Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 115129 February 12, 1997 IGNACIO BARZAGA, petitioner, vs. COURT OF APPEALS and ANGELITO ALVIAR, respondents.

BELLOSILLO, J.: The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the nineteenth of December Ignacio's wife succumbed to a debilitating ailment after prolonged pain and suffering. Forewarned by her attending physicians of her impending death, she expressed her wish to be laid to rest before Christmas day to spare her family from keeping lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their Redeemer. Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife, Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of December in obediencesemper fidelis to her dying wish. But her final entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that forthwith gave him and his family their gloomiest Christmas ever. This is Barzaga's story. On 21 December 1990, at about three o'clock in the afternoon, he went to the hardware store of respondent Angelito Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife. He also asked if the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she had yet to verify if the store had pending deliveries that afternoon because if there were then all subsequent purchases would have to be delivered the following day. With that reply petitioner left. At seven o'clock the following morning, 22 December, Barzaga returned to Alviar's hardware store to follow up his purchase of construction materials. He told the store employees that the materials he was buying would have to be delivered at the Memorial Cemetery in Dasmarinas, Cavite, by eight o'clock that morning since his hired workers were already at the burial site and time was of the essence. Marina Boncales agreed to deliver the items at the designated time, date and place. With this assurance, Barzaga purchased the materials and paid in full the amount of P2,110.00. Thereafter he joined his workers at the cemetery, which was only a kilometer away, to await the delivery. The construction materials did not arrive at eight o'clock as promised. At nine o'clock, the delivery was still nowhere in sight. Barzaga returned to the hardware store to inquire about the delay. Boncales assured him that although the delivery truck was not yet around it had already left the garage and that as soon as it arrived the materials would be brought over to the cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the memorial park and wait for the materials.

By ten o'clock, there was still no delivery. This prompted petitioner to return to the store to inquire about the materials. But he received the same answer from respondent's employees who even cajoled him to go back to the burial place as they would just follow with his construction materials. After hours of waiting which seemed interminable to him Barzaga became extremely upset. He decided to dismiss his laborers for the day. He proceeded to the police station, which was just nearby, and lodged a complaint against Alviar. He had his complaint entered in the police blotter. When he returned again to the store he saw the delivery truck already there but the materials he purchased were not yet ready for loading. Distressed that Alviar's employees were not the least concerned, despite his impassioned pleas, Barzaga decided to cancel his transaction with the store and look for construction materials elsewhere. In the afternoon of that day, petitioner was able to buy from another store. But since darkness was already setting in and his workers had left, he made up his mind to start his project the following morning, 23 December. But he knew that the niche would not be finish in time for the scheduled burial the following day. His laborers had to take a break on Christmas Day and they could only resume in the morning of the twenty-sixth. The niche was completed in the afternoon and Barzaga's wife was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule. On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish, Barzaga wrote private respondent Alviar demanding recompense for the damage he suffered. Alviar did not respond. Consequently, petitioner sued him before the Regional Trial Court. 1 Resisting petitioner's claim, private respondent contended that legal delay could not be validly ascribed to him because no specific time of delivery was agreed upon between them. He pointed out that the invoices evidencing the sale did not contain any stipulation as to the exact time of delivery and that assuming that the materials were not delivered within the period desired by petitioner, the delivery truck suffered a flat tire on the way to the store to pick up the materials. Besides, his men were ready to make the delivery by ten-thirty in the morning of 22 December but petitioner refused to accept them. According to Alviar, it was this obstinate refusal of petitioner to accept delivery that caused the delay in the construction of the niche and the consequent failure of the family to inter their loved one on the twenty-fourth of December, and that, if at all, it was petitioner and no other who brought about all his personal woes. Upholding the proposition that respondent incurred in delay in the delivery of the construction materials resulting in undue prejudice to petitioner, the trial court ordered respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase price of the materials with interest per annum computed at the legal rate from the date of the filing of the complaint, (b) P5,000.00 as temperate damages, (c) P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and (e) P5,000.00 as attorney's fees. On appeal, respondent Court of Appeals reversed the lower court and ruled that there was no contractual commitment as to the exact time of delivery since this was not indicated in the invoice receipts covering the sale. 2 The arrangement to deliver the materials merely implied that delivery should be made within a reasonable time but that the conclusion that since petitioner's workers were already at the graveyard the delivery had to be made at that precise moment, is non-sequitur. The Court of Appeals also held that assuming that there was delay, petitioner still had sufficient time to construct the tomb and hold his wife's burial as she wished. We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. 3

Contrary to the appellate court's factual determination, there was a specific time agreed upon for the delivery of the materials to the cemetery. Petitioner went to private respondent's store on 21 December precisely to inquire if the materials he intended to purchase could be delivered immediately. But he was told by the storekeeper that if there were still deliveries to be made that afternoon his order would be delivered the following day. With this in mind Barzaga decided to buy the construction materials the following morning after he was assured of immediate delivery according to his time frame. The argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal commitment of respondent's storekeeper. Consequently it was no longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to indicate the time of delivery whenever she prepared invoices. 4 Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the delivery of petitioner's purchases. He maintains that Barzaga should have allowed his delivery men a little more time to bring the construction materials over to the cemetery since a few hours more would not really matter and considering that his truck had a flat tire. Besides, according to him, Barzaga still had sufficient time to build the tomb for his wife. This is a gratuitous assertion that borders on callousness. Private respondent had no right to manipulate petitioner's timetable and substitute it with his own. Petitioner had a deadline to meet. A few hours of delay was no piddling matter to him who in his bereavement had yet to attend to other pressing family concerns. Despite this, respondent's employees still made light of his earnest importunings for an immediate delivery. As petitioner bitterly declared in court " . . . they (respondent's employees) were making a fool out of me." 5 We also find unacceptable respondent's justification that his truck had a flat tire, for this event, if indeed it happened, was forseeable according to the trial court, and as such should have been reasonably guarded against. The nature of private respondent's business requires that he should be ready at all times to meet contingencies of this kind. One piece of testimony by respondent's witness Marina Boncales has caught our attention - that the delivery truck arrived a little late than usual because it came from a delivery of materials in Langcaan, Dasmarinas, Cavite. 6 Significantly, this information was withheld by Boncales from petitioner when the latter was negotiating with her for the purchase of construction materials. Consequently, it is not unreasonable to suppose that had she told petitioner of this fact and that the delivery of the materials would consequently be delayed, petitioner would not have bought the materials from respondent's hardware store but elsewhere which could meet his time requirement. The deliberate suppression of this information by itself manifests a certain degree of bad faith on the part of respondent's storekeeper. The appellate court appears to have belittled petitioner's submission that under the prevailing circumstances time was of the essence in the delivery of the materials to the grave site. However, we find petitioner's assertion to be anchored on solid ground. The niche had to be constructed at the very least on the twenty-second of December considering that it would take about two (2) days to finish the job if the interment was to take place on the twentyfourth of the month. Respondent's delay in the delivery of the construction materials wasted so much time that construction of the tomb could start only on the twenty-third. It could not be ready for the scheduled burial of petitioner's wife. This undoubtedly prolonged the wake, in addition to the fact that work at the cemetery had to be put off on Christmas day. This case is clearly one of non-performance of a reciprocal obligation. In their contract of purchase and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach. We therefore sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one who could not be laid to rest on the date she herself had chosen. There is no gainsaying the
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inexpressible pain and sorrow Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude, cavalier behavior and bad faith of respondent and his employees in the performance of an obligation voluntarily entered into. We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations. Respondent Alviar and his employees should have exercised fairness and good judgment in dealing with petitioner who was then grieving over the loss of his wife. Instead of commiserating with him, respondent and his employees contributed to petitioner's anguish by causing him to bear the agony resulting from his inability to fulfill his wife's dying wish. We delete however the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than nominal but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty. In this case, the trial court found that plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred during the extra two (2) days of the wake. The record however does not show that petitioner presented proof of the actual amount of expenses he incurred which seems to be the reason the trial court awarded to him temperate damages instead. This is an erroneous application of the concept of temperate damages. While petitioner may have indeed suffered pecuniary losses, these by their very nature could be established with certainty by means of payment receipts. As such, the claim falls unequivocally within the realm of actual or compensatory damages. Petitioner's failure to prove actual expenditure consequently conduces to a failure of his claim. For in determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss. 8 We affirm the award of attorney's fees and litigation expenses. Award of damages, attorney's fees and litigation costs is left to the sound discretion of the court, and if such discretion be well exercised, as in this case, it will not be disturbed on appeal. 9 WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar as it GRANTED on a motion for reconsideration the refund by private respondent of the amount of P2,110.00 paid by petitioner for the construction materials. Consequently, except for the award of P5,000.00 as temperate damages which we delete, the decision of the Regional Trial Court granting petitioner (a) P2,110.00 as refund for the value of materials with interest computed at the legal rate per annum from the date of the filing of the case; (b) P20,000.00 as moral damages; (c) P10,000.00 as exemplary damages; (d) P5,000.00 as litigation expenses; and (4) P5,000.00 as attorney's fees, is AFFIRMED. No costs. SO ORDERED. Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur. Footnotes 1 Assigned to RTC-Br. 21, Imus, Cavite, presided over by Judge Roy S. del Rosario, Rollo, p. 68. 2 Decision penned by Justice Manuel C. Herrera, concurred in by Justices Cezar D. Francisco and Buenaventura J. Guerrero, Rollo, p. 38. 3 Art. 1170, Civil Code. 4 TSN, 6 December 1991, pp. 22-23.

5 TSN, 19 September 1991, p. 47. 6 TSN, 6 December 1991, p. 35. 7 Art. 1169, last par., Civil Code. 8 Dichoso v. Court of Appeals, G.R. No. 55613, 10 December 1990, 192 SCRA 169; People v. Rosario, G.R. No. 108789, 18 July 1995, 246 SCRA 658. 9 Philippine Airlines, Inc. v. Court of Appeals, G.R. Nos. 50504-05, 13 August 1990, 188 SCRA 461. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-58122 December 29, 1989 MOBIL OIL PHILIPPINES, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS and FERNANDO A. PEDROSA, respondents. Quiason, De Guzman, Makalintal & Barot for petitioner. Magno & Kare for respondent Pedrosa.

PARAS, J.: Before us is a petition for review which questions the decision 1 of the Court of Appeals affirming in toto the 2 decision of the Court of First Instance of Quezon City in Civil Case No. Q18580, the dispositive part of which reads as follows: WHEREFORE, judgment is hereby rendered sentencing defendant to pay plaintiff the following sums: P 3,470.00 for unearned profits on the subject prepaid order of February 15, 1974;

P 2,360.00 for loss of earnings due to the suspension of gasoline deliveries, occasioned by plaintiffs refusal to pay the price differentials; P 25,000.00 P 50,000.00 P 10,000.00 for exemplary damages for moral damages, and for attorney's fees

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P 90,830.00

TOTAL

Defendant's counterclaim against plaintiff is hereby dismissed for lack of merit. The original case was an action for damages filed by private respondent Fernando A. Pedrosa against petitioner Mobil Oil Philippines alleging that the latter deliberately delayed the delivery of gasoline to him notwithstanding his pre-paid order dated February 14, 1974. The undisputed facts of the case as found by the lower court and affirmed by the appellate court are as follows: Plaintiffs is a dealer of defendant's petroleum products and accessories operating a Mobil gasoline service station under the name of Anne Marie Mobil Service Station located at Aurora Blvd., San Juan, Metro Manila. The contractual relationship between plaintiff and defendant is governed by a Retail Dealer Contract, Exh. A, also Exh. 1. In the later part of 1973, an international oil crisis came about by reason of the concerted action of principal oil producing countries to increase the oil prices. The Philippines was not spared of this economic scourge and to meet the emergency, as the commodity became scarce while the demand therefore remained the same. On February 15, 1974-a Friday while there was still this oil crisis, plaintiff placed with defendant a pre-paid order for 8,000 liters of premium gasoline and 2,000 liters of regular gasoline paying therefore a PBTC Cashier's Check in the amount of P 4,610.00 was received at on the basis of the following computations: 8,000 liters MP at P 0.85............P3,510.00 2,000 liters MR at P 0.53............ 1,060.00 Delivery Freight Cargo.................. 40.00 ---------------------Total................... P 4,610.00 The above computation is contained in a product order form, Exh. 3, which was prepared and filled up by defendant's order clerk when plaintiff placed his order on Feb. 15, 1974, as in fact the handwritings thereon are those of the said order clerk. It is stated in Exh. 6 that the order was taken '2:20'(Exh. 3-A) and 12/15' and the delivery due date is 'Today'. Mr. Alberto Latuno, defendant's accounting analyst assigned on the order and billing section, explains the processing of an order, thusly: The order clerk prepares the product order form (Exh. 6) and it goes to him for checking then to the credit clerk for checking in their ledger; then to the credit man, Mr. F. Marcella, who has all the necessary documents and the authority to cause the approval of the release of the order; then to the volume comptroller; then to the coupon clerk; then it goes back to him for final invoicing. (Tsn., 9- 8-75, pp. 135-144) Mr. Floro Marcella, defendant's credit man, approved this order of February 15, 1974 (TSN., 9-375, p. 89), although he was no longer involved in its subsequent processing in fact, even when there was a price differential which occurred after his approval was made, the said order was not given back to him for reprocessing (Tsn., 9-3-75, p. 66).

