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Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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

JOSE S. GALVEZ, Deceased (Represented by his


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

Narciso E. Martin and Antonio N. Castro for


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

CONCEPCION, J.:

Appeal by certiorari from an order of the Court of


Industrial Relations.

Petitioner herein, Gracia Vda. de Galvez,


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

Subsequently, or on December 22, 1951, Crispin


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

Later on, the Court of Industrial Relations ordered


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

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


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

A reconsideration having been denied by the


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

The order of this Court dated May 12, 1956,


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

The lower court was thus aware of the fact that it


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

The equitable considerations that led the lower


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

WHEREFORE, the order appealed from is hereby


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

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

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

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

Cohn, Fisher and DeWitt and William C. Brady for


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

STREET, J.:

This case comes by appeal from the Court of First


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

It appears that on December 12, 1918, the


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

At the time this agreement was made the


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

It is understood and agreed that should the


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

The case for the plaintiff proceeds on the idea


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

It will be noted that the language conferring the


right of cancellation upon the defendants is broad
enough to cover any case of the nonarrival of the
machinery, due to whatever cause; and the
stress in the expression "for any reason" should
evidently fall upon the word "any." It must follow
of necessity that the defendants had the right to
cancel the contract in the contingency that
occurred, unless some clear and sufficient reason
can be adduced for limiting the operation of the
words conferring the right of cancellation. Upon
this point it is our opinion that the language used
in the stipulation should be given effect in its
ordinary sense, without technicality or
circumvention; and in this sense it is believed
that the parties to the contract must have
understood it.
Article 1256 of the Civil Code in our opinion
creates no impediment to the insertion in a
contract for personal service of a resolutory
condition permitting the cancellation of the
contract by one of the parties. Such a stipulation,
as can be readily seen, does not make either the
validity or the fulfillment of the contract
dependent upon the will of the party to whom is
conceded the privilege of cancellation; for where
the contracting parties have agreed that such
option shall exist, the exercise of the option is as
much in the fulfillment of the contract as any
other act which may have been the subject of
agreement. Indeed, the cancellation of a contract
in accordance with conditions agreed upon
beforehands is fulfillment.

In this connection, we note that the commentator


Manresa has the following observation with
respect to article 1256 of the Civil Code. Says he:
"It is entirely licit to leave fulfillment to the will of
either of the parties in the negative form of
rescission, a case frequent in certain contracts
(the letting of service for hire, the supplying of
electrical energy, etc.), for in such supposed case
neither is the article infringed, nor is there any
lack of equality between the persons contracting,
since they remain with the same faculties in
respect to fulfillment." (Manresa, 2d ed., vol. 8, p.
610.) 1awph!l.net
Undoubtedly one of the consequences of this
stipulation was that the employers were left in a
position where they could dominate the
contingency, and the result was about the same
as if they had been given an unqualified option to
dispense with the services of the plaintiff at the
end of six months. But this circumstance does
not make the stipulation illegal.

The case of Hall vs. Hardaker (61 Fla., 267) cited


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

But it will be said that the question is not so


much one concerning the legality of the clause
referred to as one concerning the interpretation
of the resolutory clause as written, the idea being
that the court should adjust its interpretation of
said clause to the supposed precepts of article
1256, by restricting its operation exclusively to
cases where the nonarrival of the machinery may
be due to extraneous causes not referable to the
will or act of the defendants. But even when the
question is viewed in this aspect their result is
the same, because the argument for the
restrictive interpretation evidently proceeds on
the assumption that the clause in question is
illegal in so far as it purports to concede to the
defendants the broad right to cancel the contract
upon nonarrival of the machinery due to any
cause; and the debate returns again to the point
whether in a contract for the prestation of service
it is lawful for the parties to insert a provision
giving to the employer the power to cancel the
contract in a contingency which may be
dominated by himself. Upon this point what has
already been said must suffice.

As we view the case, there is nothing in article


1256 which makes it necessary for us to warp the
language used by the parties from its natural
meaning and thereby in legal effect to restrict the
words "for any reason," as used in the contract,
to mean "for any reason not having its origin in
the will or acts of the defendants." To impose this
interpretation upon those words would in our
opinion constitute an unjustifiable invasion of the
power of the parties to establish the terms which
they deem advisable, a right which is expressed
in article 1255 of the Civil Code and constitutes
one of the most fundamental conceptions of
contract right enshrined in the Code.

The view already expressed with regard to the


legality and interpretation of the clause under
consideration disposes in a great measure of the
argument of the appellant in so far as the same
is based on article 1119 of the Civil Code. This
provision supposes a case where the obligor
intentionally impedes the fulfillment of a
condition which would entitle the obligee to exact
performance from the obligor; and an assumption
underlying the provision is that the obligor
prevents the obligee from performing some act
which the obligee is entitled to perform as a
condition precedent to the exaction of what is
due to him. Such an act must be considered
unwarranted and unlawful, involving per se a
breach of the implied terms of the contract. The
article can have no application to an external
contingency which, like that involved in this case,
is lawfully within the control of the obligor.
In Spanish jurisprudence a condition like that
here under discussion is designated by Manresa a
facultative condition (vol. 8, p. 611), and we
gather from his comment on articles 1115 and
1119 of the Civil Code that a condition,
facultative as to the debtor, is obnoxious to the
first sentence contained in article 1115 and
renders the whole obligation void (vol. 8, p. 131).
That statement is no doubt correct in the sense
intended by the learned author, but it must be
remembered that he evidently has in mind the
suspensive condition, such as is contemplated in
article 1115. Said article can have no application
to the resolutory condition, the validity of which
is recognized in article 1113 of the Civil Code. In
other words, a condition at once facultative and
resolutory may be valid even though the
condition is made to depend upon the will of the
obligor.

If it were apparent, or could be demonstrated,


that the defendants were under a positive
obligation to cause the machinery to arrive in
Manila, they would of course be liable, in the
absence of affirmative proof showing that the
nonarrival of the machinery was due to some
cause not having its origin in their own act or will.
The contract, however, expresses no such
positive obligation, and its existence cannot be
implied in the fact of stipulation, defining the
conditions under which the defendants can
cancel the contract.
Our conclusion is that the Court of First Instance
committed no error in rejecting the plaintiff's
claim in so far as damages are sought for the
period subsequent to the expiration of the first
six months, but in assessing the damages due for
the six-month period, the trial judge evidently
overlooked the item of P60, specified in the
plaintiff's fourth assignment of error, which
represents commutation of house rent for the
month of June, 1919. This amount the plaintiff is
clearly entitled to recover, in addition to the P300
awarded in the court below.

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


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

The judgment appealed from will be modified by


declaring that the defendants shall pay to the
plaintiff the sum of P360, instead of P300, as
allowed by the lower court, and as thus modified
the judgment will be affirmed with interest from
November 4, 1919, as provided in section 510 of
the Code of Civil Procedure, and with costs. So
ordered.
Araullo, C.J., Johnson, Malcolm, Avancea,
Villamor, Ostrand, Johns and Romualdez, JJ.,
concur.

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

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

JOSE V. HERRERA, petitioner


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

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


Co., Inc.

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


RESOLUTION

MELENCIO-HERRERA, J.:

Before the Court is petitioner's Motion, dated July


3, 1981, for the reconsideration of the Resolution
of this Court, dated April 1, 1981, denying due
course to this Petition for Review on certiorari for
lack of merit.

The Motion for Reconsideration was set for oral


argument on June 13, 1984, after which, the
Court required the parties to submit
simultaneously concise memoranda in
amplification of their oral arguments. All parties
have complied with the Court's directive.

Briefly, the antecedent facts may be summarized


as follows:

On June 10, 1969, L.P. Leviste & Co. (Leviste, for


short) had obtained a loan from the Government
Service Insurance System (GSIS) in the amount of
P1,854,311.50. As security therefore, Leviste
mortgaged two (2) lots, one located at Paraaque
(the Paraaque Property), and the other located
at Buendia Avenue, Makati, with an area of
approximately 2,775 square meters, together
with the 3-story building thereon (the Buendia
Property).
On November 3, 1971, Leviste sold to Petitioner,
Jose V. Herrera, the Buendia Property for the
amount of P3,750,000.00. The conditions were
that petitioner would: (1) pay Leviste
P11,895,688.50; (2) assume Leviste's
indebtedness of P1854,311.50 to the GSIS; and
(3) substitute the Paranaque property with his
own within a period of six (6) months.

For his part, Leviste undertook to arrange for the


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

It was further stipulated in the Contract to Sell


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

Petitioner took possession of the Buendia


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

However, petitioner remitted a total of only


P300,000.00 to the GSIS.

On April 15, 1973, petitioner requested the GSIS


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

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


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

On March 3, 1975, Leviste assigned its right to


redeem both foreclosed properties to respondent
Jose Marcelo, Jr. (Marcelo for brevity). Later, on
November 20, 1975, Marcelo redeemed the
properties from the GSIS by paying it the sum of
P3,232,766.94 for which he was issued a
certificate of redemption. The Paranaque
property was turned over by Marcelo to Leviste
upon payment by the latter of approximately
P250,000.00 as disclosed at the hearing. Leviste
needed the Paraque Property as it had sold the
same and suit had been filed against it for its
recovery.
On May 6, 1975, petitioner wrote the GSIS
(Exhibit "V") informing the latter of his right to
redeem the foreclosed properties and asking that
he be allowed to do so in installments.
Apparently, the GSIS had not favorably acted
thereon.

On May 13, 1975, petitioner instituted suit


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

On December 20, 1977, the Trial Court rendered


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

On appeal, the Appellate Court affirmed the


judgment in toto, stating in part:

It is to be noted that appellee L. P. Leviste and


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

Reconsideration sought by petitioner was met


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

As hereinbefore stated, we denied the Petition for


lack of merit.

Petitioner seeks reconsideration essentially on


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

Considering the grounds of petitioner's Motion for


Reconsideration, the arguments adduced during
the oral argument and in the parties' respective
Memoranda, we resolve to deny reconsideration
upon the following considerations:
1. (a) The GSIS has not benefited in any way at
the expense of petitioner. What it received, by
way of redemption from respondent Marcelo, was
the mortgage loan it had extended plus interest
and sundry charges.

(b) Neither has Marcelo benefited at the expense


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

(c) Leviste had neither profited at the expense of


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

2. It is quite true that petitioner had lost the P


1,895,688.00 he had paid to Leviste, plus P
300,000.00 he had paid to GSIS, less the rentals
he had received when in possession of the
Buendia Property. That loss is attributable to his
fault in:

(a) Not having been able to submit collateral to


GSIS in substitution of the Paranaque Property;
(b) Not paying off the mortgage debt when GSIS
decided to foreclose; and

(c) Not making an earnest effort to redeem the


property as a possible redemptioner.

3. It cannot be validly said that petitioner had


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

ACCORDINGLY, petitioner's Motion for


Reconsideration is hereby denied.
search

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. 23769 September 16, 1925

SONG FO & COMPANY, plaintiff-appellee,


vs.
HAWAIIAN PHILIPPINE CO., defendant-appellant.

Hilado and Hilado, Ross, Lawrence and Selph and


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

MALCOLM, J.:

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


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

From the judgment of the Court of First Instance


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

1. Did the defendant agree to sell to the plaintiff


400,000 gallons of molasses or 300,000 gallons
of molasses? The trial court found the former
amount to be correct. The appellant contends
that the smaller amount was the basis of the
agreement.

The contract of the parties is in writing. It is


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

SILAY, OCC. NEGROS, P.I.


December 13, 1922

Messrs. SONG FO AND CO.


Iloilo, Iloilo.

DEAR SIRS: Confirming our conversation we had


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

He agreed to the delivery of 300,000 gallons of


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

Regarding the payment for our molasses, Mr.


Song Fo gave us to understand that you would
pay us at the end of each month for molasses
delivered to you.

Hoping that this is satisfactory and awaiting your


answer regarding this matter, we remain.

Yours very truly,

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

Exhibit G is the answer of the manager of Song


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

December 16th, 1922.

Messrs. HAWAIIAN-PHILIPPINE CO.,


Silay, Neg. Occ., P.I.
DEAR SIRS: We are in receipt of your favours
dated the 9th and the 13th inst. and understood
all their contents.

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


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

With reference to the contents of your letter


dated the 13th inst. we confirm all the
arrangements you have stated and in order to
make the contract clear, we hereby quote below
our old contract as amended, as per our new
arrangements.

(a) Price, at 2 cents per gallon delivered at the


central.

(b) All handling charges and expenses at the


central and at the dock at Mambaguid for our
account.

(c) For services of one locomotive and flat cars


necessary for our six tanks at the rate of P48 for
the round trip dock to central and central to dock.
This service to be restricted to one trip for the six
tanks.

Yours very truly,

SONG FO & COMPANY


By __________________________
Manager.

We agree with appellant that the above quoted


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

If Exhibit T relied upon by the trial court shows


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

We sustain appellant's point of view on the first


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

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


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

Turning to Exhibit F, we note this sentence:


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

Date of delivery

Account and date thereof

Date of receipt of account by plaintiff

Date of payment

1922
1923

1923

Dec. 18

P206.16

Dec. 26/22

Jan. 5

Feb. 20

Dec. 29

206.16

Jan. 3/23

do

Do

1923

Jan. 5

206.16

Jan. 9/23

Mar. 7 or 8
Mar. 31

Feb. 12

206.16

Mar. 12/23

do

Do

Feb. 27

206.16

do

do

Do

Mar. 5

206.16

do

do

Do
Mar. 16

206.16

Mar. 20/23

Apr. 2/23

Apr. 19

Mar. 24

206.16

Mar. 31/23

do

Do

Mar. 29

206.16

do

do

Do

Some doubt has risen as to when Song Fo &


Company was expected to make payments for
the molasses delivered. Exhibit F speaks of
payments "at the end of each month." Exhibit G
is silent on the point. Exhibit M, a letter of March
28, 1923, from Warner, Barnes & Co., Ltd., the
agent of the Hawaiian-Philippine Co. to Song Fo &
Company, mentions "payment on presentation of
bills for each delivery." Exhibit O, another letter
from Warner, Barnes & Co., Ltd. to Song Fo &
Company dated April 2, 1923, is of a similar
tenor. Exhibit P, a communication sent direct by
the Hawaiian-Philippine Co. to Song Fo &
Company on April 2, 1923, by which the
Hawaiian-Philippine Co. gave notice of the
termination of the contract, gave as the reason
for the rescission, the breach by Song Fo &
Company of this condition: "You will recall that
under the arrangements made for taking our
molasses, you were to meet our accounts upon
presentation and at each delivery." Not far
removed from this statement, is the allegation of
plaintiff in its complaint that "plaintiff agreed to
pay defendant, at the end of each month upon
presentation accounts."

