HIRD DIVISION

[G.R. No. 138018. July 26, 2002.] RIDO MONTECILLO, petitioner, vs. ABUCAY, respondents. IGNACIA REYNES and SPOUSES REDEMPTOR and ELISA

Francisco M. Malilong, Jr. for petitioner. V. L. Legaspi for respondents.

SYNOPSIS Respondent Reynes was the owner of the subject lot containing an area of 448 square meters. She sold 185 square meters of the lot to the Abucay Spouses. Subsequently, she signed a Deed of Sale of the lot in favor of Montecillo. For failure of Montecillo to pay the purchase price, Reynes unilaterally revoked the sale and she executed a Deed of Sale transferring to the Abucay spouses the entire subject lot, at the same time confirming the previous sale of the 185-square meter portion of the lot. Montecillo claimed that the consideration for the sale of the lot was the amount he paid to Cebu Ice Storage for the mortgaged debt of Bienvenido Jayag. Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on the lot. The trial court declared the Deed of Sale to Montecillo null and void for lack of cause or consideration because he never paid the purchase price, and it ordered the cancellation of his Transfer Certificate of Title and the issuance of a new Certificate of Title in favor of the Abucay Spouses. On appeal, the Court of Appeals affirmed the decision of the trial court. Hence, this petition for review on certiorari. In affirming the decision of the Court of Appeals, the Supreme Court ruled that absent any showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in the sale. Thus, Montecillo's payment to Cebu Ice Storage is not the payment that would extinguish Montecillo's obligation to Reynes under the Deed of Sale.

The Court likewise ruled that where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT OF OBLIGATIONS; PAYMENT; SHALL BE MADE TO THE PERSON IN WHOSE FAVOR THE OBLIGATION HAS BEEN CONSTITUTED, OR HIS SUCCESSOR IN INTEREST, OR ANY PERSON AUTHORIZED TO RECEIVE IT. Absent any evidence showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in the sale. Article 1240 of the Civil Code provides as follows: "Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." Thus, Montecillo's payment to Cebu Ice Storage is not the payment that would extinguish Montecillo's obligation to Reynes under the Deed of Sale. 2.REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; PETITION FOR REVIEW ON CERTIORARI; ONLY QUESTIONS OF LAW CAN BE RAISED THEREIN. We find no reason to disturb the factual findings of the trial court. In petitions for review on certiorari as a mode of appeal under Rule 45, as in the instant case, a petitioner can raise only questions of law. This Court is not the proper venue to consider a factual issue as it is not a trier of facts.
HCacDE

3.ID.; EVIDENCE; CREDIBILITY OF WITNESSES; FACTUAL FINDINGS OF TRIAL COURT, GENERALLY NOT DISTURBED ON APPEAL. Factual findings of the trial court are binding on us, especially if the Court of Appeals affirms such findings. We do not disturb such findings unless the evidence on record clearly does not support such findings or such findings are based on a patent misunderstanding of facts, which is not the case here. Thus, we find no reason to deviate from the findings of both the trial and appellate courts that no valid consideration supported Montecillo's Deed of Sale. 4.CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF SALE; LACK OF CONSENT AND LACK OF CONSIDERATION, DISTINGUISHED. One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a

valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid. DECISION CARPIO, J :
p

The Case
On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18, rendered a Decision 1 declaring the deed of sale of a parcel of land in favor of petitioner null and void ab initio. The Court of Appeals, 2 in its July 16, 1998 Decision 3 as well as its February 11, 1999 Order 4 denying petitioner's Motion for Reconsideration, affirmed the trial court's decision in toto. Before this Court now is a Petition for Review on Certiorari 5 assailing the Court of Appeals' decision and order.

The Facts
Respondents Ignacia Reynes ("Reynes" for brevity) and Spouses Abucay ("Abucay Spouses" for brevity) filed on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title against petitioner Rido Montecillo ("Montecillo" for brevity). Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu City, covered by Transfer Certificate of Title No. 74196 and containing an area of 448 square meters ("Mabolo Lot" for brevity). In 1981, Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought. Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in favor of Montecillo ("Montecillo's Deed of Sale" for brevity). Reynes, being illiterate, 6 signed by affixing her thumb-mark 7 on the document. Montecillo promised to pay the agreed P47,000.00 purchase price within one month from the signing of the Deed of Sale. Montecillo's Deed of Sale states as follows:
"That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and postal address at Mabolo, Cebu City, Philippines, for

and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO

MONTECILLO, of legal age, Filipino, married, with residence and postal address at Mabolo, Cebu City, Philippines, the receipt hereof is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, his heirs, executors, administrators, and
assigns, forever, a parcel of land together with the improvements thereon, situated at Mabolo, Cebu City, Philippines, free from all liens and encumbrances, and more particularly described as follows: A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370, being a portion of Lot 203-B-2, described on plan (LRC) Psd-76821, L.R.C. (GLRO) Record No. 5988), situated in the Barrio of Mabolo, City of Cebu. Bounded on the SE., along line 1-2 by Lot 206; on the SW., along line 2-3, by Lot 202, both of Banilad Estate; on the NW., along line 4-5, by Lot 203-B-2-A of the subdivision of Four Hundred Forty Eight (448) square meters, more or less. of which I am the absolute owner in accordance with the provisions of the Land Registration Act, my title being evidenced by Transfer Certificate of Title No. 74196 of the Registry of Deeds of the City of Cebu, Philippines. That This Land Is Not Tenanted and Does Not Fall Under the Purview of P.D. 27." 8 (Emphasis supplied)

Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the one-month period, prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since Montecillo refused to return the Deed of Sale, 9 Reynes executed a document unilaterally revoking the sale and gave a copy of the document to Montecillo.
ISAaTH

Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay Spouses the entire Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185-square meter portion of the lot. This Deed of Sale states:
"I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo, Cebu City, do hereby confirm the sale of a portion of Lot No. 74196 to an extent of 185 square meters to Spouses Redemptor Abucay and Elisa Abucay covered by Deed per Doc. No. 47, Page No. 9, Book No. V, Series of 1981 of notarial register of Benedicto Alo, of which spouses is now in occupation; That for and in consideration of the total sum of FIFTY THOUSAND (P50,000) PESOS, Philippine Currency, received in full and receipt whereof is herein acknowledged from SPOUSES REDEMPTOR ABUCAY and ELISA ABUCAY, do hereby in these presents, SELL, TRANSFER and CONVEY absolutely unto said Spouses Redemptor Abucay and Elisa Abucay, their heirs, assigns and successors-ininterest the whole parcel of land together with improvements thereon and more particularly described as follows:

TCT No. 74196

A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370, being a portion of Lot 203-B-2, described on plan (LRC) Psd 76821, LRC (GLRO) Record No. 5988) situated in Mabolo, Cebu City, along Arcilla Street, containing an area of total FOUR HUNDRED FORTY EIGHT (448) Square meters. of which I am the absolute owner thereof free from all liens and encumbrances and warrant the same against claim of third persons and other deeds affecting said parcel of land other than that to the said spouses and inconsistent hereto is declared without any effect. In witness whereof, I hereunto signed this 23rd day of May, 1984 in Cebu City, Philippines."
10

Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo for the Mabolo Lot. Reynes and the Abucay Spouses argued that "for lack of consideration there (was) no meeting of the minds" 11 between Reynes and Montecillo. Thus, the trial court should declare null and void ab initio Montecillo's Deed of Sale, and order the cancellation of Certificate of Title No. 90805 in the name of Montecillo.

In his Answer, Montecillo, a bank executive with a B.S. Commerce degree, 12 claimed he was a buyer in good faith and had actually paid the P47,000.00 consideration stated in his Deed of Sale. Montecillo, however, admitted he still owed Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the capital gains tax on the sale of the Mabolo Lot. In their Reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority to discharge the chattel mortgage, especially after Reynes revoked Montecillo's Deed of Sale and gave the mortgagee a copy of the document of revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the release of the chattel mortgage through machination. They further asserted that Montecillo took advantage of the real property taxes paid by the Abucay Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot in his name.

During pre-trial, Montecillo claimed that the consideration for the sale of the Mabolo Lot was the amount he paid to Cebu Ice and Cold Storage Corporation ("Cebu Ice Storage" for brevity) for the mortgage debt of Bienvenido Jayag ("Jayag" for brevity). Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot. Reynes, however, stated that she had nothing to do with Jayag's mortgage debt except that the house mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by Montecillo to release the mortgage on Jayag's house is a matter between Montecillo and Jayag. The mortgage on the house, being a chattel mortgage, could not be interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further claimed that the mortgage debt had long prescribed since the P47,000.00 mortgage debt was due for payment on January 30, 1967. The trial court rendered a decision on March 24, 1993 declaring the Deed of Sale to Montecillo null and void. The trial court ordered the cancellation of Montecillo's Transfer Certificate of Title No. 90805 and the issuance of a new certificate of title in favor of the Abucay Spouses. The trial court found that Montecillo's Deed of Sale had no cause or consideration because Montecillo never paid Reynes the P47,000.00 purchase price, contrary to what is stated in the Deed of Sale that Reynes received the purchase price. The trial court ruled that Montecillo's Deed of Sale produced no effect whatsoever for want of consideration. The dispositive portion of the trial court's decision reads as follows:
"WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered declaring the deed of sale in favor of defendant null and void and of no force and effect thereby ordering the cancellation of Transfer Certificate of Title No. 90805 of the Register of Deeds of Cebu City and to declare plaintiff Spouses Redemptor and Elisa Abucay as rightful vendees and Transfer Certificate of Title to the property subject matter of the suit issued in their names. The defendants are further directed to pay moral damages in the sum of P20,000.00 and attorney's fees in the sum of P2,000.00 plus cost of the suit. xxx xxx xxx"

Not satisfied with the trial court's Decision, Montecillo appealed the same to the Court of Appeals.

Ruling of the Court of Appeals

The appellate court affirmed the Decision of the trial court in toto and dismissed the appeal 13 on the ground that Montecillo's Deed of Sale is void for lack of consideration. The appellate court also denied Montecillo's Motion for Reconsideration 14 on the ground that it raised no new arguments. Still dissatisfied, Montecillo filed the present petition for review on certiorari.

The Issues
Montecillo raises the following issues: 1."Was there an agreement between Reynes and Montecillo that the stated consideration of P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the Transfer Certificate of Title?" 2."If there was none, is the Deed of Sale void from the beginning or simply rescissible?"
15

The Ruling of the Court

The petition is devoid of merit.

First issue: manner of payment of the P47,000.00 purchase price.