Mr. Alberto Latuno further states that the order, Exh. B, did not come back to him for invoicing that Friday afternoon (February 15, 1974); it was on February 19, 1974 that he received again the order, because the processing thereof by one coupon comptroller was completed only on that day, the reason for the delay being that on February 18 there was a price increase and they had to give priority to the recall of invoices already with their warehouse and dispatcher for repricing. (Tsn., 9-8-75, pp. 144-148). He also stated that since Exh. 8 was covered by the price increase, he altered the computation therein and made the necessary changes; this, he crossed out the old computation and refilled with a new one based on the new increased price, and placed the words 'short P 2,880.00'. (Tsn., 9-8-75, pp. 148-150). Plaintiff was informed of the difference in price, and as the price differential was not paid by plaintiff, he gave Exh. 3 back to the clerk assigned to the order and billing section. (Tsn., 9-8-75, 151). It appears that due to a posting error committed by a defendant's employees in the preparation of plaintiff's monthly statement of account, there remained outstanding against plaintiff an obligation in the sum of P5,653.34, which he paid after the proper verification by his accountant. However, plaintiff refused to pay the price differential of P2,880.00 corresponding to the February 15 order, as reflected in Exhibit 3, but this notwithstanding defendant delivered to plaintiff this February 15 order on March 5, 1974, albeit on the basis of the new increased prices thus reflecting an outstanding obligation of P 2,880.00 against plaintiff. (pp. 51-53, Rollo) Thus it appears from the record that there was an increase in the price of gasoline on February 18, 1974. Plaintiff was charged the cost of the gasoline under the increased rates, or in the total sum of P7,490.00 including delivery and freight charges. It was defendant's contention that since the gasoline was actually delivered on March 5, 1974, the then prevailing increased rates should be made to apply and not the price prevailing on February 14, 1974 the date when the order was made and paid by plaintiff with a cashier's check. To such contention, plaintiff disagreed by arguing that defendant committed a contractual breach and incurred in delay that should make it liable for damages when it did not deliver the gasoline to plaintiff on the agreed due date of delivery appearing on the prepaid order i.e. February 15,1974 and that therefore defendant cannot claim benefits by reason of this breach. Both the trial court and the appellate court found in favor of plaintiff, as mentioned earlier, hence, defendant now comes to Us on a petition by certiorari submitting that the: Respondent Hon. Court of Appeals in its Decision of June 22, 1981 (Annex "A) and its Resolution of September 3,1981 (Annex "G") decided questions of substance contrary to law and evidence as well as the applicable decisions of the Honorable Court, and acted without jurisdiction and/or with grave abuse of discretion when it failed to make the finding that: 1. The retail dealer agreement (Exh- 1) is merely a contract to buy and sell, and is not a perfected contract to sell. 2. Under the retail dealer agreement, the respondent, as buyer, must make an order for the products covered, and the petitioner as seller has to approve the order, before there can be a perfected sale. 3. The product order form (Exh. 3) was merely an offer made by the respondent to purchase the goods listed therein and was not a perfected contract of sale.

4. The offer (product order form, Exhibit 3) became a perfected contract of sale only upon delivery of the products ordered. 5. The proper price that should be paid by respondent is that prevailing at the time of actual delivery. 6. Petitioner was not guilty of delay in delivering gasoline. 7. Granting for the sake of argument, that there was delay on the part of petitioner, the same was not deliberate. 8. Petitioner did not suspend gasoline deliveries from February 18 to February 23,1974. 9. Respondent did not suffer damages, actual or otherwise. (pp. 172-173, Rollo) Simply stated, petitioner contends that it did not commit a breach of contract since there was no perfected contract of sale with the private respondent and therefore petitioner cannot be made liable for any damage due to delay or breach of contract. Petitioner contends that Exh. "A" or Exh. "1" the Retail Trade Agreement is merely a contract to buy and sell. We cannot sustain petitioner's contentions. The pertinent provision of the Retail Trade Agreement or Exh. "A" or Exh. "1", which is Par. 2 reads as follows: 2 PRICES, TERMS, DELIVERIES SELLER agrees to sell and BUYER agrees to purchase at SELLER's current wholesale/dealer's prices and/or current dealer's discounts prevailing on date and at point of delivery and in such quantities as the BUYER may from time to time require and the SELLER may approve at SELLER'S option. All prices are payable in cash at the time the order is placed, except to the extent credit is extended.... (pp. 53-54, Rollo) Thus, it can be gathered clearly from the above quoted portion of the dealership agreement that "the price prevailing on date and at point of delivery should determine how respondent dealer should pay defendant (petitioner) on the order of February 15, 1974. A scrutiny of the prepaid product order form dated February 15, 1974 shows that the delivery date was stated as "Today" or February 15, 1974 and also the word "rush". Since the said prepaid order was prepared on the same date by petitioner's Order Clerk and after being thus approved by petitioner's credit man, private respondent paid for the price therein indicated by tendering a Prudential Bank Cashier's Check #19972. Because of this, petitioner Mobil became duty bound to deliver the gasoline to private respondent on February 15, 1974 and the price paid for by private respondent was that price then prevailing which was the amount indicated in private respondent's cashier's check given to petitioner. By actually delivering the gasoline on March 6, 1974, petitioner committed a contractual breach and incurred in delay that should make it liable for damages. In invoking that no contract of sale was existing, petitioner referred to the RTA dealership as merely a contract to buy and sell. Private respondent agreed that the RTA dealership agreement is not a contract of sale but in the same vein argued that it is a mere trade agreement or contract governing the relationship between Mobil and respondent Pedrosa regarding the operation of a gasoline station and the marketing of Mobil petroleum products and prescribing in general terms, among other things, how the ensuing subsidiary contract orders for Mobil products were to be placed and delivered under said dealerhip agreement. And one such contract order is that product order form (Exh. "3") which listed down the gasoline ordered by respondent Pedrosa and its corresponding price which was approved by Mobil and paid for by respondent Pedrosa with his Cashier's check as

already mentioned earlier. Said prepaid order form was a perfected contract of sale the moment it was approved and accepted by Mobil through its proper representative on the same day and paid for by respondent Pedrosa likewise on the same day as evidenced by Mobil's Cash Receipt No. C-078355. On the part of Pedrosa it can even be said that the contract was consummated as far as he was concerned since he executed his part of the contract by his prepayment of the order. The other assigned errors of petitioner question the finding of facts of the Court of Appeals affirming those of the trial court quoted as follows: The second issue to be resolved is whether or not the delay in the delivery was intentional. The Court finds and so holds that defendant deliberately delayed the delivery of the gasoline in question to a date subsequent to February 15,1974, in the erroneous belief that thereby it could impose upon the defendant the increased new price that took effect on February 18, 1974, considering the following facts and circumstances to wit: 1. The delay in the delivery of the gasoline according to defendant's witness Mr. Alberto Latuno was due to the fact that the processing of the subject order by the coupon comptroller was completed only on February 19,1974 because on February 18, there was a price increase and they had to give priority to the recall of invoices already with their warehouse and dispatcher for re-pricing. (Tsn., 9-875, pp. 144-176). Thus, another Mobil dealer, plaintiff's witness Joaquin Coronel, suffered the same fate, although his prepaid order was made earlier on February 14,1974, a Thursday. 2. Defendant alleges that for "plaintiff's refusal to pay the price differential", aside from the fact that he had an outstanding account with defendant Mobil did not deliver the order of February 15, 1974 until March 5 of the same year, plaintiff having paid the day previously his indebtedness to Mobil in the sum of P5,653.34 (on p. 4 of Memorandum of the Defendant). As heretofore discussed plaintiffs refusal to pay the price differential was justified, and therefore cannot be considered as a valid reason for the delay. The alleged outstanding account of plaintiff in favor of defendant is admittedly due to a posting error committed by defendant's employees, which upon proper verification by plaintiff's accountant was fully paid. During the month of January 1974, this outstanding account already surfaced which the said posting error was discovered, but it did not affect the gasoline deliveries for the same month of January and early part of February 1974. However, when defendant anticipated the February 18 increase in oil prices, it conveniently invoked this outstanding account to delay the plaintiff's pre-paid order of February 15. There is evident bad faith in aforegoing actuations of defendant. 3. Defendant argues that plaintiffs pre-paid order of February 15, a Friday, could not be delivered until after February 18 because it was placed at 2:20 p.m. and defendant makes no delivery on Saturdays and Sundays. The argument pales vis a vis the fact, as shown by the very evidence of defendants; vis the due date of delivery is February 15,1974, a Friday. Besides, it has been proved that defendant has made gasoline deliveries on Saturday, within the months of January and February 1974, to wit: January 5,1974 (Exhs. J & K; Tsn. 4-22-76, pp. 20 & 27). And February 28,1974 (Exh. L & M Tsn., 4-11-76, pp. 26-27, 32-33). In view of the above findings a) that defendant committed a contractual breach and incurred in delay with respect to plaintiff's pre-paid order of February 15, 1974, by delivering the subject gasoline beyond the agreed due date of delivery; and

b) that the delay in the delivery was intentional on the part of the defendant, in anticipation of the increase of oil prices on February 18, 1974, for the obvious purpose of profiting thereby; the court holds liable to plaintiff for damages, as follows: 1. Plaintiff is entitled to the profits that would have accrued in his favor if the gasoline covered by the subject pre-paid order of February 15, 1974 was timely delivered to him. As reflected in Exh. I, such profits amount to P3,470.00. 2. Due to the suspension in gasoline deliveries between the period from February 18 to 28, 1974, plaintiff suffered loss of earnings amounting to P2,380.00 per computation in Exh. I. 3. Defendant took unfair advantage of the anticipated oil increase on February 18, 1974, motivated by a desire to rake for itself substantial profits that legitimately belonged to its Mobil dealers, similarly situated as plaintiff. It threatened plaintiff and made good its threat to suspend gasoline deliveries, if plaintiff should not accede to its undue demand for the payment of the price differential. These actuations of defendant are indeed oppressive and malevolent that should make it liable for exemplary damages, which this court assesses in the amount of P 25,000.00 4. On his moral damages claim, plaintiff testified as follows: ATTY. FERRER Q. Now, aside from this actual damages or compensatory damages that you were testifying to a while ago, can you tell us in what way this particular incident you had with the Company regarding the withholding of the February 15 order and so on, affect you personally and your clientele? A In the first place, you will recall that this time there was a very harsh demand for gasoline and there were about at least two hundred were or three hundred cars lined up waiting for their chance to get their twenty (20) liters fuel for the day and since we have been operating since 1966 we have developed a clientele which relied on us for their fuel supplies, because of the fact that we were unable, by virtue of this failure to deliver by Mobil Oil, to provide our clientele and the public in general with this allocation of ours, my oil customers were highly disgusted with us. And in fact some customers complained to the Metrocom that we are not giving gasoline as required by the President no less. Q Were you visited by the Metrocom or any other Government Agency regarding your failure to sell gasoline to the public during this period? A Yes, sir. Q What happened? A There was a Metrocom, I believe it was a Lieutenant, who demanded to know why we are not giving gasoline to the public and we could only explain we had no gasoline in the first place. They did not believe us, so we showed them the contents of the tank which was empty. In the second place, a team from the Price Control Council accompanied by a Metrocom Sergeant, visited us to demand from us why we were not supplying our customers. They insinuated that we were hoarding gasoline and in fact the empty oil cans in the gasoline station were brought out and

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they said there were prima facie evidence of hoarding. In fact I have to remind them that if I am hoarding I would have gasoline, not to mention of course near fistheads (sic) during the day caused near fistfights with my boss in the station. On the personal side I felt that as I explained to Mr. Oliveros, I felt that it was a matter of principle that I would have to stand for what I believe on, any due right to be delivered what I have paid for and that considering that our relationship with Mobil Oil had been such a long standing one, they should have considered that this price increase should have been handled with more objectivity. Q How about you personally, how did this incident affect you? ATTY. VENERACION: A That is what he has been answering, Your Honor. ATTY. FERRER: Q Personally and emotionally? A As Mr. Oliveros and Mr. Estagle know I was very very upset over this matter. In fact, I was practically shouting over the telephone over this matter and I was deeply upset over this matter, Your Honor. (Tsn., 1-8-75, pp. 70-76). Considering the foregoing, the Court holds defendant liable to plaintiff for moral damages which is assessed at P50,000.00. Q Plaintifff has been compelled to litigate in this instance, and justifiably so, for which reason this Court holds defendant liable to plaintiff for attorney's fees, which is fixed at P10,000.00. (Amended Record on Appeal, pp. 66-80) One of the reasons why Mobil Oil Philippines, Inc. did not deliver immediately the pre-paid order of February 15, 1974 involved in this case is because appellee Fernando A. Pedrosa had an unpaid balance of P5,653.34 on his account as of December 31, 1973 and it was company policy to require all dealers to liquidate all their outstanding balances at the end of 1973 before further delivery of oil products would be made to them (T.S.N., January 8, 1975, p. 30; April 2,1975, pp. 25-27, p.8) and that the price differential of P 2,880.00 had not yet been paid. However, the exact state of appellee's account balance with Mobil was really immaterial for the purpose of filling appellee's February 15th order was because as judicially represented by appellant in their answer, appellee's order of February 15, 1974 involved in this case was duly approved by Mobil's credit man as follows: On February 15, 1974, plaintiff, thru his representative, placed a product order at 2:20 P.M. and to accommodate plaintiff, the said order was approved by the credit man before closing of the Mobil Terminal at 4:00 P.M. with a final warning that no further delivery would be acted upon unless the outstanding balance of P5,653.34 is fully paid. (Paragraph 5, Affirmative and Special Defenses, Amended Answer, p. 28, Record on Appeal) Mobil's credit man, Floro Marcella testified that he did approve the order of February 15, 1974 (T.S.N., September 3, 1975 p. 63). This clearly means that Mobil would deliver the order of February 15th although there was still an unpaid balance of P5,653.34 because what would really be affected by the unpaid balance of P 5,653.34 are the orders subsequent to the order of

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February 15, 1974. And that order of February 15 was delivered on March 5 even though appellee had not (and still up to the present has not) yet paid the price differential of P 2,880.00 that appellant was demanding. This goes to show, that contrary to appellants contention, they do deliver orders even if the customer has unpaid balance on account. Another reason or excuse advanced by the appellant why the delivery of the pre-paid order of February 15, 1974 was suspended was because Mobil does not make any delivery on Saturdays and Sundays effective September 8, 1973 (Exhibit 2). Dioscoro Franco, another Mobil dealer and witness for appellee, testified that he placed orders on Fridays which were delivered the following day, Saturday, as evidenced by the following exhibits: 1. Exhibits J and K-Sales Invoices Nos. 35416 and 35417 for 6,000 and 12,000 liters of gasoline, respectively, both dated January 4, 1974 (a Friday) and both shipped or delivered on January 5, 1974 (a Saturday). Mr. Franco testified that he actually requested that those particular orders be delivered that same day, Friday, but Mobil delivered them the following day instead, a Saturday (t.s.n., April 22,1976, pp. 17-21). 2. Exhibits L and M-Sales Invoices Nos. 04295 and 04296 for 12,000 and 14,000 liters of gasoline, respectively, both dated February 22, 1974, (a Friday) and both shipped or delivered on February 23, 1974 (a Saturday). Mr. Franco testified that he requested that those particular orders be delivered the following day, a Saturday, and Mobil complied (surprisingly in the face of its "supposed no Saturday delivery" rule). (T.s.n., April 22, 1976, pp. 25-26) Mobil's witness, Mario Oliveros, tried self-exonerating to justify and qualify these Saturday deliveries to Mr. Franco as being exceptions but he could not say who in Mobil decides on the exceptions (T.s.n., April 23,1975, pp. 61-63). Still, another excuse given by Mobil was that the coupon system was a cause of the delay in the delivery of the fuel. Appellant's witness Mario Oliveros stated that the coupon system of rationing gasoline among the consumers was another cause for the delay in delivery of plaintiff-appellee's pre-paid order of February 15, 1974. The supposed laborious work involved in a dealer submitting these coupons to the oil company when placing an order unduly burdened the system of placement and processing of orders (T.s.n., April 23,1975, p. 62). The evidence clearly shows that the coupon system could not be a reason for the delay in appellant's deliveries of appellee's pre-paid order. (Exhibits J, K, L, and M show that the orders of Mr. Dioscoro Franco were served on the day following the date of the invoice and the day of service was even a Saturday.) Also, there are the rebuttal exhibits regarding Mr. Dioscoro Franco's orders Exhibits Q, Q-1 to Q24 covering the period from January 14, to February 28,1974 which are described as follows: Exhibit Mobil Sales Invoice Date of Invoice Date Shipped or

No.