Resolving such ambiguity as exists and having in


mind ordinary business practice, a reasonable
deduction is that Song Fo & Company was to pay
the Hawaiian-Philippine Co. upon presentation of
accounts at the end of each month. Under this
hypothesis, Song Fo & Company should have
paid for the molasses delivered in December,
1922, and for which accounts were received by it
on January 5, 1923, not later than January 31 of
that year. Instead, payment was not made until
February 20, 1923. All the rest of the molasses
was paid for either on time or ahead of time.

The terms of payment fixed by the parties are


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

The general rule is that rescission will not be


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

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


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

The first cause of action of the plaintiff is based


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

The second cause of action relates to lost profits


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

In the first place, the testimony which Mr. Song


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

We rule that the plaintiff is entitled to recover


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

Agreeable to the foregoing, the judgment


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

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


Ostrand, Johns, Romualdez and Villa-Real, JJ.,
concur.

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

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

SOLOMON BOYSAW and ALFREDO M. YULO, JR.,


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

Felipe Torres and Associates for plaintiffs-


appellants.

V.E. Del Rosario & Associates for defendant-


appellee M. Nieto, Jr.
A.R. Naravasa & Pol Tiglao, Jr. for defendant-
appellee Interphil Promotions, Inc.

RESOLUTION

FERNAN, J.:

This is an appeal interposed by Solomon Boysaw


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

The antecedent facts of the case are as follows:

On May 1, 1961, Solomon Boysaw and his then


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

It was stipulated that the bout would be held at


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

On May 3, 1961, a supplemental agreement on


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

On June 19, 1961, Boysaw fought and defeated


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

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


on behalf of his associate Frank Ruskay, assigned
to J. Amado Araneta the managerial rights over
Solomon Boysaw.
Presumably in preparation for his engagement
with Interphil, Solomon Boysaw arrived in the
Philippines on July 31, 1961.

On September 1, 1961, J. Amado Araneta


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

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


Sarreal informing him of his acquisition of the
managerial rights over Boysaw and indicating his
and Boysaw's readiness to comply with the
boxing contract of May 1, 1961. On the same
date, on behalf of Interphil Sarreal wrote a letter
to the Games and Amusement Board [GAB]
expressing concern over reports that there had
been a switch of managers in the case of
Boysaw, of which he had not been formally
notified, and requesting that Boysaw be called to
an inquiry to clarify the situation.

The GAB called a series of conferences of the


parties concerned culminating in the issuance of
its decision to schedule the Elorde-Boysaw fight
for November 4, 1961. The USA National Boxing
Association which has supervisory control of all
world title fights approved the date set by the
GAB
Yulo, Jr. refused to accept the change in the fight
date, maintaining his refusal even after Sarreal
on September 26, 1961, offered to advance the
fight date to October 28, 1961 which was within
the 30-day period of allowable postponements
provided in the principal boxing contract of May
1, 1961.

Early in October 1961, Yulo, Jr. exchanged


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

While an Elorde-Boysaw fight was eventually


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

As a result of the foregoing occurrences, on


October 12, 1961, Boysaw and Yulo, Jr. sued
Interphil, Sarreal, Sr. and Manuel Nieto, Jr. in the
CFI of Rizal [Quezon City Branch] for damages
allegedly occasioned by the refusal of Interphil
and Sarreal, aided and abetted by Nieto, Jr., then
GAB Chairman, to honor their commitments
under the boxing contract of May 1,1961.

On the first scheduled date of trial, plaintiff


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

The case dragged into 1963 when sometime in


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

On or about July 16, 1963, plaintiffs represented


by a new counsel, filed an urgent motion for
postponement of the July 23, 1963 trial, pleading
anew Boysaw's inability to return to the country
on time. The motion was denied; so was the
motion for reconsideration filed by plaintiffs on
July 22, 1963.

The trial proceeded as scheduled on July 23,


1963 with plaintiff's case being deemed
submitted after the plaintiffs declined to submit
documentary evidence when they had no other
witnesses to present. When defendant's counsel
was about to present their case, plaintiff's
counsel after asking the court's permission, took
no further part in the proceedings.

After the lower court rendered its judgment


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

From the errors assigned by the plaintiffs, as


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

1. Whether or not there was a violation of the


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

2. Whether or not there was legal ground for the


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

3. Whether or not the lower court erred in the


refusing a postponement of the July 23, 1963
trial.

4. Whether or not the lower court erred in


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

On the issue pertaining to the violation of the


May 1, 1961 fight contract, the evidence
established that the contract was violated by
appellant Boysaw himself when, without the
approval or consent of Interphil, he fought Louis
Avila on June 19, 1961 in Las Vegas Nevada.
Appellant Yulo admitted this fact during the trial.
[pp. 26-27, t.s.n., March 14, 1963].

While the contract imposed no penalty for such


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

Those who in the performance of their obligations


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

Also:

The power to rescind obligations is implied, in


reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon
him. [Part 1, Art. 1191, Civil Code].
There is no doubt that the contract in question
gave rise to reciprocal obligations. "Reciprocal
obligations are those which arise from the same
cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of
one is dependent upon the obligation of the
other. They are to be performed simultaneously,
so that the performance of one is conditioned
upon the simultaneous fulfillment of the other"
[Tolentino, Civil Code of the Philippines, Vol. IV, p.
175.1

The power to rescind is given to the injured party.


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

Another violation of the contract in question was


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

The assignments, from Ketchum to Araneta, and


from Araneta to Yulo, were in fact novations of
the original contract which, to be valid, should
have been consented to by Interphil.
Novation which consists in substituting a new
debtor in the place of the original one, may be
made even without the knowledge or against the
will of the latter, but not without the consent of
the creditor. [Art. 1293, Civil Code, emphasis
supplied].

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


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

Under the law when a contract is unlawfully


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

The consent of the creditor to the change of


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

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


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

From the evidence, it is clear that the appellees,


instead of availing themselves of the options
given to them by law of rescission or refusal to
recognize the substitute obligor Yulo, really
wanted to postpone the fight date owing to an
injury that Elorde sustained in a recent bout. That
the appellees had the justification to renegotiate
the original contract, particularly the fight date is
undeniable from the facts aforestated. Under the
circumstances, the appellees' desire to postpone
the fight date could neither be unlawful nor
unreasonable.
We uphold the appellees' contention that since all
the rights on the matter rested with the
appellees, and appellants' claims, if any, to the
enforcement of the contract hung entirely upon
the former's pleasure and sufferance, the GAB
did not act arbitrarily in acceding to the
appellee's request to reset the fight date to
November 4, 1961. It must be noted that
appellant Yulo had earlier agreed to abide by the
GAB ruling.

In a show of accommodation, the appellees


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

The refusal of appellants to accept a


postponement without any other reason but the
implementation of the terms of the original
boxing contract entirely overlooks the fact that
by virtue of the violations they have committed
of the terms thereof, they have forfeited any
right to its enforcement.

On the validity of the fight postponement, the


violations of the terms of the original contract by
appellants vested the appellees with the right to
rescind and repudiate such contract altogether.
That they sought to seek an adjustment of one
particular covenant of the contract, is under the
circumstances, within the appellee's rights.
While the appellants concede to the GAB's
authority to regulate boxing contests, including
the setting of dates thereof, [pp. 44-49, t.s.n.,
Jan. 17, 1963], it is their contention that only
Manuel Nieto, Jr. made the decision for
postponement, thereby arrogating to himself the
prerogatives of the whole GAB Board.

The records do not support appellants'


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

Anent the lower court's refusal to postpone the


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

On the denial of appellant's motion for a new


trial, we find that the lower court did not commit
any reversible error.
The alleged newly discovered evidence, upon
which the motion for new trial was made to rest,
consists merely of clearances which Boysaw
secured from the clerk of court prior to his
departure for abroad. Such evidence cannot alter
the result of the case even if admitted for they
can only prove that Boysaw did not leave the
country without notice to the court or his counsel.

The argument of appellants is that if the


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

We find the argument without merit because it


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

The said documents [clearances] are not


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

The testimony of Boysaw cannot be considered


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

We cite with approval appellee's contention that


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

On the issue pertaining to the award of excessive


damages, it must be noted that because the
appellants wilfully refused to participate in the
final hearing and refused to present documentary
evidence after they no longer had witnesses to
present, they, by their own acts prevented
themselves from objecting to or presenting proof
contrary to those adduced for the appellees.

On the actual damages awarded to appellees, the


appellants contend that a conclusion or finding
based upon the uncorroborated testimony of a
lone witness cannot be sufficient. We hold that in
civil cases, there is no rule requiring more than
one witness or declaring that the testimony of a
single witness will not suffice to establish facts,
especially where such testimony has not been
contradicted or rebutted. Thus, we find no reason
to disturb the award of P250,000.00 as and for
unrealized profits to the appellees.

On the award of actual damages to Interphil and


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

The award of attorney's fees in the amount of


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

However, in the matter of moral damages, we are


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

Art. 2219. Moral damages may be recovered in


the following analogous cases:

1) A criminal offense resulting in physical


injuries;

2) Quasi-delict causing physical injuries;

3) Seduction, abduction, rape or other lascivious


acts;

4) Adultery or concubinage;

5) Illegal or arbitrary detention or arrest;

6) Illegal search;

7) Libel, slander or any other form of


defamation;

8) Malicious prosecution;

9) Acts mentioned in Art. 309.

10) Acts and actions referred to in Arts., 21, 26,


27, 28, 29, 30, 32, 34 and 35.

The award of moral damages in the instant case


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

Moral damages cannot be imposed on a party


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

The grant of moral damages is not subject to the


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

WHEREFORE, except for the award of moral


damages which is herein deleted, the decision of
the lower court is hereby affirmed.
SO ORDERED.

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


concur.

G.R. No. L-28602 September 29, 1970


UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
WALFRIDO DE LOS ANGELES, in his capacity as
JUDGE of the COURT OF FIRST INSTANCE IN
QUEZON CITY, et al., respondents.
Office of the Solicitor General Antonio P. Barredo,
Solicitor Augusto M. Amores and Special Counsel
Perfecto V. Fernandez for petitioner.
Norberto J. Quisumbing for private respondents.
REYES, J.B.L., J.:

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


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

WHEREFORE, the writ of certiorari applied for is


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

FIRST DIVISION

G.R. No. 47206 September 27, 1989

GLORIA M. DE ERQUIAGA, administratrix of the


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

Agrava, Lucero, Gineta & Roxas for petitioners.

Bausa, Ampil, Suarez, Parades & Bausa for


private respondents.

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

Assailed in this petition for review are:

(a) the decision of the Court of Appeals dated


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

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


the motion for reconsideration (p. 298, Rollo);

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


entry of judgment (p. 316, Rollo); and

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


motion to set aside the entry of judgment.

Santiago de Erquiaga was the owner of 100% or


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

As of December 17, 1968, Reynoso was able to


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

As recited by the Court of Appeals in its decision


under review, the following developments
occurred thereafter:

On March 30, 1970, private respondent Santiago


de Erquiaga filed a complaint for rescission with
preliminary injunction against Jose L. Reynoso
and Erquiaga Development Corporation, in the
Court of First Instance of Sorsogon, Branch I (Civil
Case No. 2446).** After issues have been joined
and after trial on the merits, the lower court
rendered judgment (on September 30, 1972),***
the dispositive portion of which reads as follows:

In view of the foregoing, judgment is hereby


rendered in favor of the plaintiff and against the
defendant Jose L. Reynoso, rescinding the sale of
3,100 paid up shares of stock of the Erquiaga
Development Corporation to the defendant, and
ordering:

(a) The defendant to return and reconvey to the


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

(b) The defendant to render a full accounting of


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

(c) The plaintiff to return to the defendant the


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

(d) The defendant to pay the plaintiff as actual


damages the amount of P12,000.00;

(e) The defendant to pay the plaintiff the amount


of P50,000.00 as attorney's fees; and

(f) The defendant to pay the costs of this suit


and expenses of litigation. (Annex A-Petition.)

The parties did not appeal therefrom and it


became final and executory.

On March 21, 1973, the CFI of Sorsogon issued


an Order, pertinent portions of which reads:

It will be noted that both parties having decided


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

It is the sense of the court that the fruits referred


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

In the same Order, the CFI of Sorsogon appointed


a receiver upon the filing of a bond in the amount
of P100,000.00. The reasons of the lower court
for appointing a receiver 'were that the matter of
accounting of the fruits received by defendant
Reynoso as directed in the decision will take
time; that plaintiff Erquiaga has shown sufficient
and justifiable ground for the appointment of a
receiver in order to preserve the Hacienda which
has obviously been mismanaged by the
defendant to a point where the amortization of
the loan with the Development Bank of the
Philippines has been neglected and the arrears in
payments have risen to the amount of
P503,510.70 as of October 19, 1972, and there is
danger that the Development Bank of the
Philippines may institute foreclosure proceedings
to the damage and prejudice of the plaintiff.' (p.
7, Id.)
On April 26, 1973, defendant Jose L. Reynoso
died and he was substituted by his surviving
spouse Africa Valdez Vda. de Reynoso and
children, as party defendants.

Defendants filed a petition for certiorari with a


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

Upon motion of Erquiaga, the CFI of Sorsogon


issued an order, dated February 12,1975,
dissolving the receivership and ordering the
delivery of the possession of the Hacienda San
Jose to Erquiaga, the filing of bond by said
Erquiaga in the amount of P410,000.00
conditioned to the payment of whatever may be
due to the substituted heirs of deceased
defendant Reynoso (petitioners herein) after the
approval of the accounting report submitted by
Reynoso. Said order further directed herein
petitioners to allow counsel for Erquiaga to
inspect, copy and photograph certain documents
related to the accounting report (Annex B,
Petition).