Montecillo's Deed of Sale does not state that the P47,000.00 purchase price should be paid by Montecillo to Cebu Ice Storage. Montecillo failed to adduce any evidence before the trial court showing that Reynes had agreed, verbally or in writing, that the P47,000.00 purchase price should be paid to Cebu Ice Storage. Absent any evidence showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in the sale. Article 1240 of the Civil Code provides as follows:
TCDHaE

"Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it."

Thus, Montecillo's payment to Cebu Ice Storage is not the payment that would extinguish the Deed of Sale.

16

Montecillo's obligation to Reynes under

It militates against common sense for Reynes to sell her Mabolo Lot for P47,000.00 if this entire amount would only go to Cebu Ice Storage, leaving not a single centavo to her for giving up ownership of a valuable property. This incredible allegation of Montecillo becomes even more absurd when one considers that Reynes did not benefit, directly or indirectly, from the payment of the P47,000.00 to Cebu Ice Storage. The trial court found that Reynes had nothing to do with Jayag's mortgage debt with Cebu Ice Storage. The trial court made the following findings of fact:
". . .. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house constructed on the land subject matter of the complaint. The payment by the defendant to release the residential house from the mortgage is a matter between him and Jayag and cannot by implication or deception be made to appear as an encumbrance upon the land." 17

Thus, Montecillo's payment to Jayag's creditor could not possibly redound to the benefit 18 of Reynes. We find no reason to disturb the factual findings of the trial court. In petitions for review on certiorari as a mode of appeal under Rule 45, as in the instant case, a petitioner can raise only questions of law. 19 This Court is not the proper venue to consider a factual issue as it is not a trier of facts.

Second issue: whether the Deed of Sale is void ab initio or only rescissible.
Under Article 1318 of the Civil Code, "[T]here is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established." Article 1352 of the Civil Code also provides that "[C]ontracts without cause . . . produce no effect whatsoever." Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo points out that he agreed to purchase, and Reynes agreed to sell, the Mabolo Lot at the price of P47,000.00. Thus, the three requisites for a valid contract concur: consent, object certain and consideration. Montecillo asserts there is no lack of consideration that would prevent the existence of a valid contract. Rather, there is only non-payment of the consideration within the period agreed upon for payment.

Montecillo argues there is only a breach of his obligation to pay the full purchase price on time. Such breach merely gives Reynes a right to ask for specific performance, or for annulment of the obligation to sell the Mabolo Lot. Montecillo maintains that in reciprocal obligations, the injured party can choose between fulfillment and rescission, 20 or more properly cancellation, of the obligation under Article 1191 21 of the Civil Code. This Article also provides that the "court shall decree the rescission claimed, unless there be just cause authorizing the fixing of the period." Montecillo claims that because Reynes failed to make a demand for payment, and instead unilaterally revoked Montecillo's Deed of Sale, the court has a just cause to fix the period for payment of the balance of the purchase price. These arguments are not persuasive. Montecillo's Deed of Sale states that Montecillo paid, and Reynes received, the P47,000.00 purchase price on March 1, 1984, the date of signing of the Deed of Sale. This is clear from the following provision of the Deed of Sale:
"That I, IGNACIA T. REYNES, . . . for and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO . . . , receipt of which is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, . . . a parcel of land . . .."

On its face, Montecillo's Deed of Absolute Sale 22 appears supported by a valuable consideration. However, based on the evidence presented by both Reynes and Montecillo, the trial court found that Montecillo never paid to Reynes, and Reynes never received from Montecillo, the P47,000.00 purchase price. There was indisputably a total absence of consideration contrary to what is stated in Montecillo's Deed of Sale. As pointed out by the trial court
"From the allegations in the pleadings of both parties and the oral and documentary evidence adduced during the trial, the court is convinced that the Deed of Sale (Exhibits "1" and "1-A") executed by plaintiff Ignacia Reynes acknowledged before Notary Public Ponciano Alvinio is devoid of any consideration. Plaintiff Ignacia Reynes through the representation of Baudillo Baladjay had executed a Deed of Sale in favor of defendant on the promise that the consideration should be paid within one (1) month from the execution of the Deed of Sale. However, after the lapse of said period, defendant failed to pay even a single centavo of the consideration. The answer of the defendant did not allege clearly why no consideration was paid by him except for the allegation that he had a balance of only P10,000.00. It turned out during the pre-trial that what the defendant considered as the consideration was the amount which he paid for the obligation of Bienvenido Jayag with the Cebu Ice and Cold Storage Corporation over which plaintiff Ignacia Reynes did not have a part except that the subject of the mortgage was constructed on the parcel of land in question. Plaintiff Ignacia Reynes

was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house constructed on the land subject matter of the complaint. The payment by the defendant to release the residential house from the mortgage is a matter between him and Jayag and cannot by implication or deception be made to appear as an encumbrance upon the land." 23

Factual findings of the trial court are binding on us, especially if the Court of Appeals affirms such findings. 24 We do not disturb such findings unless the evidence on record clearly does not support such findings or such findings are based on a patent misunderstanding of facts, 25 which is not the case here. Thus, we find no reason to deviate from the findings of both the trial and appellate courts that no valid consideration supported Montecillo's Deed of Sale. This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can only amount to a breach of obligation with rescission as the proper remedy. What we have here is a purported contract that lacks a cause one of the three essential requisites of a valid contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract 26 while the latter prevents the existence of a valid contract Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. This has been the well-settled rule as early as Ocejo Perez & Co. v. Flores, 27 a 1920 case. As subsequently explained in Mapalo v. Mapalo 28
"In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs. Flores, 40 Phil. 921, is squarely applicable herein. In that case we ruled that a contract of purchase and sale is null and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been paid by the purchaser to the vendor."