12

No. Q 36083C Jan. 14, 1974 Jan. 14, 1974 Jan. 14, 1974 Jan. 15, 1974 Jan. 15, 1974 Jan. 17, 1974 Jan. 17, 1974 Jan. 21, 1974 Jan. 21, 1974 Jan. 23, 1974 Jan. 28, 1974 Jan. 28, 1974 Feb. 5, 1974 Feb. 5,

Delivered Jan.14,1974

Q-1

36084C

Jan. 14, 1974

Q-2

36093

Jan. 14, 1974

Q-3

36271C

Jan. 15, 1974

Q-4

36272C

Jan. 15, 1974

Q-5

36353C

Jan. 17, 1974

Q-6

36354C

Jan. 17, 1974

Q-7

36585C

Jan. 21, 1974

Q-8

36586C

Jan. 21, 1974

Q-9

41453C

Jan. 23, 1974

Q-10

41743C

Jan. 28, 1974

Q-11

41744C

Jan. 28, 1974

Q-12

42347C

Feb. 5, 1974 Feb. 5,

Q-13

42348C

13

1974 Q-14 73691 Feb. 8, 1974 Feb. 13, 1974 Feb. 20, 1974 Feb. 20, 1974 Feb. 21, 1974 Feb. 21, 1974 Feb. 25, 1974 Feb. 27, 1974 Feb. 27, 1974 Feb. 28, 1974 Feb. 28, 1974

1974 Feb. 8, 1974 Feb. 13, 1974

Q-15

00783D

Q-16

01564D

Feb. 20, 1974

Q-17

01565D

Feb. 20, 1974

Q-18

86852B

Feb. 21, 1974

Q-19

86853B

Feb. 21, 1974

Q-20

04434D

Feb. 25, 1974

Q-21

04691D

Feb. 27, 1974

Q-22

04692D

Feb. 27, 1974

Q-23

06850D

Feb. 28, 1974

Q-24

06851D

Feb. 28,1974

The above rebuttal evidence clearly, indisputably and conclusively shows that Mobil Oil Philippines, Inc. made deliveries to Mr. Dioscoro Franco's gasoline station on the same days as the date of the invoices in accordance with the request that the delivery be made "today". These invoices disprove the excuses of Mobil that it had a back-log of gasoline orders and that the coupon system of distribution then in force accounted for alleged delay in delivery of plaintiff's order.

14

Another Mobil dealer and witness for appellee, Joaquin Coronel, testified in this case in connection with a pre-paid order he placed with the company on February 14, 1974, a Thursday, which was never delivered because the price increase took effect on February 18,1974 and Mobil wanted him to pay the price differential. Mr. Coronel refused to pay the piece increase differential and filed an administrative case against Mobil with the Oil Industry Commission (OIC), OIC Case No. 193 entitled "In the Matter of the Refusal to Deliver Pre-paid Oil Products, Joaquin P. Coroner, Petitioner, versus Mobil Oil Philippines, Inc., Respondent. In its decision, the Oil Industry Commission, while finding itself without the jurisdiction or power to grant the relief Mr. Coronel prayed for, nonetheless found respondent Mobil definitely guilty of the charge imputed to it by complainant Coronel. Hence, on pages 4 and 5 of the decision, the Oil Industry Commission said: On this, it is our considered view that the enticement of additional profit should not be allowed to prevail over the social and economic responsibility that the oil companies assumed the very moment they set out to manufacture and sell petroleum products in this country. When the incident subject matter of this case occurred, the whole country including the Metropolitan Manila Area, was in the grip of an acute fuel shortage. This was precisely the reason why the government, through all the agencies concerned, was pushing through a campaign intended to make available to the consuming public as much product as possible by going against hoarders and black-marketers and conducting inventories of all kinds of petroleum products in refineries, depots, and gasoline stations. Any act of withholding any quantity of petroleum product from the market then undermined to the same extent the efforts of the government to insure a continuous flow of supply. ... This Commission, however, could see no reason (and no reason really was put forward by respondent) for withholding the delivery, except that respondent had anticipated the grant of the increase in prices, and motivated by a desire to realize more profit, held on to its product instead of causing its immediate delivery to the petitioner. The adverse effect on the jeepney drivers and operators and the commuting public of such ill-advised decision of respondent can only be imagined. But certainly 6,000 liters of diesel oil could have caused many jeepneys to ply their respective routes and carry passengers to their places of work and thereby afforded many segments of the community some form of benefit or another. (Exhibit N, pp. 4 and 5) Therefore, in the dispositive portion of the decision, the Oil Industry Commission declared: ... declares respondent's act of unreasonably delaying delivery of petroleum products ordered and paid for in advance by petitoner to be violative of the directives and regulations on the matter, and hereby sternly warns said respondent that any other similar act that it may commit in the future with respect to herein petitioner or to any of its other dealers shall be dealt with more severely. (Exh. N, p.7) We will now determine whether the award by the court a quo of P 25,000.00 for exemplary and P 50,000.00 for moral damages is reasonable or not. Alberto Latuno, witness for defendant-appellant on direct examination testified as follows: Q. What about the 18th, why was it not proceeded on the 18th?

15

A. Because on the 18th, sir, we had this price increase and we had to give priority to the invoices already with our warehouse and dispatcher which were recalled for re- pricing. Q. They were recalled, Mr. Latuno, for re-pricing because of the price increase? A. Yes, sir. COURT: Mr. Latuno, in order for your company to increase the price in accordance with the price increase which took effect in February 19? A. Yes, Your Honor. COURT: Proceed. ATTY. VENERACION: And this invoice was already in the warehouse. A. And bulk dispatcher, sir. Q. So that was given priority? A. Yes, sir. (T.S.N., September 3, 1975, pp. 145-147) Mr. Mario Oliveros, witness for defendant-appellant, also testified that they had to recall and reprocess all orders previously invoiced because of the pace increase which took effect on February 18, 1974 (T.s.n., April 2,1975, p. 14). The above clearly indicates that defendant-appellant gave priority to the recall and reprocess of all invoices already with their warehouse and dispatcher for re-pacing because of the price increase which took effect on February 18, 1 974. This means that all invoices covering orders already paid for as early as February 14 and 15,1974 were recalled and revised to reflect the price increase and said orders were not delivered unless the dealers pay the corresponding price differential. Defendant-appellant cancelled the orders of dealers like Dioscoro Franco and Joaquin P. Coroner who refused to pay the price differential and their payments were just treated as payments on their respective accounts (T.s.n., April 22,1976, pp. 61-63) Therefore, defendant-appellant's act of unreasonably delaying delivery of petroleum products ordered and paid for in advance by its dealers is not only violative of the directives and regulations of the Oil Industry Commission, but also allowed appellant to amass unreasonably huge profits which if it had exercised fairness, honesty, good faith, and ordinary diligence in its business dealings, said profits should have gone to its dealers to whom it legitimately belonged. Such awards are necessary retribution for the oppressive, malevolent, unfair and high-handed actuations of the defendant- appellant. (Rollo, pp. 55-57).

16

We find the above factual findings as a fair, reasonable and just conclusion well grounded on the documentary and testimonial evidence presented in court which were not convincingly disputed by petitioner Mobil Oil Philippines. As We found nothing capricious, whimsical, speculative or arbitrary in the conclusions arrived at, the same cannot be disturbed on appeal. Finally, We will consider private respondent's motion addressed to Us pending final judgment of this case a) to require petitioner to file a supersedeas bond or deposit with this Court the amount awarded to private respondent by the lower court; and b) the judgment award should be adjusted upward by at least 150% in keeping with the inflation that has supervened. Petitioner in their "Rejoinder and Opposition" assured this Court that "it has more than adequate assets or financial resources to pay any judgment that may be rendered against it, in fact, it emphasized that "it has already taken sufficient steps for the protection of the interest of its creditors and has even appointed trustees, for the purpose of receiving all claims against the petitioner for settlement. Aside from this, the issue has already become moot and academic at this stage. On the second issue for adjustment claims, private respondent has no basis in contract or in law. Parenthetically, the principle We laid down in the case of Commissioner of Public Highways vs. Burgos(96 SCRA 831) can be applied here, to wit: ... an agreement is needed for the effects of an extraordinary inflation to be taken into account to alter the value of the currency at the time of the establishment of the obligation which, as a rule, is always the determinative element, to be varied by agreement that would find reason only in the supervention of extraordinary inflation or deflation. (pp. 837-838 Emphasis supplied). Moreover, in his concurring opinion in the same case, Justice Claudio Teehankee stated: I concur in the result with the observation that the statements in the main opinion re: the applicability or non-applicability of Article 1250 of the Civil Code should be taken as obiter dicta, since said article may not be invoked nor applied without a proper declaration of extraordinary inflation or deflation of currency by the competent authorities. (p. 840, Italics ours) In the case at bar, the obligation of the petitioner, if any, is based on law since the same calls for the application of the Civil Code provisions on damages. Moreover, there has been no official pronouncement or declaration of the existence of extraordinary inflation or deflation. WHEREFORE, premises considered, finding lack of merit in the petition, the same is hereby DISMISSED and the appealed judgment of the appellate court is hereby AFFIRMED. SO ORDERED. Melencio-Herrera (Chairperson), Sarmiento and Regalado, JJ., concur. Padilla, J.,took no part.

Footnotes

17

1 Penned by Justice Jose A.R. Melo, concurred in by Justices Mama D. Busran and Guillermo P. Villasor. 2 Penned by Judge Ulpiano Sarmiento. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-21749 September 29, 1967

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. LUZON STEVEDORING CORPORATION, defendant-appellant. Office of the Solicitor General for plaintiff-appellee. H. San Luis and L.V. Simbulan for defendant-appellant.

REYES, J.B.L., J.: The present case comes by direct appeal from a decision of the Court of First Instance of Manila (Case No. 44572) adjudging the defendant-appellant, Luzon Stevedoring Corporation, liable in damages to the plaintiffappellee Republic of the Philippines. In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring Corporation was being towed down the Pasig river by tugboats "Bangus" and "Barbero"1 also belonging to the same corporation, when the barge rammed against one of the wooden piles of the Nagtahan bailey bridge, smashing the posts and causing the bridge to list. The river, at the time, was swollen and the current swift, on account of the heavy downpour of Manila and the surrounding provinces on August 15 and 16, 1960. Sued by the Republic of the Philippines for actual and consequential damage caused by its employees, amounting to P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon Stevedoring Corporation disclaimed liability therefor, on the grounds that it had exercised due diligence in the selection and supervision of its employees; that the damages to the bridge were caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey bridge is an obstruction to navigation. After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for the damage caused by its employees and ordering it to pay to plaintiff the actual cost of the repair of the Nagtahan bailey bridge which amounted to P192,561.72, with legal interest thereon from the date of the filing of the complaint. Defendant appealed directly to this Court assigning the following errors allegedly committed by the court a quo, to wit:

18

I The lower court erred in not holding that the herein defendant-appellant had exercised the diligence required of it in the selection and supervision of its personnel to prevent damage or injury to others.1awphl.nt II The lower court erred in not holding that the ramming of the Nagtahan bailey bridge by barge L-1892 was caused by force majeure. III The lower court erred in not holding that the Nagtahan bailey bridge is an obstruction, if not a menace, to navigation in the Pasig river. IV The lower court erred in not blaming the damage sustained by the Nagtahan bailey bridge to the improper placement of the dolphins. V The lower court erred in granting plaintiff's motion to adduce further evidence in chief after it has rested its case. VI The lower court erred in finding the plaintiff entitled to the amount of P192,561.72 for damages which is clearly exorbitant and without any factual basis. However, it must be recalled that the established rule in this jurisdiction is that when a party appeals directly to the Supreme Court, and submits his case there for decision, he is deemed to have waived the right to dispute any finding of fact made by the trial Court. The only questions that may be raised are those of law (Savellano vs. Diaz, L-17441, July 31, 1963; Aballe vs. Santiago, L-16307, April 30, 1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a party who resorts to the Court of Appeals, and submits his case for decision there, is barred from contending later that his claim was beyond the jurisdiction of the aforesaid Court. The reason is that a contrary rule would encourage the undesirable practice of appellants' submitting their cases for decision to either court in expectation of favorable judgment, but with intent of attacking its jurisdiction should the decision be unfavorable (Tyson Tan, et al. vs. Filipinas Compaia de Seguros) et al., L-10096, Res. on Motion to Reconsider, March 23, 1966). Consequently, we are limited in this appeal to the issues of law raised in the appellant's brief. Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this appeal are reduced to two: 1) Whether or not the collision of appellant's barge with the supports or piers of the Nagtahan bridge was in law caused by fortuitous event or force majeure, and 2) Whether or not it was error for the Court to have permitted the plaintiff-appellee to introduce additional evidence of damages after said party had rested its case. As to the first question, considering that the Nagtahan bridge was an immovable and stationary object and uncontrovertedly provided with adequate openings for the passage of water craft, including barges like of appellant's, it is undeniable that the unusual event that the barge, exclusively controlled by appellant, rammed the bridge supports raises a presumption of negligence on the part of appellant or its employees manning the barge or the tugs that towed it. For in the ordinary course of events, such a thing does not happen if proper care is used. In Anglo American Jurisprudence, the inference arises by what is known as the "res ipsa loquitur" rule (Scott vs. London Docks Co., 2 H & C 596; San Juan Light & Transit Co. vs. Requena, 224 U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs. Great Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W. 2d 719). The appellant strongly stresses the precautions taken by it on the day in question: that it assigned two of its most powerful tugboats to tow down river its barge L-1892; that it assigned to the task the more competent and

19

experienced among its patrons, had the towlines, engines and equipment double-checked and inspected; that it instructed its patrons to take extra precautions; and concludes that it had done all it was called to do, and that the accident, therefore, should be held due to force majeure or fortuitous event. These very precautions, however, completely destroy the appellant's defense. For caso fortuito or force majeure (which in law are identical in so far as they exempt an obligor from liability)2 by definition, are extraordinary events not foreseeable or avoidable, "events that could not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ. Code of the Philippines). It is, therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same: "un hecho no constituye caso fortuito por la sola circunstancia de que su existencia haga mas dificil o mas onerosa la accion diligente del presento ofensor" (Peirano Facio, Responsibilidad Extra-contractual, p. 465; Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569). The very measures adopted by appellant prove that the possibility of danger was not only foreseeable, but actually foreseen, and was not caso fortuito. Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the perils posed by the swollen stream and its swift current, voluntarily entered into a situation involving obvious danger; it therefore assured the risk, and can not shed responsibility merely because the precautions it adopted turned out to be insufficient. Hence, the lower Court committed no error in holding it negligent in not suspending operations and in holding it liable for the damages caused. It avails the appellant naught to argue that the dolphins, like the bridge, were improperly located. Even if true, these circumstances would merely emphasize the need of even higher degree of care on appellant's part in the situation involved in the present case. The appellant, whose barges and tugs travel up and down the river everyday, could not safely ignore the danger posed by these allegedly improper constructions that had been erected, and in place, for years. On the second point: appellant charges the lower court with having abused its discretion in the admission of plaintiff's additional evidence after the latter had rested its case. There is an insinuation that the delay was deliberate to enable the manipulation of evidence to prejudice defendant-appellant. We find no merit in the contention. Whether or not further evidence will be allowed after a party offering the evidence has rested his case, lies within the sound discretion of the trial Judge, and this discretion will not be reviewed except in clear case of abuse.3 In the present case, no abuse of that discretion is shown. What was allowed to be introduced, after plaintiff had rested its evidence in chief, were vouchers and papers to support an item of P1,558.00 allegedly spent for the reinforcement of the panel of the bailey bridge, and which item already appeared in Exhibit GG. Appellant, in fact, has no reason to charge the trial court of being unfair, because it was also able to secure, upon written motion, a similar order dated November 24, 1962, allowing reception of additional evidence for the said defendant4 appellant. WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby affirmed. Costs against the defendant-appellant. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. Bengzon, J.P. J., on leave, took no part. Footnotes

20

The lead-tugboat "Bangus" was pulling the barge, while the tugboat "Barbero" was holding or restraining it at the back.
2

Lasam vs. Smith, 45 Phil. 661. Lopez vs. Liboro, 81 Phil. 429. p. 89, Record on Appeal. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 97412 July 12, 1994 EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner. Zapa Law Office for private respondent.