On March 3,1975, the CFI of Sorsogon approved


the P410,000.00 bond submitted by Erquiaga and
the possession, management and control of the
hacienda were turned over to Erquiaga (Annex C,
Petition). Petitioners (Reynosos) filed their motion
for reconsideration which the CFI of Sorsogon
denied in an Order, dated June 23, 1975 (Annex
D, Id.).

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


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

WHEREFORE, in view of the foregoing, on the first


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

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


stockholders of the Erquiaga Development
Corporation to elect the members of the Board of
Directors;
(b) In the said meeting the plaintiff is authorized
to vote not only the 1,500 shares of stock in his
name but also the 1,600 shares in the name and
possession of the defendants;

(c) The question as to who shall be elected


members of the Board of Directors and officers of
the board is left to the discretion of the plaintiff;

(d) The members of the board and the officers


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

On the second count, the prayer to strike out all


expenses alleged[ly] incurred by the defendants
in the production of the fruits of Hacienda San
Jose and declaring the obligation of the plaintiff
under paragraph (c) of the judgment to pay the
defendant the sum of P410,000.00 with interest
as fully compensated by the fruits earned by the
defendants from the property, as well as the
issuance of a writ of execution against the
defendants to pay the plaintiffs P62,000.00 under
paragraphs (e) and (d) and costs of litigation
under paragraph (f) of the judgment of
September 30, 1972, is denied.
The defendants are once more directed to
comply with the order of February 12, 1975, by
answering the interrogatories propounded by
counsel for the plaintiff and allowing said counsel
or his representative to inspect, copy and
photograph the documents mentioned by the
plaintiff during reasonable hours of any working
day within twenty (20) days from receipt of this
order, should the defendants persist in their
refusal or failure to comply with the order, the
plaintiff may inform the court seasonably so that
the proper action may be taken. (Annex J, Id.)

Hence, the present petition for certiorari,


prohibition and mandamus instituted by the
substituted defendants, heirs of the deceased
defendant Jose L. Reynoso against the CFI of
Sorsogon and (plaintiff) Santiago de Erquiaga.
(pp. 276- 281, Rollo.)

On May 31, 1976, the Court of Appeals rendered


judgment holding that:

IN VIEW OF ALL THE FOREGOING, this court finds


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

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


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

It may be seen from the foregoing narration of


facts that as of the time the Court of Appeals
rendered its decision on May 31, 1976 (now
under review) only the following have been done
by the parties in compliance with the final
judgment in the main case (Civil Case No. 2446):

1. The Hacienda San Jose was returned to


Erquiaga on March 3, 1975 upon approval of
Erquiaga's surety bond of P410,000 in favor of
Reynoso;

2. Reynoso has returned to Erquiaga only the


pledged 1,500 shares of stock of the Erquiaga
Development Corporation, instead of 3,100
shares, as ordered in paragraph (a) of the final
judgment.
What the parties have not done yet are:

1. Reynoso has not returned 1,600 shares of


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

2. Reynoso has not rendered a full accounting of


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

3. Erquiaga has not returned the sum of


P100,000 paid by Reynoso on the sale, with legal
interest from November 4, 1968 and P310,000
plus legal interest from December 17, 1968, until
paid (total: P410,000) as ordered in paragraph (c)
of the decision;

4. Reynoso has not paid the judgment of


Pl2,000 as actual damages in favor of Erquiaga,
under paragraph (d) of the judgment;

5. .Reynoso has not paid the sum of P50,000 as


attorney's fees to Erquiaga under paragraph (e)
of the judgment; and

6. Reynoso has not paid the costs of suit and


expenses of litigation as ordered in paragraph (f)
of the final judgment.
The petitioner alleges, in her petition for review,
that:

I. The decision of the Court of Appeals requiring


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

II. The Court of Appeals erroneously applied the


Corporation Law.

III. The Court of Appeals erred in ordering entry


of its judgment.

We address first the third assignment of error for


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

We hold that the directive was precipitate and


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

We now address the petitioners' first and second


assignments of error.

After deliberating on the petition for review, we


find no reversible error in the Court of Appeals'
decision directing the clerk of court of the trial
court to execute a deed of conveyance to
Erquiaga of the 1,600 shares of stock of the
Erquiaga Development Corporation still in
Reynoso's name and/or possession, in
accordance with the procedure in Section 10,
Rule 39 of the Rules of Court. Neither did it err in
annulling the trial court's order: (1) allowing
Erquiaga to vote the 3,100 shares of Erquiaga
Development Corporation without having
effected the transfer of those shares in his name
in the corporate books; and (2) authorizing
Erquiaga to call a special meeting of the
stockholders of the Erquiaga Development
Corporation and to vote the 3,100 shares,
without the pre-requisite registration of the
shares in his name. It is a fundamental rule in
Corporation Law (Section 35) that a stockholder
acquires voting rights only when the shares of
stock to be voted are registered in his name in
the corporate books.

Until registration is accomplished, the transfer,


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

The order of respondent Court directing Erquiaga


to return the sum of P410,000 (or net P348,000
after deducting P62,000 due from Reynoso under
the decision) as the price paid by Reynoso for the
shares of stock, with legal rate of interest, and
the return by Reynoso of Erquiaga's 3,100 shares
with the fruits(construed to mean not only
dividends but also fruits of the corporation's
Hacienda San Jose) is in full accord with Art. 1385
of the Civil Code which provides:

ART. 1385. Rescission creates the obligation to


return the things which were the object of the
contract, together with their fruits, and the price
with its interest; consequently, it can be carried
out only when he who demands rescission can
return whatever he may be obliged to restore.

Neither shall rescission take place when the


things which are the object of the contract are
legally in the possession of third persons who did
not act in bad faith.

In this case, indemnity for damages may be


demanded from the person causing the loss.

The Hacienda San Jose and 1,500 shares of stock


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

WHEREFORE, the petition for review is granted.


