lower court held
that even granting that said limited amount had actually been
agreed upon, the same would have been merely collateral
between him and Naybe and, therefore, not binding upon the
private respondent as creditor-bank.

The lower court also noted that petitioner was a holder of a

Bachelor of Laws degree and a labor consultant who was
supposed to take due care of his concerns, and that, on the
witness stand, Pio Tio denied having participated in the
alleged business venture although he knew for a fact that the
falcata logs operation was encouraged by the bank for its
export potential.

Petitioner appealed the said decision to the Court of Appeals

which, in its decision of August 31, 1990, affirmed that of the
lower court. His motion for reconsideration of the said
decision having been denied, he filed the instant petition for
review on certiorari.

On February 6,1991, the Court denied the petition for failure

of petitioner to comply with the Rules of Court and paragraph
2 of Circular No. 1-88, and to sufficiently show that respondent
court had committed any reversible error in its questioned
decision.[4] His motion for the reconsideration of the denial of
his petition was likewise denied with finality in the Resolution
of April 24, 1991.[5] Thereafter, petitioner filed a motion for
leave to file a second motion for reconsideration which, in the
Resolution of May 27, 1991, the Court denied. In the same
Resolution, the Court ordered the entry of judgment in this
case.[6]

Unfazed, petitioner filed a motion for leave to file a motion for

clarification. In the latter motion, he asserted that he had
attached Registry Receipt No. 3268 to page 14 of the petition
in compliance with Circular No. 1-88. Thus, on August 7,1991,
the Court granted his prayer that his petition be given due
course and reinstated the same.[7]

Nonetheless, we find the petition unmeritorious.

Annexed to the petition is a copy of an affidavit executed on

May 3, 1988, or after the rendition of the decision of the lower
court, by Gregorio Pantanosas, Jr., an MTCC judge and
petitioner's co-maker in the promissory note. It supports
petitioner's allegation that they were induced to sign the
promissory note on the belief that it was only for P5,000.00,
adding that it was Campos who caused the amount of the loan
to be increased to P50,000.00.

The affidavit is clearly intended to buttress petitioner's

contention in the instant petition that the Court of Appeals
should have declared the promissory note null and void on the
following grounds: (a) the promissory note was signed in the
office of Judge Pantanosas, outside the premises of the bank;
(b) the loan was incurred for the purpose of buying a second-
hand chainsaw which cost only P5,000.00; (c) even a new
chainsaw would cost only P27,500.00; (d) the loan was not
approved by the board or credit committee which was the
practice, at it exceeded P5,000.00; (e) the loan had no
collateral; (f) petitioner and Judge Pantanosas were not
present at the time the loan was released in contravention of
the bank practice, and (g) notices of default are sent
simultaneously and separately but no notice was validly sent
to him.[8] Finally, petitioner contends that in signing the
promissory note, his consent was vitiated by fraud as, contrary
to their agreement that the loan was only for the amount of
P5,000. 00, the promissory note stated the amount of
P50,000.00.

The above-stated points are clearly factual. Petitioner is to be

reminded of the basic rule that this Court is not a trier of facts.
Having lost the chance to fully ventilate his factual claims
below, petitioner may no longer be accorded the same
opportunity in the absence of grave abuse of discretion on the
part of the court below. Had he presented Judge Pantanosas'
affidavit before the lower court, it would have strengthened
his claim that the promissory note did not reflect the correct
amount of the loan.

Nor is there merit in petitioner's assertion that since the

promissory note "is not a public deed with the formalities
prescribed by law but x x x a mere commercial paper which
does not bear the signature of x x x attesting witnesses," parol
evidence may "overcome" the contents of the promissory
note.[9] The first paragraph of the parol evidence rule[10]
states:

"When the terms of an agreement have been reduced to

writing, it is considered as containing all the terms agreed
upon and there can be, between the parties and their
successors-in-interest, no evidence of such terms other than
the contents of the written agreement."