VITUG, J.: The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%). The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced: This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages. On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38.

21

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D). On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E). Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L). As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.) There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said: Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it. From the evidence the court found the following: The issues are: 1. Whether or not the shipment sustained losses/damages; 2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable); 3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38). As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not

22

indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order. Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "TurnOver Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open". and thus held: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: A. Ordering defendants to pay plaintiff, jointly and severally: 1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract); 2. P3,000.00 as attorney's fees, and 3. Costs. B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation. SO ORDERED. (p. 207, Record).

23

Dissatisfied, defendant's recourse to US. The appeal is devoid of merit. After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.) The Court of Appeals thus affirmed in toto the judgment of the court a quo. In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION; II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED. The petition is, in part, granted. In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to. The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when 1 such presumption of fault is not observed but these cases, enumerated in Article 1734 of the Civil Code, are exclusive, not one of which can be applied to this case. The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum,thus: The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the

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CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it. It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark. Let us first see a chronological recitation of the major rulings of this Court: The early case of Malayan Insurance Co., Inc., vs. Manila Port 2 3 Service, decided on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled: Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point. But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with 4 reasonable certainty." And as was held by this Court in Rivera vs. Perez, L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof (Montilla c.Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman, 38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied) The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of Property." After trial, the lower court decreed: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows: Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons: xxx xxx xxx

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(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis supplied.) On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text) should have, instead, been applied. This Court 6 ruled: The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. xxx xxx xxx Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum. The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this 8 Court modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.

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In Nakpil and Sons vs. Court of Appeals, the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co., Inc. (one of the petitioners) . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus: WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied) A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per annum imposed on the total amount of the monetary award was in contravention of law." The Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained: There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the imposition of the interest. It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.) The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

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Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz which arose from a breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held: WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.) The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said: . . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment contract like the case at bar. (Emphasis supplied) The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid. Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the 15 Court declared: . . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply. Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate Appellate Court (1988).

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In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid. The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest. Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid. The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance. I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20 II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of 21 money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due 22 shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of 24 25 damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
18

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3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof. SO ORDERED. Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur. Mendoza, J., took no part.

#Footnotes

1 Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character of the goods or defects in the packing or in the containers; (5) Order or act of competent public authority. 2 28 SCRA 65. 3 Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio Dizon, Querube Makalintal, Calixto Zaldivar, Enrique Fernando, Francisco Capistrano, Claudio Teehankee and Antonio Barredo, Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on official leave. 4 The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-6998, 29 February 1956," 98 Phil. 516. 5 139 SCRA 260, 265. 6 Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes Concepcion, Jr., Vicente Abad Santos, Ameurfina Melencio-Herrera, Venicio Escolin, Lorenzo Relova, Hugo Gutierrez, Jr., Buenaventura de la Fuente, Nestor Alampay and Lino Patajo. Justice Ramon Aquino concurred in the result. Justice Efren Plana filed a concurring and dissenting opinion, concurred

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in by Justice Claudio Teehankee while Chief Justice Felix Makasiar concurred with the separate opinion of Justice Plana. 7 143 SCRA 158. 8 Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by Justices Pedro Yap, Ameurfina Melencio-Herrera, Isagani A. Cruz and Edgardo Paras. 9 160 SCRA 334. 10 Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo Fernan, Teodoro Padilla, Abdulwahid Bidin, and Irene Cortes. Justice Hugo Gutierrez, Jr., took no part because he was the ponente in the Court of Appeals. 11 167 SCRA 209. 12 Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan, Justices Andres Narvasa, Isagani A. Cruz, Emilio Gancayco, Teodoro Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene Cortes, Carolina Grio-Aquino, Leo Medialdea and Florenz Regalado. Justices Ameurfina Melencio-Herrera and Hugo Gutierrez, Jr., took no part because they did not participate in the deliberations. Justices Edgardo Paras and Florentino Feliciano also took no part. 13 170 SCRA 461. 14 208 SCRA 542. 15 Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina MelencioHerrera, Teodoro Padilla, Florenz Regalado and Rodolfo Nocon. 16 Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth, 22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable. 17 In the case of Malayan Insurance, the application of the 6% and 12% interest per annum has no bearing considering that this case was decided upon before the issuance of Circular No. 416 by the Central Bank. 18 Art. 1157. Obligations arise from. (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Qausi-delicts."

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19 Art. 1170. 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. 20 Art. 2195. The provisions of this Title (on Damages) shall be respectively applicable to all obligations mentioned in article 1157. 21 Art. 1956. No interest shall be due unless it has been expressly stipulated in writing. 22 Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. 23 Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. "However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. "In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins." 24 Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the discretion of the court. 25 Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. 26 Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty. Republic of the Philippines SUPREME COURT Manila EN BANC

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G.R. No. 109125 December 2, 1994 ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs. THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents. Antonio M. Albano for petitioners. Umali, Soriano & Associates for private respondent.

VITUG, J.: Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058. The antecedents are recited in good detail by the appellate court thusly: On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; that since defendants failed to specify the terms and conditions of the offer to sell and because of information received that defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them. Defendants filed their answer denying the material allegations of the complaint and interposing a special defense of lack of cause of action. After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision states:

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WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily dismissing the complaint subject to the aforementioned condition that if the defendants subsequently decide to offer their property for sale for a purchase price of Eleven Million Pesos or lower, then the plaintiffs has the option to purchase the property or of first refusal, otherwise, defendants need not offer the property to the plaintiffs if the purchase price is higher than Eleven Million Pesos. SO ORDERED. Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with modification the lower court's judgment, holding: In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable. WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is sold for a purchase price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos. No pronouncement as to costs. SO ORDERED. The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and substances" (Annex H, Petition). On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation, subject to the following terms and conditions: 1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of which in full is hereby acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs, executors, administrators or assigns, the above-described property with all the improvements found therein including all the rights and interest in

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the said property free from all liens and encumbrances of whatever nature, except the pending ejectment proceeding; 2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and other expenses incidental to the sale of above-described property including capital gains tax and accrued real estate taxes. As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990. On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises. On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs. The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123. On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows: Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in today's consideration of the motion as evidenced by the rubber stamp and signatures upon the copy of the Motion for Execution. The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of Appeals in its decision in CA G.R. CV-21123, and elevated to the Supreme Court upon the petition for review and that the same was denied by the highest tribunal in its resolution dated May 6, 1991 in G.R. No. L-97276, had now become final and executory. As a consequence, there was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid modified decision had already become final and executory. It is the observation of the Court that this property in dispute was the subject of theNotice of Lis Pendens and that the modified decision of this Court promulgated by the Court of Appeals which had become final to the effect that should the defendants decide to offer the property for sale for a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market economy today, the same right of first refusal to herein plaintiffs/appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos or more. WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh

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Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer. All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, is hereby set aside as having been executed in bad faith. SO ORDERED. On September 22, 1991 respondent Judge issued another order, the dispositive portion of which reads: WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of Execution ordering the defendants among others to comply with the aforesaid Order of this Court within a period of one (1) week from receipt of this Order and for defendants to execute the necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to cancel and set aside the title already issued in favor of Buen Realty Corporation which was previously executed between the latter and defendants and to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go. SO ORDERED. On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) 1 was issued. On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without force and effect the above questioned orders of the court a quo. In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs. We affirm the decision of the appellate court. A not too recent development in real estate transactions is the adoption of such arrangements as the right of first refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental precepts that may find some relevance to this discussion. An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasidelicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor) subjects.

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Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummationbegins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof. Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory 2 force. In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. 3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4 An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5 An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract ofoption. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz: Art. 1479. . . . An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. 6 (1451a)

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Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 8 Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern: (1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." (2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance(exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code). In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or 10 an offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct. Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable 11 element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal

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would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for 12 instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages. The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose. Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property, without first being duly afforded its day in court. We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed: Finally, the questioned writ of execution is in variance with the decision of the trial court as 13 modified by this Court. As already stated, there was nothing in said decision that decreed the execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885). It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners. WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against petitioners. SO ORDERED. Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Mendoza, JJ., concur. Kapunan, J., took no part. Feliciano, J., is on leave.

#Footnotes 1 Rollo, pp. 32-38. 2 Roque vs. Lapuz, 96 SCRA 741; Agustin vs. CA, 186 SCRA 375.

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3 See People's Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777. 4 Delta Motor Corporation vs. Genuino, 170 SCRA 29. 5 See Art. 1459; Atkins, Kroll and Co., Inc. vs. Cua Hian Tek, 102 Phil. 948. 6 It is well to note that when the consideration given, for what otherwise would have been an option, partakes the nature in reality of a part payment of the purchase price (termed as "earnest money" and considered as an initial payment thereof), an actual contract of sale is deemed entered into and enforceable as such. 7 Enriquez de la Cavada vs. Diaz, 37 Phil. 982. 8 Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil. 948. 9 Article 1319, Civil Code, provides: Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. (Emphasis supplied.) 10 It is also essential for an option to be binding that valuable consideration distinct from the price should be given (see Montilla vs. Court of Appeals, 161 SCRA 167; Sps. Natino vs. IAC, 197 SCRA 323; Cronico vs. J.M. Tuason & Co., Inc., 78 SCRA 331). 11 See Article 1315 and 1318, Civil Code; Madrigal & Co. vs. Stevenson & Co., 15 Phil. 38; Salonga vs. Ferrales, 105 SCRA 359). 12 Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. 13 The decision referred to reads: In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable. WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision, gave the plaintiffs considering the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos. No pronouncement as to costs. Republic of the Philippines SUPREME COURT Manila

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EN BANC

G.R. No. 87710 March 31, 1992 ROBERTO S. BENEDICTO, petitioner, vs. THE BOARD OF ADMINISTRATORS OF TELEVISION STATIONS RPN, BBC AND IBC, respondents. G.R. No. 96087 March 31, 1992 TEOFISTO T. GUINGONA, JR., petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, respondents.

GRIO-AQUINO, J.: These two cases were consolidated for the reason that they involve the sequestered television and broadcast stations of Roberto S. Benedicto, well-known friend and classmate of the late President Ferdinand E. Marcos. G.R. No. 87710 Roberto S. Benedicto vs. Board of Administrators of Television Stations RPN, BBC and IBC A petition for prohibition and mandamus with prayer for preliminary injunction and/or restraining order, was filed by Benedicto in 1989 to prohibit the respondent Board of Administrators from exercising management, operation, and control of three (3) television stations, namely; (1) the Inter-Continental Broadcasting Corporation (IBC-13), (2) Radio Philippines Network (RPN-9), and (3) Banahaw Broadcasting Corporation (BBC-2), collectively called "Broadcast City," and to compel the respondent Board to turn them over to their respective Boards of Directors, asprovided in an Agreement between the petitioner and the Presidential Commission on Good Government (PCGG). After the February Revolution in 1986, the properties, assets, and business of Broadcast City were abandoned, leaving no one to look after them. When the PCGG was created in February 1986, its chairman, now Senator, Jovito Salonga, requested the Ministry of National Defense and the Ministry of Information, in the interest of national security, to sequester Broadcast City pending clarification of its uncertain financial condition, as well as its legal and beneficial ownership. In compliance with the PCGG' s recommendation, the Ministry of National Defense on March 6, 1986, requested the Minister of Information to immediately undertake the management and administration of the sequestered facilities. On April 8, 1986, President Corazon C. Aquino issued Executive Order No. 11 creating a Board of Administrators "to manage and operate the business and affairs of Broadcast City." Executive Order No. 11 provided that the Board of Administrators shall "function in all respects like a board of directors of a corporation under the Corporation Code," exercise "all the powers imposed on trustees under the principles of the general law on trust and officious managers under the law on extra-contractual obligations" (Sec. 3), and fixed its term of existence to be "coterminous with the investigation of the seized assets by the Presidential Commission on Good Government and