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

- versus -
G.R. No. 177685
Present:
CARPIO MORALES, J.,
Chairperson,
NACHURA,*
BRION,
VILLARAMA, JR., and
SERENO, JJ.
THE PLAZA, INC. and FGU INSURANCE
CORPORATION,
Respondents.
Promulgated:
January 26, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:
This is a petition for review under Rule 45 of the
1997 Rules of Civil Procedure, as amended, which
seeks to reverse and set aside the Decision[1]
dated June 27, 2006 and Resolution[2] dated
April 20, 2007 of the Court of Appeals (CA) in CA-
G.R. CV No. 58790. The CA affirmed with
modification the Decision[3] dated July 3, 1997 of
the Regional Trial Court (RTC) of Makati City,
Branch 63, in Civil Case Nos. 1328 (43083) and
40755.
The facts are as follows:
On July 16, 1980, The Plaza, Inc. (The Plaza), a
corporation engaged in the restaurant business,
through its President, Jose C. Reyes, entered into
a contract[4] with Rhogen Builders (Rhogen),
represented by Ramon C. Gaite, for the
construction of a restaurant building in
Greenbelt, Makati, Metro Manila for the price of
P7,600,000.00. On July 18, 1980, to secure
Rhogens compliance with its obligation under the
contract, Gaite and FGU Insurance Corporation
(FGU) executed a surety bond in the amount of
P1,155,000.00 in favor of The Plaza. On July 28,
1980, The Plaza paid P1,155,000.00 less
withholding taxes as down payment to Gaite.
Thereafter, Rhogen commenced construction of
the restaurant building.
In a letter dated September 10, 1980, Engineer
Angelito Z. Gonzales, the Acting Building Official
of the Municipality of Makati, ordered Gaite to
cease and desist from continuing with the
construction of the building for violation of
Sections 301 and 302 of the National Building
Code (P.D. 1096) and its implementing rules and
regulations.[5] The letter was referred to The
Plazas Project Manager, Architect Roberto L.
Tayzon.
On September 15, 1980, Engr. Gonzales informed
Gaite that the building permit for the
construction of the restaurant was revoked for
non-compliance with the provisions of the
National Building Code and for the additional
temporary construction without permit.[6] The
Memorandum Report of Building Inspector Victor
Gregory enumerated the following violations of
Rhogen in the construction of the building:
1) No permit for Temporary Structure.
2) No notice of concrete pouring.
3) Some workers have no safety devices.
4) The Secretary and Construction Foreman
refused to [receive] the Letter of Stoppage dated
September 10, 1980.
5) Mr. Ramon Gaite [is] questioning the authority
of the Building Officials Inspector.
6) Construction plans use[d] on the job site is not
in accordance to the approved plan.[7]
On September 19, 1980, the Project Manager
(Tayzon) in his Construction Memo #23 reported
on his evaluation of Progress Billing #1 submitted
by Rhogen. Tayzon stated that actual jobsite
assessment showed that the finished works fall
short of Rhogens claimed percentage of
accomplishment and Rhogen was entitled to only
P32,684.16 and not P260,649.91 being
demanded by Rhogen. Further, he recommended
that said amount payable to Rhogen be withheld
pending compliance with Construction Memo
#18, resolution of cases regarding unauthorized
withdrawal of materials from jobsite and
stoppage of work by the Municipal Engineers
Office of Makati.[8]
On October 7, 1980, Gaite wrote Mr. Jose C.
Reyes, President of The Plaza regarding his
actions/observations on the stoppage order
issued. On the permit for temporary structure,
Gaite said the plans were being readied for
submission to the Engineering Department of the
Municipality of Makati and the application was
being resent to Reyes for his appropriate action.
As to the notice for concrete pouring, Gaite said
that their construction set-up provides for a
Project Manager to whom the Pouring Request is
first submitted and whose job is to clear to
whoever parties are involved (this could still be
worked out with the Building Inspector).
Regarding the safety devices for workers, Gaite
averred that he had given strict rules on this but
in the course of construction some workers have
personal preferences. On the refusal of the
secretary and construction foreman to receive
the stoppage order dated September 10, 1980,
Gaite took responsibility but insisted it was not a
violation of the National Building Code. Likewise,
questioning the authority of the Building
Inspector is not a violation of the Code although
Gaite denied he ever did so. Lastly, on the
construction plans used in the jobsite not being
in accordance with the approved plan, Gaite said
he had sent Engr. Cristino V. Laurel on October 3,
1980 to Reyes office and make a copy of the only
approved plan which was in the care of Reyes,
but the latter did not give it to Engr. Laurel. Gaite
thus thought that Reyes would handle the matter
by himself.[9]
On the same day, Gaite notified Reyes that he is
suspending all construction works until Reyes and
the Project Manager cooperate to resolve the
issue he had raised to address the problem.[10]
This was followed by another letter dated
November 18, 1980 in which Gaite expressed his
sentiments on their aborted project and
reiterated that they can still resolve the matter
with cooperation from the side of The Plaza.[11]
In his reply-letter dated November 24, 1980,
Reyes asserted that The Plaza is not the one to
initiate a solution to the situation, especially after
The Plaza already paid the agreed down payment
of P1,155,000.00, which compensation so far
exceeds the work completed by Rhogen before
the municipal authorities stopped the
construction for several violations. Reyes made it
clear they have no obligation to help Rhogen get
out of the situation arising from non-performance
of its own contractual undertakings, and that The
Plaza has its rights and remedies to protect its
interest.[12]
Subsequently, the correspondence between Gaite
and Reyes involved the custody of remaining
bags of cement in the jobsite, in the course of
which Gaite was charged with estafa for ordering
the removal of said items. Gaite complained that
Reyes continued to be uncooperative in refusing
to meet with him to resolve the delay. Gaite
further answered the estafa charge by saying
that he only acted to protect the interest of the
owner (prevent spoilage/hardening of cement)
and that Reyes did not reply to his request for
exchange.[13]
On January 9, 1981, Gaite informed The Plaza
that he is terminating their contract based on the
Contractors Right to Stop Work or Terminate
Contracts as provided for in the General
Conditions of the Contract. In his letter, Gaite
accused Reyes of not cooperating with Rhogen in
solving the problem concerning the revocation of
the building permits, which he described as a
minor problem. Additionally, Gaite demanded the
payment of P63,058.50 from The Plaza
representing the work that has already been
completed by Rhogen.[14]
On January 13, 1981, The Plaza, through Reyes,
countered that it will hold Gaite and Rhogen fully
responsible for failure to comply with the terms
of the contract and to deliver the finished
structure on the stipulated date. Reyes argued
that the down payment made by The Plaza was
more than enough to cover Rhogens expenses.
[15]
In a subsequent letter dated January 20, 1981,
Reyes adverted to Rhogens undertaking to
complete the construction within 180 calendar
days from July 16, 1980 or up to January 12,
1981, and to pay the agreed payment of
liquidated damages for every month of delay,
chargeable against the performance bond posted
by FGU. Reyes invoked Section 121 of the Articles
of General Conditions granting the owner the
right to terminate the contract if the contractor
fails to execute the work properly and to make
good such deficiencies and deducting the cost
from the payment due to the contractor. Reyes
also informed Gaite that The Plaza will continue
the completion of the structure utilizing the
services of a competent contractor but will
charge Rhogen for liquidated damages as
stipulated in Article VIII of the Contract. After
proper evaluation of the works completed by
Rhogen, The Plaza shall then resume the
construction and charge Rhogen for all the costs
and expenses incurred in excess of the contract
price. In the meantime that The Plaza is still
evaluating the extent and condition of the works
performed by Rhogen to determine whether
these are done in accordance with the approved
plans, Reyes demanded from Gaite the
reimbursement of the balance of their initial
payment of P1,155,000.00 from the value of the
works correctly completed by Rhogen, or if none,
to reimburse the entire down payment plus
expenses of removal and replacement. Rhogen
was also asked to turn over the jobsite premises
as soon as possible.[16] The Plaza sent copy of
said letter to FGU but the latter replied that it has
no liability under the circumstances and hence it
could not act favorably on its claim against the
bond.[17]
On March 3, 1981, The Plaza notified Gaite that it
could no longer credit any payment to Rhogen for
the work it had completed because the
evaluation of the extent, condition, and cost of
work done revealed that in addition to the
violations committed during the construction of
the building, the structure was not in accordance
with plans approved by the government and
accepted by Ayala. Hence, The Plaza demanded
the reimbursement of the down payment, the
cost of uprooting or removal of the defective
structures, the value of owner-furnished
materials, and payment of liquidated damages.
[18]
On March 26, 1981, The Plaza filed Civil Case No.
40755 for breach of contract, sum of money and
damages against Gaite and FGU in the Court of
First Instance (CFI) of Rizal.[19] The Plaza later
amended its complaint to include Cynthia G.
Gaite and Rhogen.[20] The Plaza likewise filed
Civil Case No. 1328 (43083) against Ramon C.
Gaite, Cynthia G. Gaite and/or Rhogen Builders
also in the CFI of Rizal for nullification of the
project development contract executed prior to
the General Construction Contract subject of Civil
Case No. 40755, which was allegedly in violation
of the provisions of R.A. No. 545 (Architectural
Law of the Philippines).[21] After the
reorganization of the Judiciary in 1983, the cases
were transferred to the RTC of Makati and
eventually consolidated.
On July 3, 1997, Branch 63 of the RTC Makati
rendered its decision granting the claims of The
Plaza against Rhogen, the Gaites and FGU, and
the cross-claim of FGU against Rhogen and the
Gaites. The trial court ruled that the Project
Manager was justified in recommending that The
Plaza withhold payment on the progress billings
submitted by Rhogen based on his evaluation
that The Plaza is liable to pay only P32,684.16
and not P260,649.91. The other valid grounds for
the withholding of payment were the pending
estafa case against Gaite, non-compliance by
Rhogen with Construction Memorandum No. 18
and the non-lifting of the stoppage order.[22]
Regarding the non-lifting of the stoppage order,
which the trial court said was based on simple
infractions, the same was held to be solely
attributable to Rhogens willful inaction. Instead of
readily rectifying the violations, Rhogen
continued with the construction works thereby
causing more damage. The trial court pointed out
that Rhogen is not only expected to be aware of
standard requirements and pertinent regulations
on construction work, but also expressly bound
itself under the General Construction Contract to
comply with all the laws, city and municipal
ordinances and all government regulations.
Having failed to complete the project within the
stipulated period and comply with its obligations,
Rhogen was thus declared guilty of breaching the
Construction Contract and is liable for damages
under Articles 1170 and 1167 of the Civil Code.
[23]
The dispositive portion of the trial courts decision
reads:
WHEREFORE, in Civil Case No. 40755, defendants
Ramon Gaite, Cynthia Gaite and Rhogen Builders
are jointly and severally ordered to pay plaintiff:
1. the amount of P525,422.73 as actual
damages representing owner-furnished materials
with legal interest from the time of filing of the
complaint until full payment;
2. the amount of P14,504.66 as actual
damages representing expenses for uprooting
with interest from the time of filing the complaint
until full payment;
3. the amount of P1,155,000.00 as actual
damages representing the downpayment with
legal interest from the time of filing the complaint
until full payment;
4. the amount of P150,000.00 for moral
damages;
5. the amount of P100,000.00 for exemplary
damages;
6. the amount of P500,000.00 as liquidated
damages;
7. the amount of P100,000.00 as reasonable
attorneys fees; and,
8. the cost of suit.
Under the surety bond, defendants Rhogen and
FGU are jointly and severally ordered to pay
plaintiff the amount of P1,155,000.00 with legal
interest from the time of filing the complaint until
full payment. In the event [that] FGU pays the
said amount, third-party defendants are jointly
and severally ordered to pay the same amount to
FGU plus P50,000.00 as reasonable attorneys
fees, the latter having been forced to litigate, and
the cost of suit.
Civil Case No. 1328 is hereby ordered dismissed
with no pronouncement as to cost.
SO ORDERED.[24]
Dissatisfied, Ramon and Cynthia Gaite, Rhogen
and FGU appealed to the CA.[25] In view of the
death of Ramon C. Gaite on April 21, 1999, the
CA issued a Resolution dated July 12, 2000
granting the substitution of the former by his
heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite,
Genevieve G. Gaite and Roman Juan G. Gaite.[26]
In their appeal, the heirs of Ramon C. Gaite,
Cynthia G. Gaite and Rhogen assigned the
following errors, to wit:
I. THE TRIAL COURT ERRED IN
DECLARING THAT THE GROUNDS RELIED UPON
BY DEFENDANT-APPELLANT RHOGEN BUILDERS IN
TERMINATING THE CONTRACT ARE UNTENABLE;
II. THE TRIAL COURT ERRED IN DECLARING
THAT THE NON-LIFTING OF THE STOPPAGE
ORDER OF THE THEN MUNICIPAL GOVERNMENT
OF MAKATI WAS SOLELY ATTRIBUTABLE TO
DEFENDANT-APPELLANT RHOGENS WILLFUL
INACTION;
III. THE TRIAL COURT ERRED IN FAILING TO
CONSIDER THAT IT WAS THE WILLFUL INACTION
OF PLAINTIFF-APPELLEE WHICH MADE IT
IMPOSSIBLE FOR DEFENDANTAPPELLANT
RHOGEN TO PERFORM ITS OBLIGATIONS UNDER
THE CONTRACT;
IV. THE TRIAL COURT ERRED IN AWARDING
ACTUAL DAMAGES AS WELL AS MORAL,
EXEMPLARY, AND LIQUIDATED DAMAGES AND
ATTORNEYS FEES SINCE THERE WERE NO
FACTUAL AND LEGAL BASES THEREFOR; AND
V. THE TRIAL COURT ERRED IN FAILING TO
AWARD ACTUAL, MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IN FAVOR OF
DEFENDANTS-APPELLANTS.[27]
For its part, FGU interposed the following
assignment of errors:
I. THE REGIONAL TRIAL COURT ERRED IN
NOT RULING THAT DEFENDANT-APPELLANT
RAMON GAITE VALIDLY TERMINATED THE
CONTRACT BETWEEN HIM AND PLAINTIFF-
APPELLEE.
II. THE REGIONAL TRIAL COURT ERRED IN
HOLDING DEFENDANT-APPELLANT RAMON GAITE
RESPONSIBLE FOR THE STOPPAGE OF THE
CONSTRUCTION.
III. THE REGIONAL TRIAL COURT ERRED IN
ORDERING DEFENDANT-APPELLANT RAMON
GAITE TO PAY THE AMOUNT OF P525,422.73 FOR
THE OWNER FURNISHED MATERIALS.
IV. THE REGIONAL TRIAL COURT ERRED IN
ORDERING DEFENDANT-APPELLANT RAMON
GAITE TO PAY PLAINTIFF-APPELLEE THE AMOUNT
OF P14,504.66 AS ALLEGED EXPENSES FOR
UPROOTING THE WORK HE PERFORMED.
V. THE REGIONAL TRIAL COURT ERRED IN
ORDERING DEFENDANT-APPELLANT RAMON
GAITE TO REFUND THE DOWN PAYMENT OF
P1,155,000.00 PLAINTIFF-APPELLEE PAID HIM.
VI. THE REGIONAL TRIAL COURT ERRED IN
AWARDING MORAL DAMAGES TO PLAINTIFF-
APPELLEE.
VII. THE REGIONAL TRIAL COURT ERRED IN
AWARDING EXEMPLARY DAMAGES TO PLAINTIFF-
APPELLEE.
VIII. THE REGIONAL TRIAL [COURT] ERRED IN
AWARDING LIQUIDATED DAMAGES TO PLAINTIFF-
APPELLEE.
IX. THE REGIONAL TRIAL COURT ERRED IN
AWARDING ATTORNEYS FEES TO PLAINTIFF-
APPELLEE.
X. THE REGIONAL TRIAL COURT ERRED IN
HOLDING DEFENDANT-APPELLANT FGU
INSURANCE CORPORATION LIABLE TO PLAINTIFF-
APPELLEE.[28]
On June 27, 2006, the CA affirmed the Decision of
the trial court but modified the award of
damages as follows:
WHEREFORE, the Decision dated July 3, 1997
rendered by the Regional Trial Court of Makati
City, Branch 63 in Civil Case Nos. 40755 and
1328 is AFFIRMED with the modification that: (a)
the award for actual damages representing the
owner-furnished materials and the expenses for
uprooting are deleted, and in lieu thereof, the
amount of P300,000.00 as temperate damages is
awarded; and (b) the awards for moral,
exemplary, liquidated and attorneys fees are
likewise deleted.
SO ORDERED.[29]
According to the CA, The Plaza cannot now be
demanded to comply with its obligation under
the contract since Rhogen has already failed to
comply with its own contractual obligation. Thus,
The Plaza had every reason not to pay the
progress billing as a result of Rhogens inability to
perform its obligations under the contract.
Further, the stoppage and revocation orders were
issued on account of Rhogens own violations
involving the construction as found by the local
building official. Clearly, Rhogen cannot blame
The Plaza for its own failure to comply with its
contractual obligations. The CA stressed that
Rhogen obliged itself to comply with all the laws,
city and municipal ordinances and all
government regulations insofar as they are
binding upon or affect the parties [to the
contract] , the work or those engaged thereon.
[30] As such, it was responsible for the lifting of
the stoppage and revocation orders. As to
Rhogens act of challenging the validity of the
stoppage and revocation orders, the CA held that
it cannot be done in the present case because
under Section 307 of the National Building Code,
appeal to the Secretary of the Department of
Public Works and Highways (DPWH) whose
decision is subject to review by the Office of the
President -- is available as remedy for Rhogen.
[31]
However, the CA modified the award of damages
holding that the claim for actual damages of
P525,422.73 representing the damaged owner-
furnished materials was not supported by any
evidence. Instead, the CA granted temperate
damages in the amount of P300,000.00. As to
moral damages, no specific finding for the factual
basis of said award was made by the trial court,
and hence it should be deleted. Likewise,
liquidated damages is not proper considering that
this is not a case of delay but non-completion of
the project. The Plaza similarly failed to establish
that Rhogen and Gaite acted with malice or bad
faith; consequently, the award of exemplary
damages must be deleted. Finally, there being no
bad faith on the part of the defendants, the
award of attorneys fees cannot be sustained.[32]
The motion for reconsideration of the aforesaid
Decision was denied in the Resolution dated April
20, 2007 for lack of merit. Hence, this appeal.
Before us, petitioners submit the following issues:
I.
Whether or not the Court of Appeals acted
without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack of or
excess of jurisdiction, when it found that
Petitioner Rhogen had no factual or legal basis to
terminate the General Construction Contract.
II.
Whether or not the Court of Appeals acted
without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack of or
excess of jurisdiction, when, as a consequence of
its finding that Petitioners did not have valid
grounds to terminate the Construction Contract,
it directed Petitioners to return the downpayment
paid by The Plaza, with legal interest.
III.
Whether or not the Court of Appeals acted
without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack of or
excess of jurisdiction, when, in addition thereto, it
awarded temperate damages to The Plaza.
IV.
Whether or not the Court of Appeals acted
without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack of or
excess of jurisdiction, when it failed to award
damages in favor of Petitioners.[33]
Petitioners contend that the CA gravely erred in
not holding that there were valid and legal
grounds for Rhogen to terminate the contract
pursuant to Article 1191 of the Civil Code and
Article 123 of the General Conditions of the
Construction Contract. Petitioners claim that
Rhogen sent Progress Billing No. 1 dated
September 10, 1980 and demanded payment
from The Plaza in the net amount of P473,554.06
for the work it had accomplished from July 28,
1980 until September 7, 1980. The Plaza,
however, failed to pay the said amount.
According to petitioners, Article 123 of the
General Conditions of the Construction Contract
gives The Plaza seven days from notice within
which to pay the Progress Billing; otherwise,
Rhogen may terminate the contract. Petitioners
also invoke Article 1191 of the Civil Code, which
states that the power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him.
We deny the petition.
Reciprocal obligations are those which arise from
the same cause, and in which each party is a
debtor and a creditor of the other, such that the
obligation of one is dependent upon the
obligation of the other. They are to be performed
simultaneously such that the performance of one
is conditioned upon the simultaneous fulfillment
of the other. Respondent The Plaza predicated its
action on Article 1191[34] of the Civil Code,
which provides for the remedy of rescission or
more properly resolution, a principal action based
on breach of faith by the other party who violates
the reciprocity between them. The breach
contemplated in the provision is the obligors
failure to comply with an existing obligation.
Thus, the power to rescind is given only to the
injured party. The injured party is the party who
has faithfully fulfilled his obligation or is ready
and willing to perform his obligation.[35]
The construction contract between Rhogen and
The Plaza provides for reciprocal obligations
whereby the latters obligation to pay the contract
price or progress billing is conditioned on the
formers performance of its undertaking to
complete the works within the stipulated period
and in accordance with approved plans and other
specifications by the owner. Pursuant to its
contractual obligation, The Plaza furnished
materials and paid the agreed down payment. It
also exercised the option of furnishing and
delivering construction materials at the jobsite
pursuant to Article III of the Construction
Contract. However, just two months after
commencement of the project, construction
works were ordered stopped by the local building
official and the building permit subsequently
revoked on account of several violations of the
National Building Code and other regulations of
the municipal authorities.
Petitioners reiterate their position that the
stoppage order was unlawful, citing the fact that
when the new contractor (ACK Construction, Inc.)
took over the project, the local government of
Makati allowed the construction of the building
using the old building permit; moreover, the
basement depth of only two meters was retained,
with no further excavation made. They cite the
testimony of the late Ramon Gaite before the trial
court that at the time, he had incurred the ire of
then Mayor of Makati because his (Gaite) brother
was the Mayors political opponent; hence, they
sought to file whatever charge they could against
him in order to call the attention of his brother.
This political harassment defense was raised by
petitioners in their Amended Answer. Gaites
testimony was intended to explain the
circumstances leading to his decision to
terminate the construction contract and not to
question the revocation of the building permit. As
the available remedy was already foreclosed, it
was thus error for the CA to suggest that Rhogen
should have appealed the stoppage and
revocations orders issued by the municipal
authorities to the DPWH and then to the OP.[36]
Article 123 of the Articles of General Conditions
states the grounds for the termination of the
work or contract by the Contractor:
123. CONTRACTORS RIGHT TO STOP WORK OR
TERMINATE
CONTRACT
If work should be stopped under order of any
court, or other public authority, for period of
three (3) months through no act or fault of
Contractor or of anyone employed by him, or if
Owners Representative should fail to issue any
certificate of payment within seven (7) days after
its maturity and presentation of any sum certified
by Owners Representative or awarded arbitrator,
then contractor, may, stop work or terminate
Contract, recover from Owner payment for work
executed, loss sustained upon any plant or
materials, reasonable profit, damages.[37]
(Emphasis supplied.)
Petitioners may not justify Rhogens termination
of the contract upon grounds of non-payment of
progress billing and uncooperative attitude of
respondent The Plaza and its employees in
rectifying the violations which were the basis for
issuance of the stoppage order. Having breached
the contractual obligation it had expressly
assumed, i.e., to comply with all laws, rules and
regulations of the local authorities, Rhogen was
already at fault. Respondent The Plaza, on the
other hand, was justified in withholding payment
on Rhogens first progress billing, on account of
the stoppage order and additionally due to
disappearance of owner-furnished materials at
the jobsite. In failing to have the stoppage and
revocation orders lifted or recalled, Rhogen
should take full responsibility in accordance with
its contractual undertaking, thus:
In the performance of the works, services, and
obligations subject of this Contract, the
CONTRACTOR binds itself to observe all pertinent
and applicable laws, rules and regulations
promulgated by duly constituted authorities and
to be personally, fully and solely liable for any
and all violations of the same.[38] (Emphasis
supplied.)
Significantly, Rhogen did not mention in its
communications to Reyes that Gaite was merely
a victim of abuse by a local official and this was
the primary reason for the problems besetting
the project. On the contrary, the site appraisal
inspection conducted on February 12 and 13,
1981 in the presence of representatives from The
Plaza, Rhogen, FGU and Municipal Engineer
Victor Gregory, disclosed that in addition to the
violations committed by Rhogen which resulted
in the issuance of the stoppage order, Rhogen
built the structure not in accordance with
government approved plans and/or without
securing the approval of the Municipal Engineer
before making the changes thereon.[39]
Such non-observance of laws and regulations of
the local authorities affecting the construction
project constitutes a substantial violation of the
Construction Contract which entitles The Plaza to
terminate the same, without obligation to make
further payment to Rhogen until the work is
finished or subject to refund of payment
exceeding the expenses of completing the works.
This is evident from a reading of Article 122
which states:
122. OWNERS RIGHT TO TERMINATE CONTRACT
A. If Contractor should be adjudged bankrupt, or
if he should make general assignment for benefit
of his creditors, or if receiver should be appointed
on account of his insolvency, or if he should
persistently or repeatedly refuse or should fail,
except in cases for which extension of time is
provided, to supply enough properly skilled
workmen or proper materials, or if he should fail
to make prompt payment to Sub-Contractors or
for materials of labor, or persistently disregard
laws, ordinances, or instructions of Owners
Representative or otherwise be guilty of
substantial violation of any provision of [the]
Contract, then Owner, upon certification by
Owners Representative that sufficient cause
exists to justify such action, may, without
prejudice to any right or remedy, after giving
Contractor seven days written notice, terminate
contract with Contractor, take possession of
premises, materials, tools, appliances, thereon,
finish work by whatever method he may deem
expedient. In such cases, Contractor shall not be
entitled to receive any further payment until
work is finished.
B. If unpaid balance of Contract sum shall exceed
expense of finishing work including compensation
for additional managerial and administrative
services, such excess, paid to Contractor. Refund
the difference to Owner if such expense shall
exceed unpaid balance.[40] (Emphasis supplied.)
Upon the facts duly established, the CA therefore
did not err in holding that Rhogen committed a
serious breach of its contract with The Plaza,
which justified the latter in terminating the
contract. Petitioners are thus liable for damages
for having breached their contract with
respondent The Plaza. Article 1170 of the Civil
Code provides that those who in the performance
of their obligations are guilty of fraud, negligence
or delay and those who in any manner
contravene the tenor thereof are liable for
damages.
Petitioners assail the order for the return of down
payment, asserting that the principle of quantum
meruit demands that Rhogen as contractor be
paid for the work already accomplished.
We disagree.
Under the principle of quantum meruit, a
contractor is allowed to recover the reasonable
value of the thing or services rendered despite
the lack of a written contract, in order to avoid
unjust enrichment. Quantum meruit means that
in an action for work and labor, payment shall be
made in such amount as the plaintiff reasonably
deserves. To deny payment for a building almost
completed and already occupied would be to
permit unjust enrichment at the expense of the
contractor.[41]
Rhogen failed to finish even a substantial portion
of the works due to the stoppage order issued
just two months from the start of construction.
Despite the down payment received from The
Plaza, Rhogen, upon evaluation of the Project
Manager, was able to complete a meager
percentage much lower than that claimed by it
under the first progress billing between July and
September 1980. Moreover, after it relinquished
the project in January 1981, the site inspection
appraisal jointly conducted by the Project
Manager, Building Inspector Engr. Gregory and
representatives from FGU and Rhogen, Rhogen
was found to have executed the works not in
accordance with the approved plans or failed to
seek prior approval of the Municipal Engineer.
Article 1167 of the Civil Code is explicit on this
point that if a person obliged to do something
fails to do it, the same shall be executed at his
cost.
Art. 1167. If a person obliged to do something
fails to do it, the same shall be executed at his
cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has
been poorly done be undone.
In addition, Article 122 of the Articles of General
Conditions provides that the contractor shall not
be entitled to receive further payment until the
work is finished. As the works completed by
Rhogen were not in accordance with approved
plans, it should have been executed at its cost
had it not relinquished the project in January
1981. The CA thus did not err in sustaining the
trial courts order for the return of the down
payment given by The Plaza to Rhogen.
As to temperate damages, Article 2224 of the
Civil Code provides that temperate or moderate
damages, which are more than nominal but less
than compensatory damages, may be recovered
when the court finds that some pecuniary loss
has been suffered but its amount cannot, from
the nature of the case, be proved with certainty.
The rationale behind temperate damages is
precisely that from the nature of the case,
definite proof of pecuniary loss cannot be offered.
When the court is convinced that there has been
such loss, the judge is empowered to calculate
moderate damages, rather than let the
complainant suffer without redress from the
defendants wrongful act.[42] Petitioners
contention that such award is improper because
The Plaza could have presented receipts to
support the claim for actual damages, must fail
considering that Rhogen never denied the
delivery of the owner-furnished materials which
were under its custody at the jobsite during the
work stoppage and before it terminated the
contract. Since Rhogen failed to account either
for those items which it had caused to be
withdrawn from the premises, or those
considered damaged or lost due spoilage, or
disappeared for whatever reason there was no
way of determining the exact quantity and cost
of those materials. Hence, The Plaza was
correctly allowed to recover temperate damages.
Upon the foregoing, we find petitioners claim for
actual, moral and exemplary damages and
attorneys fees lacking in legal basis and
undeserving of further discussion.