Clearly, the rule does not specify that the written agreement
be a public document.
What is required is that agreement be in writing as the rule is
in fact founded on "long experience that written evidence is
so much more certain and accurate than that which rests in
fleeting memory only, that it would be unsafe, when parties
have expressed the terms of their contract in writing, to admit
weaker evidence to control and vary the stronger and to show
that the parties intended a different contract from that
expressed in the writing signed by them."[11] Thus, for the
parol evidence rule to apply, a written contract need not be in
any particular form, or be signed by both parties.[12] As a
general rule, bills, notes and other instruments of a similar
nature are not subject to be varied or contradicted by parol or
extrinsic evidence.[13]

By alleging fraud in his answer,[14] petitioner was actually in

the right direction towards proving that he and his co-makers
agreed to a loan of P5,000.00 only considering that, where a
parol contemporaneous agreement was the inducing and
moving cause of the written contract, it may be shown by
parol evidence.[15] However, fraud must be established by
clear and convincing evidence, mere preponderance of
evidence, not even being adequate.[16] Petitioner's attempt
to prove fraud must, therefore, fail as it was evidenced only by
his own uncorroborated and, expectedly, self-serving
testimony.

Petitioner also argues that the dismissal of the complaint

against Naybe, the principal debtor, and against Pantanosas,
his co-maker, constituted a release of his obligation, especially
because the dismissal of the case against Pantanosas was
upon the motion of private respondent itself. He cites as basis
for his argument, Article 2080 of the Civil Code which provides
that:

"The guarantors, even though they be solidary, are released

from their obligation whenever by some act of the creditor,
they cannot be subrogated to the rights, mortgages, and
preferences of the latter."

It is to be noted, however, that petitioner signed the

promissory note as a solidary co-maker and not as a guarantor.
This is patent even from the first sentence of the promissory
note which states as follows:

"Ninety one (91) days after date, for value received, I/we,
JOINTLY and SEVERALLY promise to pay to the PHILIPPINE
BANK OF COMMUNICATIONS at its office in the City of
Cagayan de Oro, Philippines the sum of FIFTY THOUSAND
ONLY (P50,000. 00) Pesos, Philippine Currency, together with
interest x x x at the rate of SIXTEEN (16) per cent per annum
until fully paid."

A solidary or joint and several obligation is one in which each

debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation.[17] On the other
hand, Article 2047 of the Civil Code states:

"By guaranty a person, called the guarantor, binds himself to

the creditor to fulfill the obligation of the principal debtor in
case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor,
the provisions of Section 4, Chapter 3, Title I of this Book shall
be observed, In such a case the contract is called a suretyship."
(Italics supplied.)

While a guarantor may bind himself solidarily with the

principal debtor, the liability of a guarantor is different from
that of a solidary debtor. Thus, Tolentino explains:

"A guarantor who binds himself in solidum with the principal

debtor under the provisions of the second paragraph does not
become a solidary co-debtor to all intents and purposes. There
is a difference between a solidary co-debtor, and a fiador in
solidum (surety). The later, outside of the liability he assumes
to pay the debt before the property of the principal debtor has
been exhausted, retains all the other rights, actions and
benefits which pertain to him by reason of the fiansa; while a
solidary co-debtor has no other rights than those bestowed
upon him in Section 4, Chapter 3, title I, Book IV of the Civil
Code."[18]

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the

law on joint and several obligations. Under Art. 1207 thereof,
when there are two or more debtors in one and the same
obligation, the presumption is that the obligation is joint so
that each of the debtors is liable only for a proportionate part
of the debt. There is a solidarity liability only when the
obligation expressly so states, when the law so provides or
when the nature of the obligation so requires.[19]
Because the promissory note involved in this case expressly
states that the three signatories therein are jointly and
severally liable, any one, some or all of them may be
proceeded against for the entire obligation.[20] The choice is
left to the solidary creditor to determine against whom he will
enforce collection.[21] Consequently, the dismissal of the case
against Judge Pontanosas may not be deemed as having
discharged petitioner from liability as well. As regards Naybe,
suffice it to say that the court never acquired jurisdiction over
him. Petitioner, therefore, may only have recourse against his
co-makers, as provided by law.