The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque,

29 to

wit

"The Appellate Court's finding that the price was not paid or that the statement in the supposed contracts of sale (Exh. 6 to 26) as to the payment of the price was simulated fortifies the view that the alleged sales were void. "If the price is simulated, the sale is void . . ." (Art. 1471, Civil Code)

A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in fact never been paid by the purchaser to the vendor (Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921; Mapalo vs. Mapalo, L-21489, May 19, 1966, 64 O.G. 331, 17 SCRA 114, 122). Such a sale is non-existent (Borromeo vs. Borromeo, 98 Phil. 432) or cannot be considered consummated (Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229)."

Applying this well-entrenched doctrine to the instant case, we rule that Montecillo's Deed of Sale is null and void ab initio for lack of consideration. Montecillo asserts that the only issue in controversy is "the mode and/or manner of payment and/or whether or not payment has been made." 30 Montecillo implies that the mode or manner of payment is separate from the consideration and does not affect the validity of the contract. In the recent case of San Miguel Properties Philippines, Inc. v. Huang, 31 we ruled that
"In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1 SCRA 1181 [1961]), we laid down the rule that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist . Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals (244 SCRA 320 [1995]), agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price." (Emphasis supplied)

One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid.
cTaDHS

Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one month after the signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to pay the P47,000.00 purchase price to Cebu Ice Storage to settle Jayag's mortgage debt. Montecillo also acknowledged a balance of P10,000.00 in favor of Reynes although this amount is not stated in Montecillo's Deed of Sale. Thus, there was no consent, or meeting of the minds, between Reynes and Montecillo on the manner of payment. This prevented the existence of a valid contract because of lack of consent.

In summary, Montecillo's Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as there was no valid contract transferring ownership of the Mabolo Lot from Reynes to Montecillo. WHEREFORE, the petition is DENIED and the assailed Decision dated July 16, 1998 of the Court of Appeals in CA-G.R. CV No. 41349 is AFFIRMED. Costs against petitioner. SO ORDERED.

SECOND DIVISION
[G.R. No. 108630. April 2, 1996.] PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS and LORETO TAN, respondents.

Santiago, Jr., Vidad, Corpus & Associates for petitioner. Jose G. Jover, Jr. for private respondent.
SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; A DEBT IS PAID BY COMPLETE DELIVERY OF THE THING OR RENDITION OF SERVICE. There is no question that no payment had ever been made to private respondent as the check was never delivered to him. When the court ordered petitioner to pay private respondent the amount of P32,480.00, it had the obligation to deliver the same to him. Under Art. 1233 of the Civil Code, a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. 2.REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF OF PAYMENT OF OBLIGATION LIES WITH THE DEBTOR; PAYMENT NOT PROVED IN CASE AT BAR. The burden of proof of such payment lies with the debtor. In the instant case, neither the SPA nor the check issued by

petitioner was ever presented in court. The testimonies of petitioner's own witnesses regarding the check were conflicting. Tagamolila testified that the check was issued to the order of "Sonia Gonzaga as attorney-in-fact of Loreto Tan," while Elvira Tibon, assistant cashier of PNB (Bacolod Branch), stated that the check was issued to the order of "Loreto Tan." Furthermore, contrary to petitioner's contention that all that is needed to be proved is the existence of the SPA, it is also necessary for evidence to be presented regarding the nature and extent of the alleged powers and authority granted to Sonia Gonzaga; more specifically, to determine whether the document indeed authorized her to receive payment intended for private respondent. However, no such evidence was ever presented. 3.ID.; ID.; BEST EVIDENCE RULE; WHEN SECONDARY EVIDENCE IS ALLOWED. Section 4, Rule 130 of the Rules of Court allows the presentation of secondary evidence when the original is lost or destroyed. 4.ID.; ID.; ID.; PAYMENT OF OBLIGATION NEGATED BY FAILURE TO PRESENT SPECIAL POWER OF ATTORNEY IN CASE AT BAR. Considering that the contents of the SPA are also in issue here, the best evidence rule applies. Hence, only the original document (which has not been presented at all) is the best evidence of the fact as to whether or not private respondent indeed authorized Sonia Gonzaga to receive the check from petitioner. In the absence of such document, petitioner's arguments regarding due payment must fall. 5.CIVIL LAW; DAMAGES; ATTORNEYS' FEES; AVAILABLE TO PARTY WHO WAS COMPELLED TO LITIGATE. Regarding the award of attorney's fees, we hold that private respondent Tan is entitled to the same. Art. 2208 of the Civil Code allows attorney's fees to be awarded if the claimant is compelled to litigate with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought. 6.ID.; ID; EXEMPLARY DAMAGES; WHEN RECOVERABLE. Under Art. 2232 of the Civil Code, exemplary damages may be awarded if a party acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. However, they cannot be recovered as a matter of right; the court has yet to decide whether or not they should be adjudicated. 7.ID.; ID.; ID.; REQUIREMENTS FOR GRANT. Jurisprudence has set down the requirements for exemplary damages to be awarded: 1. they may be imposed by way of example in addition to compensatory damages, and only after the claimant's right to them has been established; 2. they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant; 3. the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner.