WHEREFORE, the petition is DENIED. The


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

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

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

JOSE PONCE DE LEON, plaintiff-appellant,


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

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


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

BAUTISTA ANGELO, J.:

This is an appeal from a decision of the Court of


First Instance of Manila absolving defendant
Santiago Syjuco, Inc. of the complaint and
condemning the plaintiff to pay to said defendant
the sum of P18,000 as principal and the further
sum of P5,130 as interest thereon from August 6,
1944, to May 5, 1949, or a total of P23,130,
Philippine currency, with interest thereon at the
rate of 6% per annum from May 6, 1949, until
said amount is paid in full, with costs against the
plaintiff.
The facts of this case as reflected in the
pleadings and the evidence, stripped of
unnecessary details, are well narrated in the brief
submitted by counsel for the Philippine National
Bank, and which for purposes of this decision are
hereunder reproduced:

The appellee, Philippine National Bank,


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

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


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

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


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

The deed of sale executed by the Bank in favor of


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

On July 31, 1944, Ponce de Leon obtained an


additional loan from Syjuco in the amount of
P16,000 in Japanese Military notes and executed
in the latter's favor of promissory note of the
same tenor as the one had previously executed
(R. on Appeal, pp. 23-24)
On several occasions in October, 1944, Ponce de
Leon tendered to Syjuco the amount of P254,880
in Japanese military notes in full payment of his
indebtedness to Syjuco. The amount tendered
included not only the interest up to the time of
the tender, but also all the interest up to May 5,
1948. Ponce de Leon also wrote to Syjuco a letter
tendering the payment of his indebtedness,
including interests up to May 5, 1948, Syjuco,
however, refused to accept such repeated
tenders. During the trial, Ponce de Leon
explained that he wanted to settle his obligations
because as a member of the guerilla forces he
was being hunted by the Japanese and he was
afraid of getting caught and killed (t.s.n. pp. 14-
15).

In view of Syjuco's refusal to accept the payment


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

On May 15, 1946, Ponce de Leon filed a petition


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

On August 16, 1946, Ponce de Leon obtained an


overdraft account from the Bank in an amount
not exceeding P135,000 and, on the same date,
he executed a mortgage of the two parcels of
land covered by the reconstituted Transfer
Certificates of Title Nos. 526-N and 527-N in favor
of the said Bank to secure the payment of any
amount which he may obtain from the Bank
under aforementioned overdraft account. The
overdraft account was granted by the Bank to
Ponce de Leon in good faith, said Bank not being
aware of the mortgage which Ponce de Leon had
executed in favor of Syjuco during the Japanese
occupation, and said Bank believing that the said
properties had no lien or encumbrance appeared
annotated on the reconstituted certificates of
Title Nos. 526-N and 527-N in the name of Ponce
de Leon (See Testimony of Atty. Endriga).
On September 28, 1946, Syjuco filed a second
amended answer to Ponce de Leon's complaint
and, in its "Tercera Reconvention", it claimed that
Ponce de Leon, by reconstituting the titles in the
name of the Bank, by causing the Register of
Deeds to have the said titles transferred in his
(Ponce de Leon's name, and by subsequently
mortgaging the said properties to the Bank as a
guaranty for his overdraft account, had violated
the conditions of the morgage which Ponce de
Leon has executed in its favor during the
Japanese occupation. Syjuco then prayed that the
mortgage executed by Ponce de Leon in favor of
the Bank be declared null and void. (R. on A., pp.
32-53).

Ponce de Leon objected to the inclusion of the


Bank as a cross-defendant. (R on A. pp. 55-58).
Notwithstanding said objection, however, the
lower court ordered the inclusion of the Bank as a
cross-defendant (R. on A., pp. 59-60).

On June 28, 1947, the Bank filed a motion to drop


on the ground that it had been misjoined and to
dismiss on the ground that the venue was
improperly laid and there is another action
pending between the same parties for the same
cause (R. on A., pp. 65-75). The said motion was
denied by the lower court in its order dated
October 7, 1947 (R. on A., pp. 95-100). In view of
such denial, the Bank filed its answer on October
29, 1947 (R. on A., pp. 101-106).
On June 24, 1949, the lower court rendered a
decision absolving Syjuco from Ponce de Leon's
complaint and condemning Ponce de Leon to pay
Syjuco the total amount of P23,130 with interest
at the legal rate from May 6, 1949, until fully paid
(R. on A., pp. 107-135). Both Ponce de Leon and
Syjuco file their appeal from this decision.

The principal questions to be determined in this


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

1. It appears that plaintiff obtained from


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

The facts show that, on November 15, 1944, or


thereabouts, contrary to the stipulation above
mentioned, plaintiff offered to pay to the
defendant not only the principal sum due on the
two promissory notes but also all the interests
which said principal sum may earn up to the
dates of maturity of the two notes, and as the
defendant refused to accept the payment so
tendered, plaintiff deposited the money with the
clerk of court and brought this action to compel
the defendant to accept it to relieve himself of
further liability.

The question now to be determined is, is the


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

In order that cogsignation may be effective, the


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

It may be argued that the creditor has nothing to


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

Tested by the law and authorities we have cited


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

2. The next question to be determined is


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

This is not the first time that this question has


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

In this particular case, the terms agreed upon are


clearer and more conclusive than the ones cited
because the plaintiff agreed not only to pay the
obligation within one year from May 5, 1948, but
also to pay peso for peso in the coin or currency
of the Government that at the time of payment it
is the legal tender for public and private debts.
This stipulation is permitted by law because there
is nothing immoral or improper in it. And it is not
oppressive because it appears that plaintiff used
a great portion of that money to pay his
obligations during the Japanese occupation as
shown by the fact that he settled his account
with the Philippine National Bank and other
accounts to the tune of P100,000. It would seem
therefore clear that plaintiff has no other
alternative than to pay the defendant his
obligation peso for peso in the present currency
as expressly agreed upon in the two promissory
notes in question. The decision of the lower court
on this point should, therefore, be modified.
As regards the penal clause contained in the two
deeds of mortgage herein involved, we agree to
the following finding of the court a quo: "The
attempt made by the plaintiff to pay the
obligation before the arrival of the term fixed for
the purpose may be wrong; but it may be
attributed to an honest belief that the term was
not binding and not to a desire to modify the
contract". This penal clause should be strictly
construed.

3. As regards the third question, we find that


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

The lower court, therefore, should have passed


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

4. The facts relative to the execution of the


deed of mortgage in favor of the Philippine
National Bank on the two lots in question are as
follows: On March 9, 1936, the Philippine National
Bank was the owner of the lots Nos. 872 and 871
of the Murcia Cadastre, Negros Occidental,
covered by Certificates of Titles Nos. 17175 and
17176 respectively. On the same date, the Bank
sold the two lots to the plaintiff and as a result
Transfer Certificates of Titles Nos. 398 and 399
were issued in the name of the plaintiff. On May
5, 1944, plaintiff mortgaged these two lots to
defendant Syjuco to guarantee the payment of
two loans, one for P200,000 and another for
P16,000. The mortgage was registered in
accordance with the law. Then liberation came.
Plaintiff taking advantage of the destruction of
the records of the office of the Register of Deeds
of Negros Occidental, obtained from the Court of
First Instance of said province the 33
reconstitution of Transfer Certificate of Titles Nos.
17175 and 17176 and by virtue thereof, the
register of deeds issued transfer certificates of
titles Nos. 1297-R and 1298-R in the name of the
Philippine National Bank. Then he secured the
cancellation of the titles last named and the
issuance of Transfer Certificates of Titles Nos.
526-N and 527-N in his name without informing
the court of the encumbrance existing in favor of
defendant Syjuco. After securing the new titles in
his name, plaintiff obtained a loan from the
Philippine National Bank for the sum of P135,000
on the security of the property covered by said
reconstituted titles. On said titles no
encumbrance appears annotated, but it was
noted thereon that they would be subject to
whatever claim may be filed by virtue of
documents or instruments previously registered
but which, for some reason, do not appear
annotated thereon, as required by a circular of
the Department of Justice.
From the foregoing facts, it clearly appears that
the mortgage executed in favor of the defendant
Syjuco is prior in point of time and in point of
registration to that executed in favor of the
Philippine National Bank, let alone the fact that
when the later mortgage was executed, the Bank
must have known, as it was its duty to find out,
that there was a warning appearing in
reconstituted titles that the same were subject to
whatever encumbrance may exist which for one
reason or another does not appear in said titles.
With such warning, the Bank should have taken
the necessary precaution to inquire into the
existence of any hidden transaction or
encumbrance that might affect the property that
was being offered in security such as the one
existing in favor of the defendant, and when the
Bank accepted as security the titles offered by
the plaintiff without any further inquiry, it
assumed the risk and the consequences resulting
therefrom. Moreover, it also appears that this
same question of priority has already been
threshed out and determined by the Court of First
Instance of Negros Occidental in the cadastral
proceedings covered the two lots in question
wherein the court ordered the cancellation of the
reconstituted titles issued in the name of the
plaintiff and the reconstitution of the former titles
copies of which were in the possession of
defendant Syjuco, subject only to the
requirement that the mortgage in favor of the
Philippine National Bank be annotated on said
new titles. In other words, the court declared
valid the titles originally issued in the name of
the plaintiff wherein the encumbrance in favor of
the defendant Syjuco appears and declared
invalid the reconstituted titles secured by plaintiff
through fraud and misinterpretation. This order is
now final because no appeal has been taken
therefrom by any interested party.