WHEREFORE, the instant petition for review on certiorari is

hereby DENIED and the questioned decision of the Court of
Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

Regalado (Chairman), Puno, Mendoza, and Torres, Jr., JJ.,

concur.
SECOND DIVISION
[G.R. No. 134100. September 29, 2000]

PURITA ALIPIO, petitioner, vs. COURT OF APPEALS and ROMEO

G. JARING, represented by his Attorney-In-Fact RAMON G.
JARING, respondents.
DECISION
MENDOZA, J.:

The question for decision in this case is whether a creditor can

sue the surviving spouse for the collection of a debt which is
owed by the conjugal partnership of gains, or whether such
claim must be filed in proceedings for the settlement of the
estate of the decedent. The trial court and the Court of
Appeals ruled in the affirmative. We reverse.

The facts are as follows:

Respondent Romeo Jaring[1] was the lessee of a 14.5 hectare

fishpond in Barito, Mabuco, Hermosa, Bataan. The lease was
for a period of five years ending on September 12, 1990. On
June 19, 1987, he subleased the fishpond, for the remaining
period of his lease, to the spouses Placido and Purita Alipio and
the spouses Bienvenido and Remedios Manuel. The stipulated
amount of rent was P485,600.00, payable in two installments
of P300,000.00 and P185,600.00, with the second installment
falling due on June 30, 1989. Each of the four sublessees
signed the contract.

The first installment was duly paid, but of the second

installment, the sublessees only satisfied a portion thereof,
leaving an unpaid balance of P50,600.00. Despite due
demand, the sublessees failed to comply with their obligation,
so that, on October 13, 1989, private respondent sued the
Alipio and Manuel spouses for the collection of the said
amount before the Regional Trial Court, Branch 5,
Dinalupihan, Bataan. In the alternative, he prayed for the
rescission of the sublease contract should the defendants fail
to pay the balance.

Petitioner Purita Alipio moved to dismiss the case on the

ground that her husband, Placido Alipio, had passed away on
December 1, 1988.[2] She based her action on Rule 3, 21 of
the 1964 Rules of Court which then provided that "when the
action is for recovery of money, debt or interest thereon, and
the defendant dies before final judgment in the Court of First
Instance, it shall be dismissed to be prosecuted in the manner
especially provided in these rules." This provision has been
amended so that now Rule 3, 20 of the 1997 Rules of Civil
Procedure provides:

When the action is for the recovery of money arising from

contract, express or implied, and the defendant dies before
entry of final judgment in the court in which the action was
pending at the time of such death, it shall not be dismissed but
shall instead be allowed to continue until entry of final
judgment. A favorable judgment obtained by the plaintiff
therein shall be enforced in the manner especially provided in
these Rules for prosecuting claims against the estate of a
deceased person.
The trial court denied petitioner's motion on the ground that
since petitioner was herself a party to the sublease contract,
she could be independently impleaded in the suit together
with the Manuel spouses and that the death of her husband
merely resulted in his exclusion from the case.[3] The Manuel
spouses failed to file their answer. For this reason, they were
declared in default.

On February 26, 1991, the lower court rendered judgment

after trial, ordering petitioner and the Manuel spouses to pay
private respondent the unpaid balance of P50,600.00 plus
attorney's fees in the amount of P10,000.00 and the costs of
the suit.