8.ID.; ID.; ID.; CANNOT BE RECOVERED WHERE THERE IS NO CLEAR BREACH OF OBLIGATION TO PAY OR THAT A PARTY ACTED IN FRAUDULENT, WANTON, RECKLESS OR OPPRESSIVE MANNER. As for the award of exemplary damages, we agree with the appellate court that the same should be deleted. In the case at bench, while there is a clear breach of petitioner's obligation to pay private respondents, there is no evidence that it acted in a fraudulent, wanton, reckless or oppressive manner. Furthermore, there is no award of compensatory damages which is a prerequisite before exemplary damages may be awarded. Therefore, the award by the trial court of P5,000.00 as exemplary damages is baseless. DECISION ROMERO, J :
p

Petitioner Philippine National Bank (PNB) questions the decision 1 of the Court of Appeals partially affirming the judgment of the Regional Trial Court, Branch 44, Bacolod City. The dispositive portion of the trial court's decision states:
"WHEREFORE, premises considered, the Court hereby renders judgment in favor of the plaintiff and against the defendants as follows: 1)Ordering defendants to pay plaintiff jointly and severally the sum of P32,480.00, with legal rate of interest to be computed from May 2, 1979, date of filing of this complaint until fully paid; 2)Ordering defendants to pay plaintiff jointly and severally the sum of P5,000.00 as exemplary damages; 3)Ordering defendants to pay plaintiff jointly and severally the sum of P5,000.00 as attorney's fees; 4)To pay the costs of this suit. SO ORDERED."
2

The facts are the following:

Private respondent Loreto Tan (Tan) is the owner of a parcel of land abutting the national highway in Mandalagan, Bacolod City. Expropriation proceedings were instituted by the government against private respondent Tan and other property owners before the then Court of First Instance of Negros Occidental, Branch IV, docketed as Civil Case No. 12924. Tan filed a motion dated May 10, requesting issuance of an order for the release to him of the expropriation price of P32,480.00. On May 22, 1978, petitioner PNB (Bacolod Branch) was required by the trial court to release to Tan the amount of P32,480.00 deposited with it by the government. On May 24, 1978, petitioner, through its Assistant Branch Manager Juan Tagamolila, issued a manager's check for P32,480.00 and delivered the same to one Sonia Gonzaga without Tan's knowledge, consent or authority. Sonia Gonzaga deposited it in her account with Far East Bank and Trust Co. (FEBTC) and later on withdrew the said amount. Private respondent Tan subsequently demanded payment in the amount of P32,480.00 from petitioner, but the same was refused on the ground that petitioner had already paid and delivered the amount to Sonia Gonzaga on the strength of a Special Power of Attorney (SPA) allegedly executed in her favor by Tan. On June 8, 1978, Tan executed an affidavit before petitioner's lawyer, Alejandro S. Somo, stating that: 1)he had never executed any Special Power of Attorney in favor of Sonia S. Gonzaga; 2)he had never authorized Sonia Gonzaga to receive the sum of P32,480.00 from petitioner; 3)he signed a motion for the court to issue an Order to release the said sum of money to him and gave the same to Mr. Nilo Gonzaga (husband of Sonia) to be filed in court. However, after the Order was subsequently issued by the court, a certain Engineer Decena of the Highway Engineer's Office issued the authority to release the funds not to him but to Mr. Gonzaga. When he failed to recover the amount from PNB, private respondent filed a motion with the court to require PNB to pay the same to him.

Petitioner filed an opposition contending that Sonia Gonzaga presented to it a copy of the May 22, 1978 order and a special power of attorney by virtue of which petitioner delivered the check to her. The matter was set for hearing on July 21, 1978 and petitioner was directed by the court to produce the said special power of attorney thereat. However, petitioner failed to do so. The court decided that there was need for the matter to be ventilated in a separate civil action and thus private respondent filed a complaint with the Regional Trial Court in Bacolod City (Branch 44) against petitioner and Juan Tagamolila, PNB's Assistant Branch Manager, to recover the said amount. In its defense, petitioner contended that private respondent had duly authorized Sonia Gonzaga to act as his agent. On September 28, 1979, petitioner filed a third-party complaint against the spouses Nilo and Sonia Gonzaga praying that they be ordered to pay private respondent the amount of P32,480.00. However, for failure of petitioner to have the summons served on the Gonzagas despite opportunities given to it, the third-party complaint was dismissed. Tagamolila, in his answer, stated that Sonia Gonzaga presented a Special Power of Attorney to him but borrowed it later with the promise to return it, claiming that she needed it to encash the check. On June 7, 1989, the trial court rendered judgment ordering petitioner and Tagamolila to pay private respondent jointly and severally the amount of P32,480.00 with legal interest, damages and attorney's fees. Both petitioner and Tagamolila appealed the case to the Court of Appeals. In a resolution dated April 8, 1991, the appellate court dismissed Tagamolila's appeal for failure to pay the docket fee within the reglementary period. On August 31, 1992, the Court of Appeals affirmed the decision of the trial court against petitioner, with the modification that the award of P5,000.00 for exemplary damages and P5,000.00 for attorney's fees by the trial court was deleted.

Hence, this petition. Petitioner PNB states that the issue in this case is whether or not the SPA ever existed. It argues that the existence of the SPA need not be proved by it under the "best evidence rule" because it already proved the existence of the SPA from the testimonies of its witnesses and by the certification issued by the Far East Bank and Trust Company that it allowed Sonia Gonzaga to encash Tan's check on the basis of the SPA.