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until final disposition of the seized assets in accordance with the findings of the Commission." (Sec. 7.) The members of the board were to hold office "at the pleasure of the President." Pursuant to Section 1 of Executive Order No. 11, the Minister of Information appointed the members of the Board of Administrators on April 11, 1986. The petitioner filed in the Supreme Court an action against the PCGG to annul the sequestration, and to recover the management, of Broadcast City (G.R. No. 74974 entitled, "Roberto S. Benedicto vs. PCGG, et al."). This case was transferred to, and is now pending in, the Sandiganbayan. On December 18, 1986, the petitioner and the PCGG allegedly entered into an agreement to reorganize and reinstate the Boards of Directors of RPN, BBC, IBC and other related media corporations. Two-thirds (2/3) of the members of the reorganized Boards of Directors would be nominees of the PCGG and one-third (1/3) would be nominees of the petitioner. Said boards of directors would "exercise all powers of administration and management of the sequestered companies." Pursuant to that agreement, a reorganized Board of Directors was elected for each of the Broadcast City corporations. However, the respondent Board of Administrators refused to relinquish the management, operation, and control of Broadcast City to the reorganized Boards of Directors. This petition for prohibition and mandamus was filed against the Board of Administrators by Benedicto, as controlling stockholder of the "Broadcast City" corporations. G.R. No. 96087 Teofisto T. Guingona, Jr. vs. Presidential Commission on Good Government On June 30, 1987, the PCGG filed in the Sandiganbayan Civil Case No. 0034, entitled "Republic of the Philippines vs. Roberto S. Benedicto. Spouses Ferdinand and Imelda Marcos, et al." to recover from the defendants (including Roberto s. Benedicto) their ill-gotten wealth consisting of funds and other property which they amassed through breach of trust and abuse of the prerogatives of public office, and in violation of the Constitution and the laws of the land. On November 3, 1990, the PCGG, through its chairman, David M. Castro, executed a Compromise Agreement with Roberto S. Benedicto ceding to the latter a substantial part of his ill-gotten assets and granting him immunity from further prosecution. On November 25, 1990, the compromise agreement was submitted by the parties to the Sandiganbayan for approval. By this petition for certiorari and prohibition with prayer for a preliminary injunction and/or restraining order, the petitioner. Senator Teofisto Guingona, Jr., seeks to invalidate the compromise agreement on the grounds that: 1. The PCGG has no power and authority to cede and release, by compromise or otherwise, any ill-gotten assets of the past discredited dictator, his family, relatives and political and business cronies. Its charter tasks it to recover all ill-gotten wealth. 2. The immunity-authority vested in the PCGG under Executive Order No. 14, as amended, is limited granting immunity from criminal prosecution under the conditions set forth thereunder. 3. Previous compromise agreements entered into by the PCGG adhered to the statutory norm of totalrecovery of ill-gotten wealth, with zero-retention by the Marcos cronies, and ceded to the

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latter only those assets which had been substantiated and verified as legitimately and lawfully acquired by them. 4. The Benedicto Compromise Agreement requires for its validity an amendment by Congress of the PCGG's mandate by authorizing it to settle for less than total recovery of ill-gotten wealth. 5. Being a settlement of the Government's claim exceeding P100,000 against Benedicto, the Compromise Agreement requires for its validity prior approval of Congress upon the recommendation of the Commission on Audit and the President, pursuant to Section 20, Chapter 4, Subtitle B, Title I, Book V of the Revised Administrative Code 1987, Executive Order No. 292. 6. The Compromise Agreement grants Benedicto immunity from criminal prosecution without requiring compliance with the conditions enumerated in Executive Order No. 14, as amended, in relation to Executive Order No. 2. On November 29, 1990, the court directed the PCGG to comment on the petition and issued a Temporary Restraining Order to cease and desist from implementing and enforcing the assailed Compromise Agreement. Commenting on the petition, the PCGG alleged that the rationale for the Compromise Agreement was the Government's desire to immediately accomplish its recovery mission and Mr. Benedicto's desire to lead a peaceful and normal life. Toward this end, the parties decided to withdraw and/or dismiss their mutual claims and counterclaims in the cases pending in the Philippines. The PCGG's authority to enter into compromises involving illgotten wealth and to grant immunity in civil and criminal cases had been challenged before, but it was sustained by this Court in "Republic of the Philippines and Jose Campos, Jr. vs. Sandiganbayan, et al.," G.R. No. 84895, May 4, 1989, 173 SCRA 72). On January 15, 1991, this Court granted the PCGG's motion to suspend consideration by the Sandiganbayan of the "Joint Motion to Approve Compromise Agreement" filed in that court by the PCGG and Benedicto. The petitioner filed a reply to the comment stating that the issue in this case is not the basic authority of the Commission to enter into a compromise settlement of the liabilities and accountabilities of the Marcoses, but the legality of the Compromise Agreement with Benedicto which, according to the petitioner, was entered into by the Commission without and beyond its lawful authority and with grave abuse of discretion, for its grants Benedicto final, total, and irrevocable immunity from criminal prosecution, sans compliance with the specific conditions imposed therefor by Section 5 of Executive Order No. 14, as amended, in relation to Executive Order No. 2, to wit: (a) that Benedicto should make a "full disclosure" of all "ill-gotten assets" or properties, whether located in the Philippines or abroad, in [his] name as nominee, agent or trustee . . . (b) that Benedicto should disclose information "establish[ing] the unlawful manner in which [former President Marcos and his family have] acquired or accumulated the property or properties in question; and (c) that Benedicto should promise to testify before the Sandiganbayan when so required. (pp. 181-183, Rollo.) After considering the petition in G.R. No. 87710 "Benedicto vs. Board of Administrators of Television Stations RPN, BBC and IBC," and the comments of the Solicitor General, the Court, following its earlier rulings in Bataan Shipyard and Engineering Co. (BASECO) vs. PCGG (150 SCRA 181), and succeeding cases, including the more recent rulings in Cojuangco, et al. vs. Roxas, et al. and Conjuangco, et al. vs. Azcuna, et al. (195 SCRA 797), andPCGG vs.

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Sandiganbayan and Olivares (G.R. No. 92376, August 12, 1991), resolved to grant the petition for prohibition and mandamus. In Baseco vs. PCGG, 150 SCRA 181, 236, this Court ruled that the PCGG is a conservator, not an owner. Hence, it behooves the PCGG exercise "the least possible interference with business operations or activities" of sequestered, frozen or provisionally taken over property so that if it is not proven that the business enterprise was "ill-gotten," it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration. The PCGG may thus exercise only powers administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. . . . In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner. Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos Administration or by entitles or persons close to former President Marcos," the PCGG is given power and authority, as already adverted to, to "provisionally take [it] over in the public interest or to prevent [its] disposal or dissipation;" and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connotated; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplished the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise." (150 SCRA 181, 236-237.) In the light of this ruling, which we reiterated in the Conjuangco cases, and in view of the reorganization of the Boards of Directors of the RPN, IBC and BBC television stations to administer and manage those sequestered Broadcast City companies, the authority of the Board of Administrators as "trustee and officious manager" of the same corporations, has become functus oficio. In negotiorum gestio, the authority of the officious manager of a property or business is extinguished when the owner demands the return of the same (Art. 2153, Civil Code). With the reorganization of the respective Boards of Directors of the Broadcast City companies, where PCGG controls 2/3 of the board membership, the Board of Administrators has become a supernumerary. The reason for its existence has ceased. This view is bolstered by the fact that Broadcast City is not a purely commercial venture but a media enterprise covered by the freedom of the press provision of the Constitution, and that under our ruling inLiwayway Publishing, Inc., et al. vs. PCGG, et al. (160 SCRA 716), the Government, through the PCGG, may not lawfully intervene and participate in the management and operations of a private mass media maintain its freedom and independence as guaranteed by the Constitution (Art. XVI, Sec. 11, 1987 Constitution). The petition in G.R. No. 96087 has no merit. The right of parties in a civil action to enter into a compromise for the purpose of avoiding litigation or putting an end to are already commenced is indisputable. The settlement of civil cases in court is authorized and even encouraged by law (Arts. 2028 and 2029, Civil Code). Although there is no similar general rule in criminal prosecutions, this Court held in Republic vs. Sandiganbayan 173 SCRA 72 (1989) that "in the absence of an express prohibition, the rule on amicable settlements and/or compromises on civil cases under the Civil Code is applicable to PCGG cases." There is no basis for comparison between the compromise agreements which the PCGG made with Campos and Floirendo and is agreement with Benedicto. As pointed out by the PCGG, the Campos/Floirendo agreements were made in May, 1986 and March, 1987 when no case had been filed yet against Campos and Floirendo in the Sandiganbayan, but Floirendo was one of the defendants in the U.S. case in New York against the Marcoses. Since

44

there was as yet no case against Campos and Floirendo in the Philippines, no Philippine court had acquired jurisdiction to review and approve the PCGG's compromise agreements with them. The compromise agreement with Benedicto was submitted to the Sandiganbayan for approval for the simple reason that the PCGG had filed a civil case against him in the Sandiganbayan. Prior congressional approval is not required for the PCGG to enter into a compromise agreement with persons against whom it has filed actions for recovery of ill-gotten wealth. Section 20, Chapter 4, Subtitle B, Title I, Book V. of the Revised Administrative Code of 1987 (E.O. No. 292) cited by Senator Guingona is inapplicable as it refers to a settled claim or liability. The provision reads: Sec. 20. Power to Compromise Claims. (1) When the interest of the Government so requires, the Commission may compromise or release in whole or in part, any settled claim or liability to any government agency not exceeding ten thousand pesos arising out of any matter or case before it our within its jurisdiction, and with the written approval of the President, it may likewise compromise or release any similar claim or liability not exceeding one hundred thousand pesos, in case the claim or liability exceeds one hundred thousand pesos, the application for relief therefrom shall be submitted, through the Commission and the President, with their recommendation, to the Congress; xxx xxx xxx (Emphasis supplied.) The Government's claim against Benedicto is not yet settled, and the ownership of the alleged ill-gotten assets is still being litigated in the Sandiganbayan, hence, the PCGG's Compromise Agreement with Benedicto need not be submitted to the Congress for approval. Settled is the rule that the writ of the prohibition will issue only when it is shown that a tribunal, corporation, board or person whether exercising functions judicial or ministerial, has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion, and there is no appeal nor other plain, speedy, and adequate remedy in the ordinary course of the law (Sec. 2, Rule 65 of the Rule of Court). Since the PCGG's compromise agreement with Benedicto has been submitted to the Sandiganbayan for approval and is still pending determination therein, this petition to prohibit its implementation and enforcement is premature. WHEREFORE, the petition for prohibition and mandamus in G.R. No. 87710 is granted. The respondent Board of Administrators is ordered to cease and desist from further exercising management, operation and control of Broadcast City and is hereby directed to surrender the management, operation and control of Broadcast City to the reorganized Board of Directors of each of the Broadcast City television stations. The petition for prohibition against the PCGG in G.R. No. 96087 is hereby dismissed. The temporary restraining order which this Court issued on November 29, 1990 in G.R. No. 96087 is hereby set aside. No costs in both cases. SO ORDERED. Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Padilla, Bidin, Medialdea, Regalado, Davide, Jr., Romero and Nocon, JJ., concur. Feliciano, J., is on leave.

45

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-32364 April 30, 1979 RAMIE TEXTILES, INC., petitioner, vs. HON. ISMAEL MATHAY, SR., in his capacity as Auditor General respondent. Lichauco Picazo & Agcaoili for petitioner. Office of the Solicitor General for respondent.

DE CASTRO, J: This is an appeal by way of certiorari from the decision of the Auditor General contained in his 9th indorsement dated January 14, 1970 and his resolution dated July 28, 1970 reiterating the aforesaid decision, disallowing the chum of petitioner for refund of real estate taxes. The undisputed facts of the case are as follows: Petitioner Ramie Textiles, Inc., a domestic corporation, commenced its operation in 1959. During the first five (5) years of operation, it voluntarily paid the amount of P78,041.17 as real estate taxes on its plant machinery and equipment used by its general mill at Bagbagin, Valenzula Bulacan. later, or on May 19, 1967 said petitioner , that 1 under Article 1, Section 3(f) of Commonwealth Act No. 470, otherwise known as the Assessment Law, said machineries are exempt from realty tax, submitted to the Provincial Treasurer, through the Provincial Assesor of Bulacan a claim for refund of P78,041.17 which it paid as real estate taxes for the said five (5) years on its plant machinery and equipment. On July 11, 1967 the Provincial Treasurer, however, denied the chum for refund on the ground that under Section 359 of the Revised Manual of Instructions to Treasurers, a claim for refund of taxes erroneously paid or illegally collected or assessed should be presented within two (2) years from date of payment. Petitioner submitted a reply on August 1, 1967 to the said opinion of the Provincial Treasurer alleging that Section 359 is inapplicable because said provision refers specifically to municipal ordinances which were subsequently declared illegal and taxes illegally assessed and collected under such ordinances. It is neither a tax collected through the municipal ordinance nor a tax y assessed and collected but real estate taxes voluntarily paid by petitioner. On November 10, 1967, the Office of the Auditor General of B indorsed petitioner's claim to the Auditor General at Quezon City with the information that the former concurs with the opinion of the Provincial Treasurer and the Provincial Assessor of Bulacan that the claim for refund may not be in order considering that the payment of real estate taxes was made voluntarily by petitioner without protest. But since the amount involved is very significant, the matter was submitted to the Central Office for decision and/or instruction. The matter also appeared to have been referred to the Secretary of Finance for comment, and in his indorsement dated July 22, 1969 to the Auditor General the Secretary stated he had no objection to the grant of the claim for refund of petitioner whether or not such payments have been made under protest, subject to the application of the statutory prescriptive period of six (6) years under Article 1145 of the New Civil Code of the Philippines.