Petitioner appealed to the Court of Appeals on the ground that

the trial court erred in denying her motion to dismiss. In its
decision[4] rendered on July 10, 1997, the appellate court
dismissed her appeal. It held:

The rule that an action for recovery of money, debt or interest

thereon must be dismissed when the defendant dies before
final judgment in the regional trial court, does not apply where
there are other defendants against whom the action should be
maintained. This is the teaching of Climaco v. Siy Uy, wherein
the Supreme Court held:

Upon the facts alleged in the complaint, it is clear that Climaco

had a cause of action against the persons named as
defendants therein. It was, however, a cause of action for the
recovery of damages, that is, a sum of money, and the
corresponding action is, unfortunately, one that does not
survive upon the death of the defendant, in accordance with
the provisions of Section 21, Rule 3 of the Rules of Court.

xxxxxxxxx

However, the deceased Siy Uy was not the only defendant,

Manuel Co was also named defendant in the complaint.
Obviously, therefore, the order appealed from is erroneous
insofar as it dismissed the case against Co. (Underlining added)

Moreover, it is noted that all the defendants, including the

deceased, were signatories to the contract of sub-lease. The
remaining defendants cannot avoid the action by claiming that
the death of one of the parties to the contract has totally
extinguished their obligation as held in Imperial Insurance, Inc.
v. David:

We find no merit in this appeal. Under the law and well settled
jurisprudence, when the obligation is a solidary one, the
creditor may bring his action in toto against any of the debtors
obligated in solidum. Thus, if husband and wife bound
themselves jointly and severally, in case of his death, her
liability is independent of and separate from her husband's;
she may be sued for the whole debt and it would be error to
hold that the claim against her as well as the claim against her
husband should be made in the decedent's estate. (Agcaoili vs.
Vda. de Agcaoili, 90 Phil. 97).[5]

Petitioner filed a motion for reconsideration, but it was denied

on June 4, 1998.[6] Hence this petition based on the following
assignment of errors:
A. THE RESPONDENT COURT COMMITTED REVERSIBLE ERROR
IN APPLYING CLIMACO v. SIY UY, 19 SCRA 858, IN SPITE OF THE
FACT THAT THE PETITIONER WAS NOT SEEKING THE
DISMISSAL OF THE CASE AGAINST REMAINING DEFENDANTS
BUT ONLY WITH RESPECT TO THE CLAIM FOR PAYMENT
AGAINST HER AND HER HUSBAND WHICH SHOULD BE
PROSECUTED AS A MONEY CLAIM.

B. THE RESPONDENT COURT COMMITTED REVERSIBLE ERROR

IN APPLYING IMPERIAL INSURANCE INC. v. DAVID, 133 SCRA
317, WHICH IS NOT APPLICABLE BECAUSE THE SPOUSES IN
THIS CASE DID NOT BIND THEMSELVES JOINTLY AND
SEVERALLY IN FAVOR OF RESPONDENT JARING.[7]

The petition is meritorious. We hold that a creditor cannot sue

the surviving spouse of a decedent in an ordinary proceeding
for the collection of a sum of money chargeable against the
conjugal partnership and that the proper remedy is for him to
file a claim in the settlement of estate of the decedent.

First. Petitioner's husband died on December 1, 1988, more

than ten months before private respondent filed the collection
suit in the trial court on October 13, 1989. This case thus falls
outside of the ambit of Rule 3, 21 which deals with dismissals
of collection suits because of the death of the defendant
during the pendency of the case and the subsequent
procedure to be undertaken by the plaintiff, i.e., the filing of
claim in the proceeding for the settlement of the decedent's
estate. As already noted, Rule 3, 20 of the 1997 Rules of Civil
Procedure now provides that the case will be allowed to
continue until entry of final judgment. A favorable judgment
obtained by the plaintiff therein will then be enforced in the
manner especially provided in the Rules for prosecuting claims
against the estate of a deceased person. The issue to be
resolved is whether private respondent can, in the first place,
file this case against petitioner.