We find the petition unmeritorious. There is no question that no payment had ever been made to private respondent as the check was never delivered to him. When the court ordered petitioner to pay private respondent the amount of P32,480.00, it had the obligation to deliver the same to him. Under Art. 1233 of the Civil Code, a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. The burden of proof of such payment lies with the debtor. ever presented in court.
3

In the instant case, neither the SPA nor the check issued by petitioner was

The testimonies of petitioner's own witnesses regarding the check were conflicting. Tagamolila testified that the check was issued to the order of "Sonia Gonzaga as attorney-in-fact of Loreto Tan," 4 while Elvira Tibon, assistant cashier of PNB (Bacolod Branch), stated that the check was issued to the order of "Loreto Tan." 5 Furthermore, contrary to petitioner's contention that all that is needed to be proved is the existence of the SPA, it is also necessary for evidence to be presented regarding the nature and extent of the alleged powers and authority granted to Sonia Gonzaga; more specifically, to determine whether the document indeed authorized her to receive payment intended for private respondent. However, no such evidence was ever presented. Section 2, Rule 130 of the Rules of Court states that:

"SECTION 2.Original writing must be produced; exceptions. There can be no evidence of a writing the contents of which is the subject of inquiry, other than the original writing itself, except in the following cases: (a)When the original has been lost, destroyed, or cannot be produced in court; (b)When the original is in the possession of the party against whom the evidence is offered, and the latter fails to produce it after SECOND

DIVISION
[G.R. No. 90169. April 7, 1993.] PILAR PAGSIBIGAN, petitioner, vs. COURT OF APPEALS and PLANTERS DEVELOPMENT BANK, respondents.

Juanito Cruz for petitioner. Raymundo S. Senga for private respondent.

SYLLABUS 1.CIVIL LAW; CONTRACT OF LOAN; SUBSTANTIAL PERFORMANCE BY OBLIGOR, RECOGNIZED; CASE AT BAR. From the conduct of the respondent bank it is clear that it neither enforced its right under the acceleration clause nor its right to foreclose under the mortgage contract, For more than four years, the respondent bank made petitioner believe that it was applying her payment on the loan and interest just like before when the respondent bank accepted such payment and issued a receipt therefor. It is bound by estoppel to apply the same as payment for petitioner's obligation as it did when it received previous payments on three occasions. Its act of applying said payments to accounts payable is clearly prejudicial to petitioner. We cannot countenance this act of the bank. We hold that the payment amounting to P8,650.00 for the balance of P3,558.20 as of August 26, 1978 plus the P1,000.00 it was asked to pay on April 24, 1984 would at the very least constitute substantial performance. Article 1234 of the Civil Code, provides: "Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee." Petitioner in this case has the right to move for the cancellation of the mortgage and the release of

the mortgaged property, upon payment of the balance of the loan. Thus, aside from the fact that the respondent bank was estopped from enforcing its right to foreclose by virtue of its acceptance of the delayed payments for a period of more than six years, the application of such payment to the interest and the principal during the first three payments constitutes a virtual waiver of the acceleration clause provided in the contract. We cannot sustain the legality of the foreclosure under the peculiar facts of this case, because there is substantial performance of the obligation on the part of petitioner. Under Article 1235 of the Civil Code, when the creditor accepts performance, knowing its incompleteness and irregularity without protest or objection, the obligation is deemed complied with. 2.ID.; MORAL DAMAGES, WHEN AVAILABLE; CASE AT BAR. This Court cannot ignore the fact that the respondent bank succeeded in taking advantage of the ignorance of petitioner in transactions such as the one involved in the case at bar by lodging the bulk of petitioner's payment to account payable based on the flimsy reason that she had been in default, and then considering the entire debt pursuant to an acceleration clause as earning interest and penalty charges at an exorbitant rate of 19% each from the date of first default up to the date of foreclosure, thus bringing the obligation to an astronomical amount of P29,554.81. This indicates bad faith on the part of the respondent bank. For the mental anguish, sleepless nights and serious anxiety this has caused petitioner, the respondent bank is liable for moral damages which this Court fixes at P50,000.00. 3.ID.; EXEMPLARY DAMAGES; ATTORNEY'S FEES; IMPOSED UPON THE BANK TO DETER REPEATING SIMILAR ACT; CASE AT BAR. To serve as a deterrent for the respondent bank from repeating similar acts and to set an example and correction for the public good, this Court likewise awards exemplary damages. In view of its nature, it should be imposed in such amount as to sufficiently and effectively deter similar acts in the future by the respondent bank and other banks, which amount this court fixes at P20,000.00 on top of the forfeiture of whatever balance on the loan which the respondent may actually have in its favor. Attorney's fees by way of damages is likewise awarded for the same reason that exemplary damages is awarded and this is fixed at P10,000.00. DECISION CAMPOS, JR., J :
p

This is a petition for review on certiorari of the decision ** of the Court of Appeals in CA-G.R. CV No. 18385 entitled "Pilar Pagsibigan, Plaintiff-appellee vs. Planters Development Bank, Defendant-appellant," the decretal portion of which reads:
LLpr

"WHEREFORE, the decision appealed from is hereby reversed and another one entered ordering plaintiff-appellee Norma Manalili, to pay the deficiency of P21,391.81. No pronouncement is made as to costs. "SO ORDERED."
1

The undisputed facts are summarized by the respondent court as follows:

"Stripped of non-essentials, it appears that on August 4, 1974, plaintiff-appellee, [petitioner, herein] through her daughter as attorney-in-fact, obtained an agricultural loan from the Planters Development Bank (formerly Bulacan Development Bank), in the sum of P4,500.00 secured by a mortgage over a parcel of land covered by Transfer Certificate of Title No. T-129603 (Exhibit "A"; "A-1"), which loan was later fully paid (Exhibits "B"; "B-1" to "B-3". Another loan for the same amount was obtained from the bank on November 3, 1977 [year 1977 should read 1976 instead] secured by the same parcel of land. The Promissory Note for the second loan (Exhibit "1") stipulated that for a first payment to be made on May 3, 1977 and payments every six months thereafter at P1,018.14 with 19% interest for unpaid amortizations. The said Promissory Note, containing an acceleration clause (Exhibit "1-A"), was not denied by plaintiff-appellee [petitioner] (TSN, December 10, 1986, pp. 9-10). Initial payment was made on July 6, 1978 [year 1978 should read 1977 instead] followed by several payments in the total amount of P11,900.00 (Exhibits "D"; "D-1" to "D-7"). However, only four of these payments were applied to the loan (TSN, March 16, 1987, pp. 14-16), while the rest were "temporarily lodged to accounts payable since the account was already past due" (TSN, June 1, 1987, pp. 15-16). On the basis of a Petition for Extrajudicial Foreclosure of Mortgage (Exhibit "6") and the statement of Account (Exhibit "12"), the property was foreclosed extrajudicially on May 7, 1984 for failure to pay an outstanding balance of P29,554.81 (Exhibit "13"). This resulted in the property being sold to the bank for P8,163.00, and the bank thereafter claimed a deficiency of P21,391.81. In the action for annulment of sale with damages and writ of preliminary injunction instituted by plaintiff-appellee, the lower court sustained appellee's [petitioner] theory of overpayment (Decision, p. 3), as against the propriety of the foreclosure." 2 [Bracketed words Ours].
LLphil

Petitioner submits the following Issues for resolution:

"1.Whether or not the foreclosure and auction sale of the property is valid and justified under the circumstances; and 2.Whether or not petitioner is entitled to recover damages as well as attorney's fees as a result of the foreclosure and auction sale."
3

It is petitioner's contention that the bank has no right to foreclose the mortgage, there having been full payment of the principal obligation. As per their computation 4the payment which they have made totalling P11,900.00 more than sufficiently covered their total obligation with respect to their loan, there having been, in fact, an overpayment of either P4,642.38 or P6,106.75 based on the interest rate used in the computation. Thus, the principal obligation having been extinguished by payment, the accessory obligation of mortgage is necessarily extinguished, and the foreclosure thereof is improper and not valid. The respondent bank on the other hand countered that the computation relied upon by petitioner is not in consonance with the Promissory Note 5 which she signed because the Promissory Note contains an acceleration clause. Respondent bank also averred that upon petitioner's failure to pay her first installment, the entire obligation became due and demandable and its right to foreclose the mortgage has accrued. Thus, when it foreclosed the mortgage in 1984, with the outstanding obligation at P29,554.81, it was acting well within its rights. We note at this point that the respondent bank does not dispute the fact that petitioner had made several payments in an amount totalling to P11,900.00. It likewise admits that only part of the amount tendered was applied to the loan and the bulk of such payment was "temporarily lodged to accounts payable since the account was already past due" 6 [Emphasis Ours]. Petitioner assails the respondent bank for not applying her payment to the loan. Because of said act, the loan remained outstanding when it should have been extinguished and should have also extinguished the accessory contract of real estate mortgage. Petitioner wants Us to rule not only on the regularity or legality of the foreclosure but also on its propriety in the light of the attending circumstances. There is no question that the respondent bank has the right to foreclose the mortgage upon the first default of petitioner on May 3, 1977, but the records show that it did not. When it received payment of petitioner on July 6, 1977, which had been 2 months and 3 days delayed, it applied P154.80 to the principal, P210.00 to interest, and only P25.20 to penalty. From this act of receiving delayed payment, it is clear that the respondent bank had waived its right under the acceleration clause so that instead of claiming penalty charges on the entire amount of P4,500.00, it only computed the penalty based on the defaulted amortization payment which is P1,018.14. If it

computed the penalty charge at 19% of the entire amount of P4,500.00 which would have been due and demandable by virtue of the acceleration clause, the penalty charges would be much more than P25.20. This is similarly observed in payments which the respondent bank received on June 6, 1978 and August 26, 1978. We also noticed that in Exhibit "D-3", the receipt which the respondent bank issued to petitioner for the August 26, 1978 partial payment, it waived its right under Article 1253 7 of the Civil Code on Application of Payments when it applied the payment to the principal instead of the interest. Thus, on that date the outstanding obligation of petitioner was already reduced to P3,558.21 after she had paid a total of P2,200.00 over a period of nine months from the time the loan was obtained.
LLpr

From this conduct of the respondent bank it is clear that it neither enforced its right under the acceleration clause nor its right to foreclose under the mortgage contract, For more than four years, the respondent bank made petitioner believe that it was applying her payment on the loan and interest just like before when the respondent bank accepted such payment and issued a receipt therefor. It is bound by estoppel to apply the same as payment for petitioner's obligation as it did when it received previous payments on three occasions. Its act of applying said payments to accounts payable is clearly prejudicial to petitioner. We cannot countenance this act of the bank. We hold that the payment amounting to P8,650.00 for the balance of P3,558.20 as of August 26, 1978 to pay on April 24, 1984 would at the very least constitute substantial performance. Article 1234 of the Civil Code, provides:
"Article 1234.If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee."
8

plus the P1,000.00 it was asked

Petitioner in this case has the right to move for the cancellation of the mortgage and the release of the mortgaged property, upon payment of the balance of the loan. Definitely, it would not be in the amount demanded by the respondent bank, which the trial court held to be P29,554.81. This Court, in Angeles vs. Calasanz
9

held that:

"The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In other words, in only a short time, the entire obligation would have been paid. Furthermore, although the principal obligation was only P3,920.00 excluding the 7 percent interests, the plaintiffs-appellees had already paid an aggregate amount of P4,533.38. To sanction the rescission made by the defendants-appellants will work injustice to the plaintiffs-appellees. It would unjustly enrich the defendants-appellants. Article 1234 of the Civil Code which provides that: xxx xxx xxx also militates against the unilateral act of the defendants-appellants in cancelling the contract."

Thus, aside from the fact that the respondent bank was estopped from enforcing its right to foreclose by virtue of its acceptance of the delayed payments for a period of more than six years, the application of such payment to the interest and the principal during the first three payments constitutes a virtual waiver of the acceleration clause provided in the contract. We cannot sustain the legality of the foreclosure under the peculiar facts of this case, because there is substantial performance of the obligation on the part of petitioner. Under Article 1235 of the Civil Code, when the creditor accepts performance, knowing its incompleteness and irregularity without protest or objection, the obligation is deemed complied with. This Court cannot ignore the fact that the respondent bank succeeded in taking advantage of the ignorance of petitioner in transactions such as the one involved in the case at bar by lodging the bulk of petitioner's payment to account payable based on the flimsy reason that she had been in default, and then considering the entire debt pursuant to an acceleration clause as earning interest and penalty charges at an exorbitant rate of 19% each from the date of first default up to the date of foreclosure, thus bringing the obligation to an astronomical amount of P29,554.81. This indicates bad faith on the part of the respondent bank. For the mental anguish, sleepless nights and serious anxiety this has caused petitioner, the respondent bank is liable for moral damages which this Court fixes at P50,000.00.
prcd

To serve as a deterrent for the respondent bank from repeating similar acts and to set an example and correction for the public good, this Court likewise awards exemplary damages. In view of its nature, it should be imposed in such amount as to sufficiently and effectively deter similar acts in the future 10 by the respondent bank and other banks, which amount this court fixes at P20,000.00 on top of the forfeiture of whatever balance on the loan which the respondent may actually have in its favor.

This Court likewise orders the annulment of the foreclosure sale and the reconveyance of the property subject of the real estate mortgage pursuant to the annotation of lis pendens in the certificate of title of the subject property. Attorney's fees by way of damages is likewise awarded for the same reason that exemplary damages is awarded and this is fixed at P10,000.00. WHEREFORE, the appealed decision is hereby SET ASIDE and a new one entered ordering the reconveyance of the foreclosed property and the payment of moral damages, exemplary damages and attorney's fees as above specified, with costs against private respondent Planters Development Bank. SO ORDERED.

Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.

reasonable notice; (c)When the original is a record or other document in the custody of a public officer; (d)When the original has been recorded in an existing record a certified copy of which is made evidence by law; (e)When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time and the fact sought to be established from them is only the general result of the whole."

Section 4, Rule 130 of the Rules of Court allows the presentation of secondary evidence when the original is lost or destroyed, thus:
"SECTION 4.Secondary evidence when original is lost or destroyed. When the original writing has been lost or destroyed, or cannot be produced in court, upon proof of its execution and loss or destruction, or unavailability, its contents may be proved by a copy, or by a recital of its contents in some authentic document, or by the recollection of witnesses."

Considering that the contents of the SPA are also in issue here, the best evidence rule applies. Hence, only the original document (which has not been presented at all) is the best evidence of the fact as to whether or not private respondent indeed authorized Sonia Gonzaga to receive the check from petitioner. In the absence of such document, petitioner's arguments regarding due payment must fail.

Regarding the award of attorney's fees, we hold that private respondent Tan is entitled to the same. Art. 2208 of the Civil Code allows attorney's fees to be awarded if the claimant is compelled to litigate with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought. 6 In Rasonable v. NLRC, et al., fees.
7

we held that when a party is forced to litigate to protect his rights, he is entitled to an award of attorney's

As for the award of exemplary damages, we agree with the appellate court that the same should be deleted. Under Art. 2232 of the Civil Code, exemplary damages may be awarded if a party acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. However, they cannot be recovered as a matter of right; the court has yet to decide whether or not they should be adjudicated. 8 Jurisprudence has set down the requirements for exemplary damages to be awarded: 1.they may be imposed by way of example in addition to compensatory damages, and only after the claimant's right to them has been established; 2.they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant; 3.the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner.
9

In the case at bench, while there is a clear breach of petitioner's obligation to pay private respondents, there is no evidence that it acted in a fraudulent, wanton, reckless or oppressive manner. Furthermore, there is no award to compensatory damages which is a prerequisite before exemplary damages may be awarded. Therefore, the award by the trial court of P5,000.00 as exemplary damages is baseless. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that the award by the Regional Trial Court of P5,000.00 as attorney's fees is REINSTATED.

SO ORDERED.

Regalado, Puno and Mendoza, JJ., concur. Torres, Jr., J., on leave.