46

The Auditor General in his 9th indorsement dated January 14, 1970, ruled that the claim for refund of real estate taxes paid by petitioner having been voluntarily made without pro. test may not be allowed pursuant to Section 54 of Commonwealth Act No. 470 which provides: Section 54. Restriction upon power of court to impeach tax - No court shall entertain any suit assailing the validity of a tax assessed under this Act until the taxpayer shall have paid, under pro. test, the taxes assessed against him .... The question at issue, therefore, is whether or not protest is a condition precedent or a sine qua non requirement for the recover of real estate taxes paid under the erroneous belief that the, claimant was liable therefor, and if so, what is the prescriptive period. Petitioner claims that protest is not a sine qua non requirement in order that taxes mistakenly paid may be refunded it alleges that Section 54 is not applicable since it contemplates a situation where the taxpayer disagrees with an assessment because it is illegal or erroneous. We agree with petitioner. Protest is not a requirement in order that a taxpayer who paid under a mistaken belief that it is required by law, may claim for a refund. Section 54 of Commonwealth Act No. 470 does not apply to petitioner which could conceivably not have been expected to protest a payment it honestly believed to be due. The same refers only to the case where the taxpayer, despite his knowledge of the erroneous or illegal assessment, still pays and fails to make the proper protest, for in such case, he should manifest an unwillingness to pay, and failing so, the taxpayer is deemed to have waived his right to claim a refund. In the case at bar, petitioner, therefore, cannot be said to have waived his right. He had no knowledge of the fact that it was exempted from payment of the realty tax under Commonwealth Act No. 470. Payment was made through error or mistake, in the honest belief that petitioner was liable, and therefore could not have been made under protest, but with complete voluntariness. In any case, a taxpayer should not be held to suffer loss by his good intention to comply with what he believes is his legal obligation, where such obligation does not really exist. The case of National Waterworks and Sewerage Authority vs. Quezon City, et al., G.R. No. L-25310, April 26, 1968, 23 SCRA 286-291, to the effect that prior protest of realty tax payments is necessary for recovery, cited by respondent, is not in point. The facts of said case are different because there was already prior knowledge on the part of NWSA of its exemption from payment of its taxes which dated back to 1957 when it paid under protest, and then again in 1961. But despite the fact that it knew already that it was exempt, it still paid without protest the taxes for 1958, 1959, 1960 and 1962. Hence, this Court ruled: Stated otherwise, this appeal concerns only the taxes paid for 1958 to 1962 (total amount; P449,088.46). Starting from 1957 up to 1962, NWSA already knew it was exempt, as shown by its payment in 1957 under protest, reiterated in 1961. NWSA therefore, should have paid the rest of the taxes from 1957 to 1962 under protest ... It is not disputed that petitioner is exempt from the payment of realty taxes during the first five (5) years of its operation The fact that petitioner paid thru error or Mistake, and the government accepted the payment, save rise to the application of the principle of solutio indebiti under Article 2154 of the New Civil Code, which provides that "if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises." There is, therefore, created a tie or juridical relation in the nature of solutio indebitiexpressly classified as quasi- contract under Section 2, Chapter I of Title XVII of the New Civil Code. The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of another.' Hence, it would seem unedifying for the government, that

47

knowing it has no right at all to collect or to receive money for alleged taxes paid by mistake, it would be reluctant 3 to return the same. Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio indebiti the claim for refund must be commenced within six (6) years from date of payment pursuant to Article 1145(2) of the New Civil Code. 4 Respondent's contention that petitioner's right to recover real estate taxes has prescribed in accordance with Section 359 of the Revised Manual of Instructions to Treasurers which reads: Section 359. Refund of taxes paid under ordinance subsequently declared illegal and taxes illegally assessed and collected. To encourage prompt and voluntary payment of taxes and to maintain the principle that the government should not, at the expense of the taxpayer, retain what is not legally due it, for refund of taxes erroneously paid or illegally collected or assessed may be presented within two (2) years from date of payment. Claim for refund presented thereafter will no longer be entertained. All claims for recovery of taxes illegally and erroneously as shall be filed with the treasurer who collected the tax. The treasurer may... decide the protest or he may forward the same to the corresponding authority for decision. His comment and recommendation shall be stated by him together with the protest. This procedure shall be strictly followed in order to determine as to whether or not a formal or written claim was filed within the two (2) years from date of payment. is without merit. The said provision applies to taxes paid under ordinance subsequently declared illegal or taxes illegally assessed and collected under such ordinance, but not to payments of real estate taxes mistakenly made, as in the present case. Furthermore, the Revised Manual of Instructions to Treasurers is a mere compilation of existing accounting instructions affecting the finance and administration of local government. Section 359, particularly, has no force and effect of a law, and the same can not prevail over the provisions of the New Civil Code. Equally not applicable is Section 17 of Commonwealth Act No. 470 cited by respondent in relation to the right of a property owner to contest the validity of assessment. Said provision provides: Section 17. Appeal by owner to the Board of Tax Appeals (Now Board of Assessment Appeals, R. A. No. 1125). Any owner who is not satisfied with the action of a provincial assessor in the assessment of his property may, within sixty (60) days from the date of receipt by him of the written notice of assessment as provided in Section 16 hereof, appeal to the Board of Tax Appeals, which is created in each province, by filing with it or with the municipal Treasurer of the municipality where the property assessed is situated who is duty bound to transmit it to the Board of Tax Appeals, a petitioner to that effect stating the grounds of his appeal Petitioner is not unsatisfied in the assessment of its property. Assessment having been made, it paid the real estate taxes without knowing that it is exempt. It appears from the records that petitioner has paid the following real estate taxes from 1959 to 1963. 5 Date Paid Official Receipt No. July 24,1959 1636654 Amount Paid For the Year 1959

P2,620.59

48

Feb. 29,1060 Mar. 27,1961 Oct. 31, 1961 May 8, 1963 June 11, 1965 September 9, 1965

3746474

6,551.48

1960

5095410

7,861.77

1961

7689684

5,241.18

1961

9707021

26,415.55

1962

9054471

17,610.36

1963

9055551

11,740.24

1963

Total

P78 041.17

As already stated the claim for refund must be made within six (6) years from date of payment. Since petitioner demanded the refund of real estate taxes mistakenly paid only on May 23, 1967, it can recover only those paid during the period from October 31, 1961 to September 9, 1965 or a total amount of P61,007.33. Petitioner has, by reason of the six (6) years prescriptive period, lost its right to recover the amount of P17,033.84 paid during the period from July 24, 1959 to March 27,1961. IN VIEW OF THE FOREGOING, the appealed judgment is hereby set aside, and petitioner Ramie Textiles, Inc. is allowed to recover the real estate taxes paid during the period from October 31, 1961 to September 9, 1965, in the total amount of P61,00733. No costs. SO ORDERED. Teehankee (Chairman), Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur. #Footnotes 1 Article 1, Section 3(f) of Commonwealth Act No. 470 provides: Section 3. Property exempt from tax. The exemptions shall be as follows: xxx xxx xxx (f) Machinery, which term shall embrace machines, mechanical contrivances instruments, appliances, and apparatus attached to the real estate, used for industry agricultural or manufacturing purposes, during the first five (5) years of operation of the machinery. 2 Velez vs. B , et al 73 Phil 630. 3 Gonzalo Payat & Sons, Inc. vs- City of Manila 7 SCRA 970.

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4 Article 1145. The following actions must be commenced within 6 yearn 1. x x x 2. Upon a quasi-contract. 5 Rollo, pp. 12, 40. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 73345. April 7, 1993. SOCIAL SECURITY SYSTEM, petitioner, vs. MOONWALK DEVELOPMENT & HOUSING CORPORATION, ROSITA U. ALBERTO, ROSITA U. ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ SANTIAGO, in her capacity as Register of Deeds for the Province of Cavite, ARTURO SOLITO, in his capacity as Register of Deeds for Metro Manila District IV, Makati, Metro Manila and the INTERMEDIATE APPELLATE COURT, respondents. The Solicitor General for petitioner. K.V. Faylona & Associates for private respondents. SYLLABUS 1. CIVIL LAW; OBLIGATIONS; PENAL DEFINED. A penal clause has been defined as "an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special presentation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled" (3 Castan 8th Ed. p. 118). 2. ID.; ID.; ACCESSORY OBLIGATION, DEFINED. An accessory obligation has been defined as that attached to a principal obligation in order to complete the same or take its place in the case of breach (4 Puig Pea Part 1 p. 76). Note therefore that an accessory obligation is dependent for its existence on the existence of a principal obligation. A principal obligation may exist without an accessory obligation but an accessory obligation cannot exist without a principal obligation. For example, the contract of mortgage is an accessory obligation to enforce the performance of the main obligation of indebtedness. An indebtedness can exist without the mortgage but a mortgage cannot exist without the indebtedness, which is the principal obligation. In the present case, the principal obligation is the loan between the parties. The accessory obligation of a penal clause is to enforce the main obligation of payment of the loan. If therefore the principal obligation does not exist the penalty being accessory cannot exist. 3. ID.; ID.; PENALTY; WHEN DEMANDABLE. A penalty is demandable in case of non performance or late performance of the main obligation. In other words in order that the penalty may arise there must be a breach of

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the obligation either by total or partial non fulfillment or there is non fulfillment in point of time which is called mora or delay. The debtor therefore violates the obligation in point of time if there is mora or delay. Now, there is no mora or delay unless there is a demand. It is noteworthy that in the present case during all the period when the principal obligation was still subsisting, although there were late amortizations there was no demand made by the creditor, plaintiff-appellant for the payment of the penalty. Therefore up to the time of the letter of plaintiffappellant there was no demand for the payment of the penalty, hence the debtor was no in mora in the payment of the penalty. 4. ID.; ID.; ID.; DUAL FUNCTION OF A PENAL CLAUSE. A penal clause is an accessory undertaking to assume greater liability in case of breach. 6 It has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. From the foregoing, it is clear that a penal clause is intended to prevent the obligor from defaulting in the performance of his obligation. Thus, if there should be default, the penalty may be enforced. One commentator of the Civil Code wrote; "Now when is the penalty deemed demandable in accordance with the provisions of the Civil Code? We must make a distinction between a positive and a negative obligation. With regard to obligations which are positive (to give and to do), the penalty is demandable when the debtor is in mora; hence, the necessity of demand by the debtor unless the same is excused . . ." 4 E.P. Caguioa, Comments and Cases on Civil Law 280 (1983 ed.) 5. ID.; ID.; DEFAULT, WHEN INCURRED; WHEN DEMAND NOT NECESSARY; NOT APPLICABLE IN CASE AT BAR. Under the Civil Code, delay begins from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. There are only three instances when demand is not necessary to render the obligor in default. These are the following: "(1) When the obligation or the law expressly so declares; (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When the demand would be useless, as when the obligor has rendered it beyond his power to perform." (Civil Code, Art. 1169) This case does not fall within any of the established exceptions. Hence, despite the provision in the promissory note that "(a)ll amortization payments shall be made every first five (5) days of the calendar month until the principal and interest on the loan or any portion thereof actually released has been fully paid," petitioner is not excused from making a demand. It has been established that at the time of payment of the full obligation, private respondent Moonwalk has long been delinquent in meeting its monthly arrears and in paying the full amount of the loan itself as the obligation matured sometime in January, 1977. But mere delinquency in payment does not necessarily mean delay in the legal concept. 6. ID.; ID.; ID.; REQUISITES; NOT PRESENT IN CASE AT BAR. To be in default ". . . is different from mere delay in the grammatical sense, because it involves the beginning of a special condition or status which has its own peculiar effects or results." In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially and extrajudicially. Default generally begins from the moment the creditor demands the performance of the obligation. Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its monthly amortizations. Neither did it show that petitioner demanded the payment of the stipulated penalty upon the failure of Moonwalk to meet its monthly amortization. What the complaint itself showed was that SSS tried to enforce the obligation sometime in September, 1977 by foreclosing the real estate mortgages executed by Moonwalk in favor of SSS. But this foreclosure did not push through upon Moonwalk's requests and promises to pay in full. The next demand for payment happened on October 1, 1979 when SSS issued a Statement of Account to Moonwalk. And in accordance with said statement, Moonwalk paid its loan in full. What is clear, therefore, is that Moonwalk was never in default because SSS never compelled performance. Though it tried to foreclose the mortgages, SSS itself desisted from doing so upon the entreaties of Moonwalk. If the Statement of Account could properly be considered as demand for payment, the demand was complied with on time. Hence, no delay occurred and there was, therefore, no occasion when the penalty became demandable and enforceable. Since there was no default in the performance of the main obligation payment of the loan SSS was never entitled to recover any penalty, not at the time it made the

51

Statement of Account and certainly, not after the extinguishment of the principal obligation because then, all the more that SSS had no reason to ask for the penalties. Thus, there could never be any occasion for waiver or even mistake in the application for payment because there was nothing for SSS to waive as its right to enforce the penalty did not arise. DECISION CAMPOS, JR., J p: Before Us is a petition for review on certiorari of decision 1 of the then Intermediate Appellate Court affirming in toto the decision of the former Court of First Instance of Rizal, Seventh Judicial District, Branch XXIX, Pasay City. The facts as found by the Appellate Court are as follows: "On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the Court of First Instance of Rizal against Moonwalk Development & Housing Corporation, Moonwalk for short, alleging that the former had committed an error in failing to compute the 12% interest due on delayed payments on the loan of Moonwalk resulting in a chain of errors in the application of payments made by Moonwalk and, in an unpaid balance on the principal loan agreement in the amount of P7,053.77 and, also in not reflecting in its statement or account an unpaid balance on the said penalties for delayed payments in the amount of P7,517,178.21 as of October 10, 1979. Moonwalk answered denying SSS' claims and asserting that SSS had the opportunity to ascertain the truth but failed to do so. The trial court set the case for pre-trial at which pre-trial conference, the court issued an order giving both parties thirty (30) days within which to submit a stipulation of facts. The Order of October 6, 1980 dismissing the complaint followed the submission by the parties on September 19, 1980 of the following stipulation of Facts: "1. On October 6, 1971, plaintiff approved the application of defendant Moonwalk for an interim loan in the amount of THIRTY MILLION PESOS (P30,000,000.00) for the purpose of developing and constructing a housing project in the provinces of Rizal and Cavite; "2. Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00), the sum of P9,595,000.00 was released to defendant Moonwalk as of November 28, 1973; "3. A third Amended Deed of First Mortgage was executed on December 18, 1973 Annex `D' providing for restructuring of the payment of the released amount of P9,595,000.00. "4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter respectively, under paragraph 5 of the aforesaid Third Amended Deed of First Mortgage substituted Associated Construction and Surveys Corporation, Philippine Model Homes Development Corporation, Mariano Z. Velarde and Eusebio T. Ramos, as solidary obligors; "5. On July 23, 1974, after considering additional releases in the amount of P2,659,700.00, made to defendant Moonwalk, defendant Moonwalk delivered to the plaintiff a promissory note for TWELVE MILLION TWO HUNDRED FIFTY FOUR THOUSAND SEVEN HUNDRED PESOS (P12,254,700.00) Annex `E', signed by Eusebio T. Ramos, and the said Rosita U. Alberto and Rosita U. Alberto;

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"6. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of P12,254,700.00 released to it. The last payment made by Moonwalk in the amount of P15,004,905.74 were based on the Statement of Account, Annex "F" prepared by plaintiff SSS for defendant; "7. After settlement of the account stated in Annex 'F' plaintiff issued to defendant Moonwalk the Release of Mortgage for Moonwalk's mortgaged properties in Cavite and Rizal, Annexes 'G' and 'H' on October 9, 1979 and October 11, 1979 respectively. "8. In letters to defendant Moonwalk, dated November 28, 1979 and followed up by another letter dated December 17, 1979, plaintiff alleged that it committed an honest mistake in releasing defendant. "9. In a letter dated December 21, 1979, defendant's counsel told plaintiff that it had completely paid its obligations to SSS; "10. The genuineness and due execution of the documents marked as Annex (sic) 'A' to 'O' inclusive, of the Complaint and the letter dated December 21, 1979 of the defendant's counsel to the plaintiff are admitted. "Manila for Pasay City, September 2, 1980." 2 On October 6, 1990, the trial court issued an order dismissing the complaint on the ground that the obligation was already extinguished by the payment by Moonwalk of its indebtedness to SSS and by the latter's act of cancelling the real estate mortgages executed in its favor by defendant Moonwalk. The Motion for Reconsideration filed by SSS with the trial court was likewise dismissed by the latter. These orders were appealed to the Intermediate Appellate Court. Respondent Court reduced the errors assigned by the SSS into this issue: ". . . are defendants-appellees, namely, Moonwalk Development and Housing Corporation, Rosita U. Alberto, Rosita U. Alberto, JMA House, Inc. still liable for the unpaid penalties as claimed by plaintiff-appellant or is their obligation extinguished?" 3 As We have stated earlier, the respondent Court held that Moonwalk's obligation was extinguished and affirmed the trial court. Hence, this Petition wherein SSS raises the following grounds for review: "First, in concluding that the penalties due from Moonwalk are "deemed waived and/or barred," the appellate court disregarded the basic tenet that waiver of a right must be express, made in a clear and unequivocal manner. There is no evidence in the case at bar to show that SSS made a clear, positive waiver of the penalties, made with full knowledge of the circumstances. Second, it misconstrued the ruling that SSS funds are trust funds, and SSS, being a mere trustee, cannot perform acts affecting the same, including condonation of penalties, that would diminish property rights of the owners and beneficiaries thereof. (United Christian Missionary Society v. Social Security Commission, 30 SCRA 982, 988 [1969]). Third, it ignored the fact that penalty at the rate of 12% p.a. is not inequitable. Fourth, it ignored the principle that equity will cancel a release on the ground of mistake of fact." 4 The same problem which confronted the respondent court is presented before Us: Is the penalty demandable even after the extinguishment of the principal obligation? The former Intermediate Appellate Court, through Justice Eduard P. Caguioa, held in the negative. It reasoned, thus:

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"2. As we have explained under No. 1, contrary to what the plaintiff-appellant states in its Brief, what is sought to be recovered in this case is not the 12% interest on the loan but the 12% penalty for failure to pay on time the amortization. What is sought to be enforced therefore is the penal clause of the contract entered into between the parties. Now, what is a penal clause. A penal clause has been defined as "an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special presentation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled" (3 Castan 8th Ed. p. 118). Now an accessory obligation has been defined as that attached to a principal obligation in order to complete the same or take its place in the case of breach (4 Puig Pea Part 1 p. 76). Note therefore that an accessory obligation is dependent for its existence on the existence of a principal obligation. A principal obligation may exist without an accessory obligation but an accessory obligation cannot exist without a principal obligation. For example, the contract of mortgage is an accessory obligation to enforce the performance of the main obligation of indebtedness. An indebtedness can exist without the mortgage but a mortgage cannot exist without the indebtedness, which is the principal obligation. In the present case, the principal obligation is the loan between the parties. The accessory obligation of a penal clause is to enforce the main obligation of payment of the loan. If therefore the principal obligation does not exist the penalty being accessory cannot exist. Now then when is the penalty demandable? A penalty is demandable in case of non performance or late performance of the main obligation. In other words in order that the penalty may arise there must be a breach of the obligation either by total or partial non fulfillment or there is non fulfillment in point of time which is called mora or delay. The debtor therefore violates the obligation in point of time if there is mora or delay. Now, there is no mora or delay unless there is a demand. It is noteworthy that in the present case during all the period when the principal obligation was still subsisting, although there were late amortizations there was no demand made by the creditor, plaintiff-appellant for the payment of the penalty. Therefore up to the time of the letter of plaintiffappellant there was no demand for the payment of the penalty, hence the debtor was no in mora in the payment of the penalty. However, on October 1, 1979, plaintiff-appellant issued its statement of account (Exhibit F) showing the total obligation of Moonwalk as P15,004,905.74, and forthwith demanded payment from defendant-appellee. Because of the demand for payment, Moonwalk made several payments on September 29, October 9 and 19, 1979 respectively, all in all totalling P15,004,905.74 which was a complete payment of its obligation as stated in Exhibit F. Because of this payment the obligation of Moonwalk was considered extinguished, and pursuant to said extinguishment, the real estate mortgages given by Moonwalk were released on October 9, 1979 and October 10, 1979 (Exhibits G and H). For all purposes therefore the principal obligation of defendant-appellee was deemed extinguished as well as the accessory obligation of real estate mortgage; and that is the reason for the release of all the Real Estate Mortgages on October 9 and 10, 1979 respectively. Now, besides the Real Estate Mortgages, the penal clause which is also an accessory obligation must also be deemed extinguished considering that the principal obligation was considered extinguished, and the penal clause being an accessory obligation. That being the case, the demand for payment of the penal clause made by plaintiffappellant in its demand letter dated November 28, 1979 and its follow up letter dated December 17, 1979 (which parenthetically are the only demands for payment of the penalties) are therefore ineffective as there was nothing to demand. It would be otherwise, if the demand for the payment of the penalty was made prior to the extinguishment of the obligation because then the obligation of Moonwalk would consist of: 1) the principal obligation 2) the interest of 12% on the principal obligation and 3) the penalty of 12% for late payment for after demand, Moonwalk would be in mora and therefore liable for the penalty.

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Let it be emphasized that at the time of the demand made in the letters of November 28, 1979 and December 17, 1979 as far as the penalty is concerned, the defendant-appellee was not in default since there was no mora prior to the demand. That being the case, therefore, the demand made after the extinguishment of the principal obligation which carried with it the extinguishment of the penal clause being merely an accessory obligation, was an exercise in futility. 3. At the time of the payment made of the full obligation on October 10, 1979 together with the 12% interest by defendant-appellee Moonwalk, its obligation was extinguished. It being extinguished, there was no more need for the penal clause. Now, it is to be noted that penalty at anytime can be modified by the Court. Even substantial performance under Art. 1234 authorizes the Court to consider it as complete performance minus damages. Now, Art, 1229 Civil Code of the Philippines provides: "ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable." If the penalty can be reduced after the principal obligation has been partly or irregularly complied with by the debtor, which is nonetheless a breach of the obligation, with more reason the penal clause is not demandable when full obligation has been complied with since in that case there is no breach of the obligation. In the present case, there has been as yet no demand for payment of the penalty at the time of the extinguishment of the obligation, hence there was likewise an extinguishment of the penalty. Let Us emphasize that the obligation of defendant-appellee was fully complied with by the debtor, that is, the amount loaned together with the 12% interest has been fully paid by the appellee. That being so, there is no basis for demanding the penal clause since the obligation has been extinguished. Here there has been a waiver of the penal clause as it was not demanded before the full obligation was fully paid and extinguished. Again, emphasis must be made on the fact that plaintiff-appellant has not lost anything under the contract since in got back in full the amount loan (sic) as well as the interest thereof. The same thing would have happened if the obligation was paid on time, for then the penal clause, under the terms of the contract would not apply. Payment of the penalty does not mean gain or loss of plaintiff-appellant since it is merely for the purpose of enforcing the performance of the main obligation has been fully complied with and extinguished, the penal clause has lost its raison d' entre." 5 We find no reason to depart from the appellate court's decision. We, however, advance the following reasons for the denial of this petition. Article 1226 of the Civil Code provides: "Art. 1226. In obligations with a penal clause, he penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code." (Emphasis Ours.) A penal clause is an accessory undertaking to assume greater liability in case of breach. 6 It has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. 7 From the foregoing, it is clear that a penal clause is intended to prevent the obligor from defaulting in the performance of his obligation. Thus, if there should be default, the penalty may be enforced. One commentator of the Civil Code wrote:

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"Now when is the penalty deemed demandable in accordance with the provisions of the Civil Code? We must make a distinction between a positive and a negative obligation. With regard to obligations which are positive (to give and to do), the penalty is demandable when the debtor is in mora; hence, the necessity of demand by the debtor unless the same is excused . . ." 8 When does delay arise? Under the Civil Code, delay begins from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. "Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation." There are only three instances when demand is not necessary to render the obligor in default. These are the following: "(1) When the obligation or the law expressly so declares; (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When the demand would be useless, as when the obligor has rendered it beyond his power to perform." 9 This case does not fall within any of the established exceptions. Hence, despite the provision in the promissory note that "(a)ll amortization payments shall be made every first five (5) days of the calendar month until the principal and interest on the loan or any portion thereof actually released has been fully paid," 10 petitioner is not excused from making a demand. It has been established that at the time of payment of the full obligation, private respondent Moonwalk has long been delinquent in meeting its monthly arrears and in paying the full amount of the loan itself as the obligation matured sometime in January, 1977. But mere delinquency in payment does not necessarily mean delay in the legal concept. To be in default ". . . is different from mere delay in the grammatical sense, because it involves the beginning of a special condition or status which has its own peculiar effects or results." 11 In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially and extrajudicially. 12 Default generally begins from the moment the creditor demands the performance of the obligation. 13 Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its monthly amortizations. Neither did it show that petitioner demanded the payment of the stipulated penalty upon the failure of Moonwalk to meet its monthly amortization. What the complaint itself showed was that SSS tried to enforce the obligation sometime in September, 1977 by foreclosing the real estate mortgages executed by Moonwalk in favor of SSS. But this foreclosure did not push through upon Moonwalk's requests and promises to pay in full. The next demand for payment happened on October 1, 1979 when SSS issued a Statement of Account to Moonwalk. And in accordance with said statement, Moonwalk paid its loan in full. What is clear, therefore, is that Moonwalk was never in default because SSS never compelled performance. Though it tried to foreclose the mortgages, SSS itself desisted from doing so upon the entreaties of Moonwalk. If the Statement of Account could properly be considered as demand for payment, the demand was complied with on time. Hence, no delay occurred and there was, therefore, no occasion when the penalty became demandable and enforceable. Since there was no default in the performance of the main obligation payment of the loan SSS was never entitled to recover any penalty, not at the time it made the Statement of Account and certainly, not after the extinguishment of the principal obligation because then, all the more that SSS had no reason to ask for the penalties. Thus, there could never be any occasion for waiver or even mistake in the application for payment because there was nothing for SSS to waive as its right to enforce the penalty did not arise.

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SSS, however, in buttressing its claim that it never waived the penalties, argued that the funds it held were trust funds and as trustee, the petitioner could not perform acts affecting the funds that would diminish property rights of the owners and beneficiaries thereof. To support its claim, SSS cited the case of United Christian Missionary Society v. Social Security Commission. 14 We looked into the case and found out that it is not applicable to the present case as it dealt not with the right of the SSS to collect penalties which were provided for in contracts which it entered into but with its right to collect premiums and its duty to collect the penalty for delayed payment or non-payment of premiums. The Supreme Court, in that case, stated: "No discretion or alternative is granted respondent Commission in the enforcement of the law's mandate that the employer who fails to comply with his legal obligation to remit the premiums to the System within the prescribed period shall pay a penalty of three (3%) per month. The prescribed penalty is evidently of a punitive character, provided by the legislature to assure that employers do not take lightly the State's exercise of the police power in the implementation of the Republic's declared policy "to develop, establish gradually and perfect a social security system which shall be suitable to the needs of the people throughout the Philippines and (to) provide protection to employers against the hazards of disability, sickness, old age and death . . ." Thus, We agree with the decision of the respondent court on the matter which We quote, to wit: "Note that the above case refers to the condonation of the penalty for the non remittance of the premium which is provided for by Section 22(a) of the Social Security Act . . . In other words, what was sought to be condoned was the penalty provided for by law for non remittance of premium for coverage under the Social Security Act. The case at bar does not refer to any penalty provided for by law nor does it refer to the non remittance of premium. The case at bar refers to a contract of loan entered into between plaintiff and defendant Moonwalk Development and Housing Corporation. Note, therefore, that no provision of law is involved in this case, nor is there any penalty imposed by law nor a case about non-remittance of premium required by law. The present case refers to a contract of loan payable in installments not provided for by law but by agreement of the parties. Therefore, the ratio decidendi of the case of United Christian Missionary Society vs. Social Security Commission which plaintiff-appellant relies is not applicable in this case; clearly, the Social Security Commission, which is a creature of the Social Security Act cannot condone a mandatory provision of law providing for the payment of premiums and for penalties for non remittance. The life of the Social Security Act is in the premiums because these are the funds from which the Social Security Act gets the money for its purposes and the non-remittance of the premiums is penalized not by the Social Security Commission but by law. xxx xxx xxx It is admitted that when a government created corporation enters into a contract with private party concerning a loan, it descends to the level of a private person. Hence, the rules on contract applicable to private parties are applicable to it. The argument therefore that the Social Security Commission cannot waive or condone the penalties which was applied in the United Christian Missionary Society cannot apply in this case. First, because what was not paid were installments on a loan but premiums required by law to be paid by the parties covered by the Social Security Act. Secondly, what is sought to be condoned or waived are penalties not imposed by law for failure to remit premiums required by law, but a penalty for non payment provided for by the agreement of the parties in the contract between them . . ." 15 WHEREFORE, in view of the foregoing, the petition is DISMISSED and the decision of the respondent court is AFFIRMED. LLpr SO ORDERED.

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Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-10801 February 28, 1961

MARIANO RODRIGUEZ and MARINA RODRIGUEZ, plaintiffs-appellees, vs. PORFIRIO BELGICA and EMMA BELGICA, defendants-appellants. Ignacio M. Orendain for plaintiffs-appellees. Arsenio M. Cabrera and Jose S. Fineza for defendants-appellants. PAREDES, J.: This was originally a partition case, instituted in the Court of First Instance of Rizal, Quezon City Branch. After a series of pleadings filed by the parties, and on one of the hearings held, the defendants made a verbal offer to compromise. Pursuant to the said offer, the plaintiffs, on August 27, 1955, filed a "Motion re Offer to Compromise." What transpired afterwards is best depicted in the following judgment of the lower court: . "The above-entitled case was scheduled in the calendar of this Court today to consider the "Motion re Offer of Compromise" as a result of the pre-trial held by the parties and their respective Attorneys in this case. The parties have discussed and considered the terms and conditions set forth in said Offer of Compromise submitted by the attorney for the plaintiffs and as a result thereof they have arrived at an amicable settlement, the terms of which were dictated in open court by the attorneys of both parties in the presence of their clients, with the exception of plaintiffs Mariano Rodriguez and his wife Marina Rodriguez who were represented by their son, Atty. Jose Rodriguez. The terms and conditions of said Compromise Agreement are as follows: . Atty. Fineza: If your Honor please, as regards the Motion Re Offer of Compromise presented by the plaintiffs dated August 26, 1955, we wish to inform this Honorable Court that with regards to paragraph 1-A wherein the length of time given to the defendants to pay the plaintiffs of P35,000.00 is thirty (30) days, we request that said period be seventy (70) days counted from today, August 30, 1955. With regard to Paragraphs 1-B and 1-C, we are agreeable to the terms and conditions therein stated: Court: . Any objection to the said counter proposal of the defendants? . Atty. Orendain: . We have no objection, Your Honor. Court: - (To defendant Mr. Porfirio Belgica).