Petitioner and her late husband, together with the Manuel

spouses, signed the sublease contract binding themselves to
pay the amount of stipulated rent. Under the law, the Alipios'
obligation (and also that of the Manuels) is one which is
chargeable against their conjugal partnership. Under Art.
161(1) of the Civil Code, the conjugal partnership is liable for

All debts and obligations contracted by the husband for the

benefit of the conjugal partnership, and those contracted by
the wife, also for the same purpose, in the cases where she
may legally bind the partnership.[8]

When petitioner's husband died, their conjugal partnership

was automatically dissolved[9] and debts chargeable against it
are to be paid in the settlement of estate proceedings in
accordance with Rule 73, 2 which states:

Where estate settled upon dissolution of marriage. When the

marriage is dissolved by the death of the husband or wife, the
community property shall be inventoried, administered, and
liquidated, and the debts thereof paid, in the testate or
intestate proceedings of the deceased spouse. If both spouses
have died, the conjugal partnership shall be liquidated in the
testate or intestate proceedings of either.
As held in Calma v. Taedo,[10] after the death of either of the
spouses, no complaint for the collection of indebtedness
chargeable against the conjugal partnership can be brought
against the surviving spouse. Instead, the claim must be made
in the proceedings for the liquidation and settlement of the
conjugal property. The reason for this is that upon the death
of one spouse, the powers of administration of the surviving
spouse ceases and is passed to the administrator appointed by
the court having jurisdiction over the settlement of estate
proceedings.[11] Indeed, the surviving spouse is not even a de
facto administrator such that conveyances made by him of any
property belonging to the partnership prior to the liquidation
of the mass of conjugal partnership property is void.[12]

The ruling in Calma v. Taedo was reaffirmed in the recent case

of Ventura v. Militante.[13] In that case, the surviving wife was
sued in an amended complaint for a sum of money based on
an obligation allegedly contracted by her and her late
husband. The defendant, who had earlier moved to dismiss
the case, opposed the admission of the amended complaint
on the ground that the death of her husband terminated their
conjugal partnership and that the plaintiff's claim, which was
chargeable against the partnership, should be made in the
proceedings for the settlement of his estate. The trial court
nevertheless admitted the complaint and ruled, as the Court
of Appeals did in this case, that since the defendant was also
a party to the obligation, the death of her husband did not
preclude the plaintiff from filing an ordinary collection suit
against her. On appeal, the Court reversed, holding that
as correctly argued by petitioner, the conjugal partnership
terminates upon the death of either spouse. . . . Where a
complaint is brought against the surviving spouse for the
recovery of an indebtedness chargeable against said conjugal
[partnership], any judgment obtained thereby is void. The
proper action should be in the form of a claim to be filed in the
testate or intestate proceedings of the deceased spouse.

In many cases as in the instant one, even after the death of

one of the spouses, there is no liquidation of the conjugal
partnership. This does not mean, however, that the conjugal
partnership continues. And private respondent cannot be said
to have no remedy. Under Sec. 6, Rule 78 of the Revised Rules
of Court, he may apply in court for letters of administration in
his capacity as a principal creditor of the deceased . . . if after
thirty (30) days from his death, petitioner failed to apply for
administration or request that administration be granted to
some other person.[14]

The cases relied upon by the Court of Appeals in support of its

ruling, namely, Climaco v. Siy Uy[15] and Imperial Insurance,
Inc. v. David,[16] are based on different sets of facts. In
Climaco, the defendants, Carlos Siy Uy and Manuel Co, were
sued for damages for malicious prosecution. Thus, apart from
the fact the claim was not against any conjugal partnership, it
was one which does not survive the death of defendant Uy,
which merely resulted in the dismissal of the case as to him
but not as to the remaining defendant Manuel Co.

With regard to the case of Imperial, the spouses therein jointly

and severally executed an indemnity agreement which
became the basis of a collection suit filed against the wife after
her husband had died. For this reason, the Court ruled that
since the spouses' liability was solidary, the surviving spouse
could be independently sued in an ordinary action for the
enforcement of the entire obligation.

It must be noted that for marriages governed by the rules of

conjugal partnership of gains, an obligation entered into by
the husband and wife is chargeable against their conjugal
partnership and it is the partnership which is primarily bound
for its repayment.[17] Thus, when the spouses are sued for the
enforcement of an obligation entered into by them, they are
being impleaded in their capacity as representatives of the
conjugal partnership and not as independent debtors such
that the concept of joint or solidary liability, as between them,
does not apply. But even assuming the contrary to be true, the
nature of the obligation involved in this case, as will be
discussed later, is not solidary but rather merely joint, making
Imperial still inapplicable to this case.