We have, therefore, no other alternative than to


declare that the mortgage claim of the defendant
Syjuco is entitled to priority over that of the
Philippine National Bank. This question can be
threshed out here regardless of venue because
the counterclaim is but ancillary to the main case
(1 Moran, Comments on the Rules of Court, 2nd
ed., 201).

In view of the foregoing, the decision appealed


from should be modified in the sense of ordering
the plaintiff to pay the defendant Syjuco the sum
of P216,000, Philippine currency, value of two
promissory notes, with interest thereon at the
rate of 6% per annum from May 6, 1949, until
said amount is paid in full. It is further ordered
that should said amount, together with the
corresponding interests, be not paid within 90
days from the date this judgment in accordance
with law, with costs against the plaintiff.

However, this judgment shall be held in


abeyance, or no order for the execution thereof
shall be issued, until after the moratorium orders
shall have been lifted.
Feria, Bengzon, Tuason, Reyes, and Jugo, JJ.,
concur.

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

ANITA C. BUCE, petitioner, vs. THE HONORABLE


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

DECISION

DAVIDE, JR., C.J.: Ncm

The basic issue in this petition is whether the


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

Petitioner leased a 56-square meter parcel of


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

On 6 December 1991, private respondents


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

On 9 August 1993, petitioner filed with the


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

In their Answer, private respondents countered


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

During the pendency of the controversy, counsel


for private respondents wrote petitioner
reminding her that the contract expired on 1 June
1994 and demanding that she pay the rentals in
arrears, which then amounted to P33,000.

On 29 August 1995, the RTC declared the lease


contract automatically renewed for ten years and
considered as evidence thereof (a) the
stipulations in the contract giving the lessee the
right to construct buildings and improvements
and (b) the filing by petitioner of the complaint
almost one year before the expiration of the
initial term of fifteen years. It then fixed the
monthly rent at P400 from 1 June 1990 to 1 June
1994; P1,000 from 1 June 1994 until 1 June 1999;
and P1,500 for the rest of the period or from 1
June 2000 to 1 June 2004, reasoning that the
continuous increase of rent from P200 to P250
then P300, P400 and finally P1,000 caused "an
inevitable novation of their contract."[11]

On appeal, the Court of Appeals reversed the


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

According to the Court of Appeals, the phrase in


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

The Court of Appeals denied petitioners motion


for reconsideration. Hence this petition. Scncm

Petitioner contends that by ordering her to


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

Petitioner further maintains that the phrase


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

On the other hand, private respondents aver that


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

Private respondents argue that the alleged


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

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


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

The literal meaning of the stipulations shall


control if the terms of the contract are clear and
leave no doubt upon the intention of the
contracting parties.[14] However, if the terms of
the agreement are ambiguous resort is made to
contract interpretation which is the determination
of the meaning attached to written or spoken
words that make the contract.[15] Also, to
ascertain the true intention of the parties, their
actions, subsequent or contemporaneous, must
be principally considered.[16]
The phrase "subject to renewal for another ten
(10) years" is unclear on whether the parties
contemplated an automatic renewal or extension
of the term, or just an option to renew the
contract; and if what exists is the latter, who may
exercise the same or for whose benefit it was
stipulated.

In this jurisdiction, a fine delineation exists


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

There is nothing in the stipulations in the contract


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

Now on the applicability of Fernandez v. Court of


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

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


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

In the case at bar, it was not specifically


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

After the lease terminated on 1 June 1994


without any agreement for renewal being
reached, petitioner became subject to ejectment
from the premises.[22] It must be noted,
however, that private respondents did not
include in their Answer with Counterclaim a
prayer for the restoration of possession of the
leased premises. Neither did they file with the
proper Metropolitan Trial Court an unlawful
detainer suit[23] against petitioner after the
expiration of the lease contact. Moreover, the
issues agreed upon by the parties to be resolved
during the pre-trial were the correct
interpretation of the contract and the validity of
private respondents refusal to accept petitioners
payment of P400 as monthly rental.[24] They
later limited the issue to the first, i.e., the correct
interpretation of the contract.[25] The issue of
possession of the leased premises was not
among the issues agreed upon by the parties or
threshed out before the court a quo. Neither was
it raised by private respondents on appeal.

Accordingly, as correctly contended by the


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

WHEREFORE, the instant petition is partly


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

No costs.

SO ORDERED. DAVIDE, JR.


Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

GREGORIO ARANETA, INC., petitioner,


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

Araneta and Araneta for petitioner.


Rosauro Alvarez and Ernani Cruz Pao for
respondent.

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

Petition for certiorari to review a judgment of the


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

As found by the Court of Appeals, the facts of this


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

Build on the said parcel land the Sto. Domingo


Church and Convent

while the seller for its part will

Construct streets on the NE and NW and SW


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

The buyer, Philippine Sugar Estates Development


Co., Ltd., finished the construction of Sto.
Domingo Church and Convent, but the seller,
Gregorio Araneta, Inc., which began constructing
the streets, is unable to finish the construction of
the street in the Northeast side named (Sto.
Domingo Avenue) because a certain third-party,
by the name of Manuel Abundo, who has been
physically occupying a middle part thereof,
refused to vacate the same; hence, on May 7,
1958, Philippine Sugar Estates Development Co.,
Lt. filed its complaint against J. M. Tuason & Co.,
Inc., and instance, seeking to compel the latter to
comply with their obligation, as stipulated in the
above-mentioned deed of sale, and/or to pay
damages in the event they failed or refused to
perform said obligation.

Both defendants J. M. Tuason and Co. and


Gregorio Araneta, Inc. answered the complaint,
the latter particularly setting up the principal
defense that the action was premature since its
obligation to construct the streets in question
was without a definite period which needs to he
fixed first by the court in a proper suit for that
purpose before a complaint for specific
performance will prosper.

The issues having been joined, the lower court


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

Plaintiff moved to reconsider and modify the


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

Defendant Gregorio Araneta, Inc. opposed said


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

On July 16, 1960, the lower court, after finding


that "the proven facts precisely warrants the
fixing of such a period," issued an order granting
plaintiff's motion for reconsideration and
amending the dispositive portion of the decision
of May 31, 1960, to read as follows:

WHEREFORE, judgment is hereby rendered giving


defendant Gregorio Araneta, Inc., a period of two
(2) years from notice hereof, within which to
comply with its obligation under the contract,
Annex "A".

Defendant Gregorio Araneta, Inc. presented a


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

On August 16, 1960, the lower court denied


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

In said appellate court, defendant-appellant


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

Ruling on the above contention, the appellate


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

7. Under the Deed of Sale with Mortgage of July


28, 1950, herein defendant has a reasonable
time within which to comply with its obligations
to construct and complete the streets on the NE,
NW and SW sides of the lot in question; that
under the circumstances, said reasonable time
has not elapsed;

Disposing of the other issues raised by appellant


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

IN VIEW WHEREOF, judgment affirmed and


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

Unsuccessful in having the above decision


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

We agree with the petitioner that the decision of


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

Even on the assumption that the court should


have found that no reasonable time or no period
at all had been fixed (and the trial court's
amended decision nowhere declared any such
fact) still, the complaint not having sought that
the Court should set a period, the court could not
proceed to do so unless the complaint in as first
amended; for the original decision is clear that
the complaint proceeded on the theory that the
period for performance had already elapsed, that
the contract had been breached and defendant
was already answerable in damages.

Granting, however, that it lay within the Court's


power to fix the period of performance, still the
amended decision is defective in that no basis is
stated to support the conclusion that the period
should be set at two years after finality of the
judgment. The list paragraph of Article 1197 is
clear that the period can not be set arbitrarily.
The law expressly prescribes that
the Court shall determine such period as may
under the circumstances been probably
contemplated by the parties.

All that the trial court's amended decision (Rec.


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

It must be recalled that Article 1197 of the Civil


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

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


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

The Court of Appeals objected to this conclusion


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

It follows that there is no justification in law for


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

Costs against respondent Philippine Sugar


Estates Development, Co., Ltd. So ordered.

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


Bengzon, J.P., Sanchez and Castro, JJ., concur.
search

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 112127 July 17, 1995

CENTRAL PHILIPPINE UNIVERSITY, petitioner,


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

BELLOSILLO, J.:

CENTRAL PHILIPPINE UNIVERSITY filed this


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

Sometime in 1939, the late Don Ramon Lopez,


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

1. The land described shall be utilized by the


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

2. The said college shall not sell, transfer or


convey to any third party nor in any way
encumber said land;

3. The said land shall be called "RAMON LOPEZ


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

On 31 May 1989, private respondents, who are


the heirs of Don Ramon Lopez, Sr., filed an action
for annulment of donation, reconveyance and
damages against CPU alleging that since 1939 up
to the time the action was filed the latter had not
complied with the conditions of the donation.
Private respondents also argued that petitioner
had in fact negotiated with the National Housing
Authority (NHA) to exchange the donated
property with another land owned by the latter.

In its answer petitioner alleged that the right of


private respondents to file the action had
prescribed; that it did not violate any of the
conditions in the deed of donation because it
never used the donated property for any other
purpose than that for which it was intended; and,
that it did not sell, transfer or convey it to any
third party.

On 31 May 1991, the trial court held that


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

Petitioner appealed to the Court of Appeals which


on 18 June 1993 ruled that the annotations at the
back of petitioner's certificate of title were
resolutory conditions breach of which should
terminate the rights of the donee thus making
the donation revocable.

The appellate court also found that while the first


condition mandated petitioner to utilize the
donated property for the establishment of a
medical school, the donor did not fix a period
within which the condition must be fulfilled,
hence, until a period was fixed for the fulfillment
of the condition, petitioner could not be
considered as having failed to comply with its
part of the bargain. Thus, the appellate court
rendered its decision reversing the appealed
decision and remanding the case to the court of
origin for the determination of the time within
which petitioner should comply with the first
condition annotated in the certificate of title.

Petitioner now alleges that the Court of Appeals


erred: (a) in holding that the quoted annotations
in the certificate of title of petitioner are onerous
obligations and resolutory conditions of the
donation which must be fulfilled non-compliance
of which would render the donation revocable;
(b) in holding that the issue of prescription does
not deserve "disquisition;" and, (c) in remanding
the case to the trial court for the fixing of the
period within which petitioner would establish a
medical college. 2

We find it difficult to sustain the petition. A clear


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

Under Art. 1181 of the Civil Code, on conditional


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

The condition imposed by the donor, i.e., the


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

Moreover, the time from which the cause of


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

The period of time for the establishment of a


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

Thus, when the obligation does not fix a period


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

This general rule however cannot be applied


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

Finally, since the questioned deed of donation


herein is basically a gratuitous one, doubts
referring to incidental circumstances of a
gratuitous contract should be resolved in favor of
the least transmission of rights and interests. 10
Records are clear and facts are undisputed that
since the execution of the deed of donation up to
the time of filing of the instant action, petitioner
has failed to comply with its obligation as donee.
Petitioner has slept on its obligation for an
unreasonable length of time. Hence, it is only just
and equitable now to declare the subject
donation already ineffective and, for all purposes,
revoked so that petitioner as donee should now
return the donated property to the heirs of the
donor, private respondents herein, by means of
reconveyance.

WHEREFORE, the decision of the Regional Trial


Court of Iloilo, Br. 34, of 31 May 1991 is
REINSTATED and AFFIRMED, and the decision of
the Court of Appeals of 18 June 1993 is
accordingly MODIFIED. Consequently, petitioner
is directed to reconvey to private respondents Lot
No. 3174-B-1 of the subdivision plan Psd-1144
covered by Transfer Certificate of Title No. T-
3910-A within thirty (30) days from the finality of
this judgment.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

INCHAUSTI & CO., plaintiff-appellant,


vs.
GREGORIO YULO, defendant-appellee.

Hausserman, Cohn and Fisher for appellant.