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Mr. Porfirio Belgica, have you heard what Atty. Fineza, your lawyer, have proposed to the Court and are you agreeable to the same? . Defendant Porfirio Belgica: . Yes, Your Honor. Atty. Fineza: . Inasmuch as defendant Porfirio Belgica will have to negotiate a portion of the part pertaining to him to raise the amount of P35,000.00 with which he will pay the plaintiffs, we request that the plaintiffs make new selection of the portion they desire as per plan Exhibit E. Atty. Orendain:. According to my clients, Your Honor, I was instructed to choose the portion which is nearest to Quezon City, in other words, the portion in the bigger lot which is the Southern portion as appears in Exhibit E and which is encircled in red pencil, subject to relocation or readjustment after a survey is made. That the plaintiffs will sign the necessary transfer of the 36% in favor of the defendants upon payment of the P35,000.00. That the plaintiffs agree to grant authority to defendant Porfirio Belgica to negotiate the sale or mortgage of the 36% which is proposed to be conveyed to him, for the purpose of raising the P35,000.00 to be paid to the plaintiffs. That the Motion re Offer of Compromise is hereby made a part and parcel of the Compromise Agreement, as modified. Parties agree that in the event the defendants fail to pay to the plaintiffs said amount of P35,000.00 within the period above fixed or stipulated, the plaintiffs will automatically be the owners of the 36% of the two parcels of land, and that the 14% pertaining to the defendants will be taken from the portion towards Caloocan, or more particularly in the portion encircled in blue pencil, subject to the survey and relocation of a surveyor. Court: . Make of record that this Compromise Agreement was made in open court in the presence of Atty. Jose Rodriguez, who is the son of the plaintiff Mariano Rodriguez, their attorney Mr. Ignacio M. Orendain, the defendant Mr. Porfirio Belgica and his counsel Atty. Jose S. Fineza. Parties respectfully pray this Honorable Court to render judgment in accordance therewith without costs. The transcript of the notes taken by the Stenographer of the proceedings taken by the parties before they arrived at an amicable settlement was signed by the parties and their respective attorneys and submitted to this Court for corresponding decision. IN VIEW OF THE FOREGOING, judgment is hereby rendered approving en toto the foregoing Compromise Agreement and the parties are hereby ordered to abide by and comply with the terms and conditions contained in said Compromise Agreement, without pronouncement as to costs.

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On September 3, 1955, the defendants filed a Motion for Withdrawal of Exhibits, particularly the Certificates of Titles covering the lands, subject matter of the present controversy. Among the reasons given in the motion was "the defendants have already taken steps to effect that partition of the property for the purpose of delimiting the respectively portion which would appertain to each, which delimitation has to be effected in order that defendants may have the opportunity of negotiating their half or any portion thereof to raise the P35,000.00 which he undertook to pay to plaintiffs. The above motion bore the conformity of counsel for the plaintiffs. On November 19, 1955, after the lapse of the seventy (70) day period stipulated in the compromise agreement, and upon the failure of the defendants to pay, the plaintiffs presented a motion praying that the defendants be ordered to deliver to the plaintiffs the Certificates of the Titles so that 14% of the property pertaining to the defendant could be segregated. An opposition was registered by the defendants, contending that the inability to meet the obligation to pay the P35,000.00 was due to the deliberate refusal of the plaintiffs to grant the authority to defendant Porfirio Belgica to negotiate the sale or mortgage of the 36%; and that since the decision had created reciprocal obligations, the refusal or failure on the part of one to comply did not make the other in default. In the opposition, the defendants prayed that the plaintiffs be ordered to grant defendant Porfirio Belgica the authority to negotiate the sale or mortgage of the 36%. the lower court, On November 26, 1955, ordered the defendants to surrender to the Court the TCT's they withdrew, not latter than December 1, 1955. On this date the defendants filed a "Motion to Compel Plaintiffs to Comply with the Conditions of the Judgment", reiterating in substance, the reason they invoked in their previous oppositions. On December 15, 1955, the trial court acting on the motion of the defendants, handed down the following order, to wit: "defendant Belgica's contention is that the plaintiffs Mariano Rodriguez has refused to grant the authority adverted to. Said defendant, however, has not done anything, nor has filed any petition with the Court regarding the alleged refusal of the plaintiff Rodriguez to grant such authority before the expiration of the 70-day period fixed by the parties within which to pay the said amount of P35,000.00. The petition to compel the plaintiffs to comply with the conditions of the judgment, namely to command said plaintiffs to grant the authority above referred to was only filed on December 1, 1955, or after the expiration of 90 days. In the opinion of the Court, the decision rendered in this case has already become final and executory under the terms and conditions stipulated by the parties and upon which said decision was based. IN VIEW OF THE FOREGOING, the said motion to compel the plaintiffs to comply with the condition embodied in the judgment is hereby DENIED.". The above ordered is now the subject to the present appeal, appellants contending in their lone assignment of error that the lower court erred "in denying the motion of December 1, 1955 (to compel the plaintiffs to grant the authority), on the ground that because of the failure of defendants-appelants to pay the plaintiffs-appelees the amount P35,000.00 within the period of seventy days, the judgment of August 30,1955, has already become due and executory.". Whether the denial of the motion of compel the plaintiffs to grant the authority is proper and legal, would seem to be the dominant issue.. On the plaintiffs-appellees was impose the obligation of granting to defendants-appellants the requisite authority to negotiate either the sale or mortgage of the 36% interest in the property. This is understandable, because on the face of the two certificates of the title covering the properties, defendants owned only 14%, while plaintiffs owned 86%. Without such authority executed by plaintiffs in favor of the defendants, it was difficult, not to say impossible for the latter to affect a negotiation. This the plaintiffs the fully knew, because in the compromise, they acknowledged that the amount of P35,000.00 due to them would be paid within 70 days from the August 30, 1953, with money to be delivered from the sale of mortgage of the property. It was, therefore, incumbent upon the plaintiffs "to grant authority" to defendants to negotiate the sale or mortgage of the 36% of the property. Considering that the reciprocal obligation has been established by the compromise agreement, the sequence in

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which the reciprocal obligations of the parties are to be performed, is quite clear. The giving of the authority to sell or mortgage precedes the obligation of the defendants to pay P35,000.00(Martinez vs. Cavives, 25 Phil. 581). Until this authority is granted by the plaintiff, the 70 day period for payment will not commence to run. The plaintiffs insinuated that defendant did not ask for the authority. There was, however the statement or allegation by the defendants to the effects that they made verbal request for such authority but plaintiffs refused to give, a statement or allegation discredited by the lower court. But even without a request, from the very nature of the obligation assumed by plaintiffs, demand by defendants that it be performed, was not necessary (Article 1169, par. 2, Civil Code). It is true that defendants' petition to compel the plaintiffs to grant the authority repeatedly mentioned, was only filed on December 1, 1955, after the expiration of the 70-day period. It should, however, be observed that the actuations or acts of the defendants have always been lulled by a sense of an honest but insecure misunderstanding, as to the scope and extent of the terms and conditions of the compromise. To show that defendants had not abandoned their obligation to pay the sum of P35,000.00, on September 3, 1955, within the 70-day period which expired on November 8, 1955, they filed a motion to withdraw documents and certificates of title to delimit the respective portions, in order that they (defendants) might have an opportunity of negotiating one-half or any portion to raise P35,000.00 to which motion the plaintiffs agreed. While waiting for the grant of authority to descend, like manna from Heaven, the defendants were surprised to receive, on November 19, 1955, plaintiffs' motion to have the titles returned so that the defendants' 14% could be segregated, as they (plaintiffs) wanted to remain with the 86% of the properties. The lower court and with it, the plaintiffs-appellees had indulged in fine technicalities which in this particular case, would work injustice to the defendants-appellants, more than anything else. The compromise agreement being onerous the doubt should be settled in favor of the greatest reciprocity of interests. Without the authority in question the obligation of the defendants to pay the plaintiffs the sum of P35,000.00 cannot be considered as having matured, and the lapse of the 70-day period fixed in the decision can not be adjudged as having resulted in the forfeiture of their right to repurchase their 36% interest in the properties (Price, Inc. v. Rilloraza, et al.. No. L8253, May 25, 1955). The claim of the appellees that the appellants failed to comply with their initial obligation to delimit the property, as stated by them in their motion to withdraw, is not supported by the evidence. The delimitation or segregation of the property to be sold or mortgaged which appellants should have done first so that the authority could have been granted, had long been accomplished. This is clear from the words of appellees' counsel when he said, "According to my clients, Your Honor, I was instructed to choose the portion which is nearest to Quezon City . . .". In view hereof, the resolution of the lower court dated December 15, 1955, is reversed, and another entered, ordering the plaintiffs-appellees to execute in favor of the defendants-appellants the proper authority to sell or mortgage 36% of the properties in litigation within 30 days from notice of this decision and further directing the defendants-appellants to pay unto the plaintiffs-appellees the sum of P35,000.00 within 30 days from the date such authority is granted. Without special pronouncement as to costs. Bengzon, Actg. C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera and Dizon, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-11328 January 15, 1918

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RUFINA CAUSING, plaintiff-appellant, vs. ALFONSO BENCER, defendant-appellee. Perfecto J. Salas Rodriguez for appellant. De leon and Magalona and J. M.a Arroyo for appellee. STREET, J.: This action was instituted by Rufina Causing upon November 14, 1914, in the Court of First Instance of Iloilo, to annul a contract for the sale of a parcel of land and to recover the property itself from Alfonso Bencer as follows: A parcel of land for rice and sugar cane in the barrio of Bokbokay, Vista Alegre, district of Barotac Viejo municipality of Banate, Province of Iloilo, P. I., having an area of about 70 hectares, bounded on the North by lands belonging to Pacifico Bencer, Maria Salome Causing, and that of Alfonso Balleza; on the South by those of Esteban Navarro, Maria Salome Causing, and the heirs of Jorge Lachica; on the East by the Barotac Viejo River; and on the West by those of Alfonso Bencer, Ignacio Balleza, Alfonso Balleza, and Maria Salome Causing. It appears that in years gone by this land had been owned by the plaintiff, a single woman of full legal age, in common with certain nieces of hers who were then minors and over whom she seems to have exercised an informal guardianship. In the year 1909 negotiations were begun between her and the defendant with a view to the sale of this land to him; and an agreement was effected by which she undertook to convey the property to him for the sum of P1,200. Needing legal assistance in order to get the conveyance drawn up properly, the parties repaired to the office of her relative, Casiano Causing, attorney, but when he learned that the minors had an interest in the property, he informed them that the conveyance could not be legalized without judicial sanction. The efforts to effect the transfer of title by deed was then abandoned for the time being; but Bencer paid her P800 of the purchase price upon August 14, 1909, and took possession of the land, with the understanding that he was to pay the balance later and that meanwhile she would take steps to procure judicial approval of the sale as regards the interests of the minors. In 1910 a new engagement was made in regard to the price to be paid, which was to the effect that Bencer should pay P600 in addition to what he had already paid or P1,400 in all, provided the plaintiff would give him an extension of time to May, 1911, within which to pay the balance. Time went on and neither party performed the engagement. Bencer's failure to pay may have been due in part, as the plaintiff alleges, to his lack of ready money; or it may have been due as he claims, to the fact that the plaintiff had become reluctant to carry out the engagement and did not appear to collect the money at the place stipulated as the place of payment. However this may be, it is evident that the plaintiff was not yet in a position to execute a deed conveying the entire interest in the property, as no steps had been taken to get judicial approval for the sale of the shares belonging to the minors. However, as these heirs reached majority the plaintiff successively acquired their respective interests by purchase, and before the action in this case was instituted she had become the possessor of all their shares. The property meanwhile increased in value-a circumstance possibly due in part to improvements which the defendant claims to have made on property. In view of the changed conditions, the plaintiff appears to have become desirous of rescinding the contract, and accordingly brought this suit to annul the contract and recover the property, together with the sum of P3,850 alleged to be due as damages for the use and occupation of the land by the defendant during the time he has been in possession. The plaintiff also prayed for general relief.

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At the hearing the court below dismissed the action in so far as it sought the recovery of the land and damages for use and occupation, but gave judgment in plaintiff's favor for P600 with interest at 6 per cent from August 14, 1910, until paid. From this action of the court the plaintiff has appealed. We can see no valid reason why the plaintiff should be permitted to rescind this contract, It is evidently a case where the contract entailed mutual obligation, and if either party can be said to have been in default it was the plaintiff, Rufina Causing, rather than the defendant, Bencer. In article 1100 of the Civil Code it is declared that in mutual obligations neither party shall be deemed to be in default if the other does not fulfill, or offer to fulfill his own obligation, and that from the time one person obligated fulfills his obligation the default begins for the other party. We find that the contract contemplated a conveyance of the entire interest in the land; and the plaintiff clearly obligated herself to that extent. She was therefore not in a position to compel the defendant to pay until she could offer to him a deed sufficient to pass the whole legal estate; and for the same reason, she cannot now be permitted to rescind the contract on the ground that the defendant has heretofore failed to pay the purchase price. At the time the plaintiff accepted the payment of P800 in 1909, from an agent of the defendant, she executed a receipt in which it was said that this was an advance payment for the land in case the sale that should be effected (anticipo del terreno en caso se effective la venta); and from this it is argued that it was understood that the negotiations were merely provisional and that the sale could be abandoned. We do not so interpret the transaction; and it was evidently not so interpreted by the defendant Bencer, who has been continuously in possession claiming as owner by virtue of the original contract. Reduced to its simplest terms the case presented is this. One of several owners of a piece of property pro indiviso has made a valid contract for the sale thereof with the understanding that she should convey the interest of her coowners or procure the same to be conveyed. Since the contract was executed she has acquired the interest of the coowners by purchase and is now in a position fully to perform the contract. It results that she is, in our opinion, under a legal obligation to transfer the estate, and is not entitled to rescind the contract and recover the property from the person to whom she contracted to convey it. In this situation either party is entitled to enforce performance, and neither will be relieved from his obligation without the consent of the other. There can be no question of the power of a person to bind himself to sell something which he does not yet possess; acquiring title to the thing sold. The most reasonable interpretation of the action of the plaintiff in buying out the minor heirs as they reached majority was that she thereby intended to place herself in a position to comply with the contract which she had made with the defendant Bencer. Of course if she had never acquired these interests an action for damages would have been Bencer's only remedy. Under the prayer for general relief the court gave judgment in favor of the plaintiff for the sum of P600 the unpaid balance of the purchase money. This was proper. The court also allowed interest on this sum from August 14, 1910. The right of the plaintiff to recover interest for the period prior to the institution of the suit is questionable in point of law, but the justice of allowing it is evident, in view of the fact that the defendant has had continuous use of the property. As the defendant has not appealed, or complained of the action of the court, the judgment will be affirmed in all respects, with costs against the appellant. So ordered. Arellano, C. J., Torres, Johnson, Carson, Araullo, and Malcolm, JJ., concur.

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