From the foregoing, it is clear that private respondent cannot

maintain the present suit against petitioner. Rather, his
remedy is to file a claim against the Alipios in the proceeding
for the settlement of the estate of petitioner's husband or, if
none has been commenced, he can file a petition either for
the issuance of letters of administration[18] or for the
allowance of will,[19] depending on whether petitioner's
husband died intestate or testate. Private respondent cannot
short-circuit this procedure by lumping his claim against the
Alipios with those against the Manuels considering that, aside
from petitioner's lack of authority to represent their conjugal
estate, the inventory of the Alipios' conjugal property is
necessary before any claim chargeable against it can be paid.
Needless to say, such power exclusively pertains to the court
having jurisdiction over the settlement of the decedent's
estate and not to any other court.

Second. The trial court ordered petitioner and the Manuel

spouses to pay private respondent the unpaid balance of the
agreed rent in the amount of P50,600.00 without specifying
whether the amount is to be paid by them jointly or solidarily.
In connection with this, Art. 1207 of the Civil Code provides:

The concurrence of two or more creditors or of two or more

debtors in one and the same obligation does not imply that
each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with
the prestations. There is a solidary liability only when the
obligation expressly so estates, or when the law or the nature
of the obligation requires solidarity.

Indeed, if from the law or the nature or the wording of the

obligation the contrary does not appear, an obligation is
presumed to be only joint, i.e., the debt is divided into as many
equal shares as there are debtors, each debt being considered
distinct from one another.[20]

Private respondent does not cite any provision of law which

provides that when there are two or more lessees, or in this
case, sublessees, the latter's obligation to pay the rent is
solidary. To be sure, should the lessees or sublessees refuse to
vacate the leased property after the expiration of the lease
period and despite due demands by the lessor, they can be
held jointly and severally liable to pay for the use of the
property. The basis of their solidary liability is not the contract
of lease or sublease but the fact that they have become joint
tortfeasors.[21] In the case at bar, there is no allegation that
the sublessees refused to vacate the fishpond after the
expiration of the term of the sublease. Indeed, the unpaid
balance sought to be collected by private respondent in his
collection suit became due on June 30, 1989, long before the
sublease expired on September 12, 1990.

Neither does petitioner contend that it is the nature of lease

that when there are more than two lessees or sublessees their
liability is solidary. On the other hand, the pertinent portion of
the contract involved in this case reads:[22]

2. That the total lease rental for the sub-leased fishpond for
the entire period of three (3) years and two (2) months is FOUR
HUNDRED EIGHT-FIVE THOUSAND SIX HUNDRED
(P485,600.00) PESOS, including all the improvements, prawns,
milkfishes, crabs and related species thereon as well all fishing
equipment, paraphernalia and accessories. The said amount
shall be paid to the Sub-Lessor by the Sub-Lessees in the
following manner, to wit:

A. Three hundred thousand (P300,000.00) Pesos upon signing

this contract; and

B. One Hundred Eight-Five Thousand Six-Hundred

(P185,6000.00) Pesos to be paid on June 30, 1989.
Clearly, the liability of the sublessees is merely joint. Since the
obligation of the Manuel and Alipio spouses is chargeable
against their respective conjugal partnerships, the unpaid
balance of P50,600.00 should be divided into two so that each
couple is liable to pay the amount of P25,300.00.

WHEREFORE, the petition is GRANTED. Bienvenido Manuel

and Remedios Manuel are ordered to pay the amount of
P25,300.00, the attorney's fees in the amount of P10,000.00
and the costs of the suit. The complaint against petitioner is
dismissed without prejudice to the filing of a claim by private
respondent in the proceedings for the settlement of estate of
Placido Alipio for the collection of the share of the Alipio
spouses in the unpaid balance of the rent in the amount of
P25,300.00.

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr.,

JJ., concur.