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

ARELLANO, C.J.:

This suit is brought for the recovery of a certain


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

First. Gregorio Yulo, for himself and in


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

Second. On January 11, 1909, Gregorio Yulo in


representation of Hijos de T. Yulo answered a
letter of the firm of Inchausti & Company in these
terms: "With your favor of the 2d inst. we have
received an abstract of our current account with
your important firm, closed on the 31st of last
December, with which we desire to express our
entire conformity as also with the balance in your
favor of P271,863.12." On July 17, 1909,
Inchausti & Company informed Hijos de T. Yulo of
the reduction of the said balance to P253,445.42,
with which balance Hijos de T. Yulo expressed its
conformity by means of a letter of the 19th of the
same month and year. Regarding this conformity
a new document evidencing the mortgage credit
was formalized.
Third. On August 12, 1909, Gregorio Yulo, for
himself and in representation of his brother
Manuel Yulo, and in their own behalf Pedro Yulo,
Francisco Yulo, Carmen Yulo, and Concepcion
Yulo, the latter being of age at the time, executed
the notarial instrument (Exhibit X). Through this,
the said persons, including Concepcion Yulo
ratified all the contents of the prior document of
June 26, 1908, severally and jointly
acknowledged and admitted their indebtedness
to Inchausti & Company for the net amount of
two hundred fifty-three thousand four hundred
forty-five pesos and forty-two centavos
(P253,445.42) which they obligated themselves
to pay, with interest at ten per cent per annum,
in five installments at the rate of fifty thousand
pesos (P50,000), except the last, this being fifty-
three thousand four hundred forty-five pesos and
forty-two centavos (P53,445.42), beginning June
30, 1910, continuing successively on the 30th of
each June until the last payment on June 30,
1914. Among other clauses, they expressly
stipulated the following:

Fifth. The default in payment of any of the


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

Fifteenth. All the obligations which by this, as


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

Sixteenth. It is also agreed that this instrument


shall be confirmed and ratified in all its parts,
within the present week, by our brother Don
Mariano Yulo y Regalado who resides in Bacolod,
otherwise it will not be binding on Messrs.
Inchausti & Company who can make use of their
rights to demand and obtain immediate payment
of their credit without any further extension or
delay, in accordance with what we have agreed.

Fourth. This instrument was neither ratified nor


confirmed by Mariano Yulo.

Fifth. The Yulos, brothers and sisters, who


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

Sixth. Therefore, on March 27, 1911, Inchausti


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

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


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

Thus was it stipulated between Inchausti &


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

Ninth. The Court of First Instance of Iloilo


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

The plaintiff appealed from this judgment by bill


of exceptions and before this court made the
following assignment of errors:
I. That the court erred in considering the
contract of May 12, 1911, as constituting a
novation of that of August 12, 1909.

II. That the court erred in rendering judgment in


favor of the defendant.

III. And that the court erred n denying the


motion for a new trial.

"No one denies in this case," says the trial judge,


"that the estate of Teodoro Yulo or his heirs owe
Inchausti & Company an amount of money, the
object of this action, namely, P253,445.42" (B. of
E. 18). "The fact is admitted," says the
defendant, "that the plaintiff has not collected
the debt, and that the same is owing" (Brief, 33).
"In the arguments of the attorneys," the judge
goes on, "it was really admitted that the plaintiff
had a right to bring an action against Gregorio
Yulo, as one of the conjoint and solidary obligors
in the contract of August 12, 1909; but the
defendant says that the plaintiff has no right to
sue him alone, since after the present suit was
brought, the plaintiff entered into a compromise
with the other conjoint and solidary debtors, the
result being the new contract of May 12, 1911, by
virtue of which the payments were extended, the
same constituting a novation of the contract
which gave him the same privileges that were
given his conjoint and solidary codebtors. This
(the judge concludes) is the only question
brought up by the parties." (B. of E., 19.)
And this is the only one which the Supreme Court
has to solve by virtue of the assignments of
errors alleged. Consequently, there is no need of
saying anything regarding the first three
defenses of the answer, nor regarding the lack of
the signature of Mariano Yulo ratifying and
confirming the instrument of August 12, 1909,
upon which the appellee still insists in his brief
for this appeal; although it will not be superfluous
to state the doctrine that a condition, such as is
contained in the sixteenth clause of the said
contract (third point in the statement of facts), is
by no means of suspensive but a resolutory
condition; the effect of the failure of compliance
with the said clause, that is to say, the lack of the
ratification and confirmance by Mariano Yulo
being not to suspend but to resolve the contract,
leaving Inchausti & Company at liberty, as
stipulated, "to make use of its rights to demand
and obtain the immediate payment of its credit."

The only question indicated in the decision of the


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

With respect to the first it cannot be doubted


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

And even though the creditor may have


stipulated with some of the solidary debtors
diverse installments and conditions, as in this
case, Inchausti & Company did with its debtors
Manuel, Francisco, and Carmen Yulo through the
instrument of May 12, 1911, this does not lead to
the conclusion that the solidarity stipulated in the
instrument of August 12, 1909 is broken, as we
already know the law provides that "solidarity
may exist even though the debtors are not bound
in the same manner and for the same periods
and under the same conditions." (Ibid, article
1140.) Whereby the second point is resolved.
With respect to the third, there can also be no
doubt that the contract of May 12, 1911, does
not constitute a novation of the former one of
August 12, 1909, with respect to the other
debtors who executed this contract, or more
concretely, with respect to the defendant
Gregorio Yulo: First, because "in order that an
obligation may be extinguished by another which
substitutes it, it is necessary that it should be so
expressly declared or that the old and the new be
incompatible in all points" (Civil Code, article
1204); and the instrument of May 12, 1911, far
from expressly declaring that the obligation of
the three who executed it substitutes the former
signed by Gregorio Yulo and the other debtors,
expressly and clearly stated that the said
obligation of Gregorio Yulo to pay the two
hundred and fifty-three thousand and odd pesos
sued for exists, stipulating that the suit must
continue its course and, if necessary, these three
parties who executed the contract of May 12,
1911, would cooperate in order that the action
against Gregorio Yulo might prosper (7th point in
the statement of facts), with other undertakings
concerning the execution of the judgment which
might be rendered against Gregorio Yulo in this
same suit. "It is always necessary to state that it
is the intention of the contracting parties to
extinguish the former obligation by the new one"
(Judgment in cassation, July 8, 1909). There exist
no incompatibility between the old and the new
obligation as will be demonstrated in the
resolution of the last point, and for the present
we will merely reiterate the legal doctrine that an
obligation to pay a sum of money is not novated
in a new instrument wherein the old is ratified, by
changing only the term of payment and adding
other obligations not incompatible with the old
one. (Judgments in cassation of June 28, 1904
and of July 8, 1909.)

With respect to the last point, the following must


be borne in mind:

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


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

In jure it would follow that by sentencing


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

Wherefore we hold that although the contract of


May 12, 1911, has not novated that of August 12,
1909, it has affected that contract and the
outcome of the suit brought against Gregorio Yulo
alone for the sum of P253,445.42; and in
consequence thereof, the amount stated in the
contract of August 12, 1909, cannot be recovered
but only that stated in the contract of May 12,
1911, by virtue of the remission granted to the
three of the solidary debtors in this instrument, in
conformity with what is provided in article 1143
of the Civil Code, cited by the creditor itself.

If the efficacy of the later instrument over the


former touching the amount of the debt had been
recognized, should such efficacy not likewise be
recognized concerning the maturity of the same?
If Francisco, Manuel, and Carmen had been
included in the suit, they could have alleged the
defense of the nonmaturity of the installments
since the first installment did not mature until
June 30, 1912, and without the least doubt the
defense would have prospered, and the three
would have been absolved from the suit. Cannot
this defense of the prematurity of the action,
which is implied in the last special defense set up
in the answer of the defendant Gregorio Yulo be
made available to him in this proceeding?

The following commentary on article 1140 of the


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

Article 1148 of the Civil Code. "The solidary


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

Gregorio Yulo cannot allege as a defense to the


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

Neither could he invoke a like exception for the


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

But as regards Francisco, Manuel, and Carmen


Yulo, none of the installments payable under their
obligation, contracted later, had as yet matured.
The first payment, as already stated, was to
mature on June 30, 1912. This exception or
personal defense of Francisco, Manuel, and
Carmen Yulo "as to the part of the debt for which
they were responsible" can be sent up by
Gregorio Yulo as a partial defense to the action.
The part of the debt for which these three are
responsible is three-sixths of P225,000 or
P112,500, so that Gregorio Yulo may claim that,
even acknowledging that the debt for which he is
liable is P225,000, nevertheless not all of it can
now be demanded of him, for that part of it which
pertained to his codebtors is not yet due, a state
of affairs which not only prevents any action
against the persons who were granted the term
which has not yet matured, but also against the
other solidary debtors who being ordered to pay
could not now sue for a contribution, and for this
reason the action will be only as to the P112,500.

Against the propriety and legality of a judgment


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

It has been said in the brief of the appellee that


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

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


we can safely set out, to wit, that the creditor
may of course, demand the payment of his credit
against the debtor not favored by any condition
or extension of time." And further on, he decides
the question as to whether the whole debt may
be recovered or only that part unconditionally
owing or which has already matured, saying,
"Without failing to proceed with juridical rigor,
but without falling into extravagances or
monstrosities, we believe that the solution of the
difficulty is perfectly possible. How? By limiting
the right of the creditor to the recovery of the
amount owed by the debtors bound
unconditionally or as to whom the obligation has
matured, and leaving in suspense the right to
demand the payment of the remainder until the
expiration of the term of the fulfillment of the
condition. But what then is the effect of
solidarity? How can this restriction of right be
reconciled with the duty imposed upon each one
of the debtors to answer for the whole obligation?
Simply this, by recognizing in the creditor the
power, upon the performance of the condition or
the expiration of the term of claiming from any
one or all of the debtors that part of the
obligation affected by those conditions.
(Scaevola, Civil Code, 19, 800 and 801.)

It has been said also by the trial judge in his


decision that if a judgment be entered against
Gregorio Yulo for the whole debt of P253,445.42,
he cannot recover from Francisco, Manuel, and
Carmen Yulo that part of the amount which is
owed by them because they are obliged to pay
only 225,000 pesos and this is eight installments
none of which was due. For this reason he was of
the opinion that he (Gregorio Yulo) cannot be
obliged to pay his part of the debt before the
contract of May 12, 1911, may be enforced, and
"consequently he decided the case in favor of the
defendant, without prejudice to the plaintiff
proceeding in due time against him for his
proportional part of the joint debt." (B. of E., 21
and 22.)

But in the first place, taking into consideration


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

In the second place, neither is it possible to


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

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


Scaevola considers it "absurd," that, there being
a debtor who is unconditionally obligated as to
when the debt has matured, the creditor should
be forced to await the realization of the condition
(or the expiration of the term.) Not only is there
no reason for this, as stated by the author, but
the court would even fail to consider the special
law of the contract, neither repealed nor novated,
which cannot be omitted without violating article
1091 of the Civil Code according to which "the
obligations arising from contracts have the force
of law between the contracting parties and must
be complied with in accordance with the tenor of
the same." Certain it is that the trial court, in
holding that this action was premature but might
be brought in the time, regarded the contract of
August 12, 1909, as having been expressly
novated; but it is absolutely impossible in law to
sustain such supposed novation, in accordance
with the legal principles already stated, and
nevertheless the obligation of the contract of May
12, 1911, must likewise be complied with in
accordance with its tenor, which is contrary in all
respects to the supposed novation, by obliging
the parties who signed the contract to carry on
the suit brought against Gregorio Yulo. The
contract of May 12, 1911, has affected the action
and the suit, to the extent that Gregorio Yulo has
been able to make in his favor the defense of
remission of part of the debt, thanks to the
provision of article 1148, because it is a defense
derived from the nature of the obligation, so that
although the said defendant was not party to the
contract in question, yet because of the principle
of solidarity he was benefited by it.
The defendant Gregorio Yulo cannot be ordered
to pay the P253,445.42 claimed from him in the
suit here, because he has been benefited by the
remission made by the plaintiff to three of his
codebtors, many times named above.

Consequently, the debt is reduced to 225,000


pesos.

But, as it cannot be enforced against the


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

We therefore sentence the defendant Gregorio


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

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


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

LAFARGE CEMENT PHILIPPINES, INC., (formerly


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

May defendants in civil cases implead in their


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

The Case

Before us is a Petition for Review[1] under Rule


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

WHEREFORE, in the light of the foregoing as


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

The second challenged Order denied petitioners


Motion for Reconsideration.

The Facts

Briefly, the origins of the present controversy can


be traced to the Letter of Intent (LOI) executed
by both parties on August 11, 1998, whereby
Petitioner Lafarge Cement Philippines, Inc.
(Lafarge) -- on behalf of its affiliates and other
qualified entities, including Petitioner Luzon
Continental Land Corporation (LCLC) -- agreed to
purchase the cement business of Respondent
Continental Cement Corporation (CCC). On
October 21, 1998, both parties entered into a
Sale and Purchase Agreement (SPA). At the time
of the foregoing transactions, petitioners were
well aware that CCC had a case pending with the
Supreme Court. The case was docketed as GR
No. 119712, entitled Asset Privatization Trust
(APT) v. Court of Appeals and Continental Cement
Corporation.
In anticipation of the liability that the High
Tribunal might adjudge against CCC, the parties,
under Clause 2 (c) of the SPA, allegedly agreed to
retain from the purchase price a portion of the
contract price in the amount of P117,020,846.84
-- the equivalent of US$2,799,140. This amount
was to be deposited in an interest-bearing
account in the First National City Bank of New
York (Citibank) for payment to APT, the petitioner
in GR No. 119712.

However, petitioners allegedly refused to apply


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

Petitioners moved to dismiss the Complaint on


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

In the meantime, to avoid being in default and


without prejudice to the outcome of their appeal,
petitioners filed their Answer and Compulsory
Counterclaims ad Cautelam before the trial court
in Civil Case No. Q-00-41103. In their Answer,
they denied the allegations in the Complaint.
They prayed -- by way of compulsory
counterclaims against Respondent CCC, its
majority stockholder and president Gregory T.
Lim, and its corporate secretary Anthony A.
Mariano -- for the sums of (a) P2,700,000 each as
actual damages, (b) P100,000,000 each as
exemplary damages, (c) P100,000,000 each as
moral damages, and (d) P5,000,000 each as
attorneys fees plus costs of suit.

Petitioners alleged that CCC, through Lim and


Mariano, had filed the baseless Complaint in Civil
Case No. Q-00-41103 and procured the Writ of
Attachment in bad faith. Relying on this Courts
pronouncement in Sapugay v. CA,[5] petitioners
prayed that both Lim and Mariano be held jointly
and solidarily liable with Respondent CCC.

On behalf of Lim and Mariano who had yet to file


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

Ruling of the Trial Court

On May 22, 2002, the Regional Trial Court of


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

Acting on the Motion for Reconsideration filed by


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

Hence this Petition.[8]

Issues

In their Memorandum, petitioners raise the


following issues for our consideration:
[a] Whether or not the RTC gravely erred in
refusing to rule that Respondent CCC has no
personality to move to dismiss petitioners
compulsory counterclaims on Respondents Lim
and Marianos behalf.

[b] Whether or not the RTC gravely erred in ruling


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

For clarity and coherence, the Court will resolve


the foregoing in reverse order.

The Courts Ruling

The Petition is meritorious.

First Issue:
Counterclaims and
Joinder of Causes of Action.

Petitioners Counterclaims
Compulsory

Counterclaims are defined in Section 6 of Rule 6


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

A counterclaim may either be permissive or


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

A counterclaim is compulsory when its object


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

Unlike permissive counterclaims, compulsory


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

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


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

We shall now examine the nature of petitioners


counterclaims against respondents with the use
of the foregoing parameters.

Petitioners base their counterclaim on the


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

Consequently, both Gregory T. Lim and Anthony


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

xxxxxxxxx

The plaintiffs, Gregory T. Lim and Anthony A.


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

The plaintiffs, Gregory T. Lims and Anthony A.


Marianos actions have damaged the reputations
of the defendants and they should be held jointly
and solidarily liable to them for moral damages of
P100 million each.

In order to serve as an example for the public


good and to deter similar baseless, bad faith
litigation, the plaintiff, Gregory T. Lim and
Anthony A. Mariano should be held jointly and
solidarily liable to the defendants for exemplary
damages of P100 million each. [16]

The above allegations show that petitioners


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

Petitioners counterclaim for damages fulfills the


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

Compensatory, moral and exemplary damages,


allegedly suffered by the creditor in consequence
of the debtors action, are also compulsory
counterclaim barred by the dismissal of the
debtors action. They cannot be claimed in a
subsequent action by the creditor against the
debtor.

Aside from the fact that petitioners counterclaim


for damages cannot be the subject of an
independent action, it is the same evidence that
sustains petitioners counterclaim that will refute
private respondents own claim for damages. This
is an additional factor that characterizes
petitioners counterclaim as compulsory.[18]

Moreover, using the compelling test of


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

Since the counterclaim for damages is


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

Sapugay v. Court of Appeals


Applicable to the Case at Bar

Sapugay v. Court of Appeals finds application in


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

The spouses exerted all efforts to secure a bond,


but the bonding companies required a copy of
the Dealership Agreement, which respondent
continued to withhold from them. Later,
petitioners discovered that respondent and its
manager, Ricardo P. Cardenas, had intended all
along to award the dealership to Island Air
Product Corporation.
In their Answer, petitioners impleaded in the
counterclaim Mobil Philippines and its manager --
Ricardo P. Cardenas -- as defendants. They
prayed that judgment be rendered, holding both
jointly and severally liable for pre-operation
expenses, rental, storage, guarding fees, and
unrealized profit including damages. After both
Mobil and Cardenas failed to respond to their
Answer to the Counterclaim, petitioners filed a
Motion to Declare Plaintiff and its Manager
Ricardo P. Cardenas in Default on Defendants
Counterclaim.

Among the issues raised in Sapugay was whether


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

A counterclaim is defined as any claim for money


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

The prerogative of bringing in new parties to the


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

In insisting on the inapplicability of Sapugay,


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

We disagree. The inclusion of a corporate officer


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

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


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

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


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

Respondents further assert that Messrs. Lim and


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

Suability and liability are two distinct matters.


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

However, while a compulsory counterclaim may


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

The correct procedure in instances such as this is


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

In Sapugay, Cardenas was furnished a copy of


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

It is noteworthy that Cardenas did not file a


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

By adopting as his answer the allegations in the


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

Such factual circumstances are unavailing in the


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

Rules on Permissive Joinder of Causes


of Action or Parties Not Applicable

Respondent CCC contends that petitioners


counterclaims violated the rule on joinder of
causes of action. It argues that while the original
Complaint was a suit for specific performance
based on a contract, the counterclaim for
damages was based on the tortuous acts of
respondents.[28] In its Motion to Dismiss, CCC
cites Section 5 of Rule 2 and Section 6 of Rule 3
of the Rules of Civil Procedure, which we quote:

Section 5. Joinder of causes of action. A party


may in one pleading assert, in the alternative or
otherwise, as many causes of action as he may
have against an opposing party, subject to the
following conditions:

(a) The party joining the causes of action shall


comply with the rules on joinder of parties; x x x

Section 6. Permissive joinder of parties. All


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

The foregoing procedural rules are founded on


practicality and convenience. They are meant to
discourage duplicity and multiplicity of suits. This
objective is negated by insisting -- as the court a
quo has done -- that the compulsory
counterclaim for damages be dismissed, only to
have it possibly re-filed in a separate proceeding.
More important, as we have stated earlier,
Respondents Lim and Mariano are real parties in
interest to the compulsory counterclaim; it is
imperative that they be joined therein. Section 7
of Rule 3 provides:

Compulsory joinder of indispensable parties.


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

Moreover, in joining Lim and Mariano in the


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

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

Characterizing their counterclaim for damages


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

WHEREFORE, it is respectfully prayed that after


trial judgment be rendered:

1. Dismissing the complaint in its entirety;

2. Ordering the plaintiff, Gregory T. Lim and


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

3. Ordering the plaintiff, Gregory T. Lim and


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

Other reliefs just and equitable are likewise


prayed for.[29]
Obligations may be classified as either joint or
solidary. Joint or jointly or conjoint means
mancum or mancomunada or pro rata obligation;
on the other hand, solidary obligations may be
used interchangeably with joint and several or
several. Thus, petitioners usage of the term joint
and solidary is confusing and ambiguous.

The ambiguity in petitioners counterclaims


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

x x x The difficulty in the contention of the


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

It may be stated as a general rule that joint tort


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

Joint tort feasors are jointly and severally liable


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

Joint tort feasors are not liable pro rata. The


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

A payment in full for the damage done, by one of


the joint tort feasors, of course satisfies any
claim which might exist against the others. There
can be but satisfaction. The release of one of the
joint tort feasors by agreement generally
operates to discharge all. x x x
Of course the court during trial may find that
some of the alleged tort feasors are liable and
that others are not liable. The courts may release
some for lack of evidence while condemning
others of the alleged tort feasors. And this is true
even though they are charged jointly and
severally.

In a joint obligation, each obligor answers only for


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

Solidarity may exist although the creditors and


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

The solidary character of respondents alleged


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

A solidary debtor may, in actions filed by the


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

The act of Respondent CCC as a solidary debtor --


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

However, a perusal of its Motion to Dismiss the


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

CCCs Motion to Dismiss the


Counterclaim on Behalf of
Respondents Lim and
Mariano Not Allowed

While Respondent CCC can move to dismiss the


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

In summary, we make the following


pronouncements:

1. The counterclaims against Respondents CCC,


Gregory T. Lim and Anthony A. Mariano are
compulsory.

2. The counterclaims may properly implead


Respondents Gregory T. Lim and Anthony A.
Mariano, even if both were not parties in the
original Complaint.
3. Respondent CCC or any of the three solidary
debtors (CCC, Lim or Mariano) may include, in a
Motion to Dismiss, defenses available to their co-
defendants; nevertheless, the same Motion
cannot be deemed to have been filed on behalf
of the said co-defendants.

4. Summons must be served on Respondents Lim


and Mariano before the trial court can obtain
jurisdiction over them.

WHEREFORE, the Petition is GRANTED and the


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

SO ORDERED.

Sandoval-Gutierrez, Carpio-Morales, and Garcia,


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

EN BANC

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

ROMAN JAUCIAN, Plaintiff-Appellant, v.


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

Manly, Goddard & Lockwood, for Appellant.

Albert E. Somersille, for Appellee.


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

In October, 1908, Lino Dayandante and


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

"We jointly and severally acknowledge our


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

Hermenegilda Rogero signed this document in


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

In November, 1909, Hermenegilda Rogero


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

In his appeal to this court, Jaucian did not assign


as error the failure of the lower court to give him
judgment on his cross-demand, and therefore the
decision upon the appeal was limited to the
issues concerning the validity of the document.

While the case was pending in the Supreme


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

During the pendency of the appeal, proceedings


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

A copy of this petition was served upon the


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

"During the pendency of that action (the


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

"No contingent claim was filed before the


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

"Hermenegilda Rogero having been simply surety


for Lino Dayandante, the administrator has a
right to require that Roman Jaucian produce a
judgment for his claim against Lino Dayandante,
in order that the said administrator may be
subrogated to the rights of Jaucian against
Dayandante. The simple affidavit of the principal
debtor that he had no property except P100
worth of property which he has ceded to the
creditor is not sufficient for the court to order the
surety to pay the debt of the principal. When this
action shall have been taken against Lino
Dayandante and an execution returned no
effects, then the claim of Jaucian against the
estate will be ordered paid or any balance that
may be due to him."cralaw virtua1aw library
Acting upon the suggestions contained in this
order Jaucian brought an action against
Dayandante and recovered a judgment against
him for the full amount of the obligation
evidenced by the document of October 24, 1918.
Execution was issued upon this judgment, but
was returned by the sheriff wholly unsatisfied, no
property of the judgment debtor having been
found.

On October 28, 1914, counsel for Jaucian filed


another petition in the proceedings upon the
estate of Hermenegilda Rogero, in which they
averred, upon the grounds last stated that
Dayandante was insolvent, and renewed the
prayer of the original petition. It was contended
that the court, by its order of April 13, 1914, had
"admitted the claim."cralaw virtua1aw library

The petition was again opposed by the


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

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


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

In this court the appellant contends that the trial


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

An examination of the order in question,


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

Appellant contends that his claim against the


deceased was contingent. His theory is that the
deceased was merely a surety of Dayandante.
His argument is that as section 746 of the Code
of Civil Procedure provides that contingent claims
may be presented with the proof to the
committee," it follows that such presentation is
optional. Appellant, furthermore, contends that if
a creditor holding a contingent claim does not
see fit to avail himself of the privilege thus
provided, there is nothing in the law which says
that his claim is barred or prescribed, and that
such creditor, under section 748 of the Code of
Civil Procedure, at any time within two years from
the time allowed other creditors to present their
claims, may, if his claim becomes absolute within
that period present it to the court for allowance.
On the other hand counsel for appellee contends
(1) that contingent claims like absolute claims
are barred for non-presentation to the committee
but (2) that the claim in question was in reality
an absolute claim and therefore indisputably
barred.
The second contention takes logical precedence
over the first and our view of its conclusiveness
renders any consideration of the first point
entirely unnecessary to a determination of the
case. Bearing in mind that the deceased
Hermenegilda Rogero, though surety for Lino
Dayandante, was nevertheless bound jointly and
severally with him in the obligation, the following
provisions of law are here pertinent.

Article 1822 of the Civil Code


provides:jgc:chanrobles.com.ph

"By security a person binds himself to pay or


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

"If the surety binds himself jointly with the


principal debtor, the provisions of section fourth,
chapter third, title first, of this book shall be
observed."cralaw virtua1aw library

Article 1144 of the same code


provides:jgc:chanrobles.com.ph

"A creditor may sue any of the joint and several


(solidarios) debtors or all of them simultaneously.
The claims instituted against one shall not be an
obstacle for those that may be later presented
against the others, as long as it does not appear
that the debt has been collected in full."cralaw
virtua1aw library
Article 1830 of the same code
provides:jgc:chanrobles.com.ph

"The surety can not be compelled to pay a


creditor until application has been previously
made of all the property of the debtor."cralaw
virtua1aw library

Article 1831 provides:jgc:chanrobles.com.ph

"This application can not take place

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


the debtor . . . ."cralaw virtua1aw library

The foregoing articles of the Civil Code make it


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

The absolute character of the claim and the duty


of the committee to have allowed it in full as
such against the estate of Hermenegilda Rogero
had it been opportunely presented and found t
be a valid claim is further established by section
698 of the Code of Civil Procedure, which
provides:jgc:chanrobles.com.ph
"When two or more persons are indebted on a
joint contract, or upon a judgment founded on a
joint contract, and either of them dies, his estate
shall be liable therefore, and it shall be allowed
by the committee as if the contract had been
with him alone or the judgment against him
alone. But the estate shall have the right to
recover contribution from the other joint
debtor."cralaw virtua1aw library

In the official Spanish translation of the Code of


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

The section quoted, it should be explained, was


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

In the common law system every debtor in a joint


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

It will thus be seen that the purpose of section


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

In Spanish law the comprehensive and generic


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

The idea of the benefit of division as a feature of


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

"This conception is a badge of honor to Spanish


legislation, honorably shared with the Spanish-
American, since French and Italian codes do not
recognize the distinction or difference, just
expounded, between the two sorts of multiple
obligation. . . ." (Giorgi, Theory of Obligations,
Span. ed., vol. I, p. 77, note.)
Considered with reference to comparative
jurisprudence, liability in solidum appears to be
the normal characteristic of the multiple
obligation, while the benefit of division in the
Spanish system is an illustration of the abnormal,
evidently resulting from the operation of a
positive rule created by the lawgiver. This
exceptional feature of the simple joint obligation
in Spanish law dates from an early period; and
the rule in question is expressed with simplicity
and precision in a passage transcribed into the
Novisima Recopilacion as
follows:jgc:chanrobles.com.ph

"If two persons bind themselves by contract,


simply and not otherwise, to do or accomplish
something, it is thereby to be understood that
each is bound for one-half, unless it is specified
in the contract that each is bound in solidum, or
it is agreed among themselves that they shall be
bound in some other manner, and this
notwithstanding any customary law to the
contrary; . . ." (Law X, tit. I, book X, Novisima
Recopilacion, copied from law promulgated at
Madrid in 1488 by Henry IV.)

The foregoing exposition of the conflict between


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

The Spanish expression to be chosen as the


equivalent of the English word "joint" or "jointly"
must, of course, depend upon the idea to be
conveyed; and it must be remembered that the
matter to be translated may be an enunciation
either of a common law conception or of a civil
law idea. In Sharruf v. Tayabas Land Co. and
Ginainati (37 Phil Rep., 655), a judge of one of
the Courts of First Instance in these Islands
rendered judgment in English declaring the
defendants to be "Jointly liable. It was held that
he meant "jointly" in the sense of
"mancomunadamente," because the obligation
upon which the judgment was based was
apportionable under article 1138 of the Civil
Code. This mode of translation does not,
however, hold good where the word to be
translated has reference to a multiple common
law obligation, as in article 698 of the Code of
Civil Procedure. Here it is necessary to render the
word "joint" by the Spanish word
"solidaria."cralaw virtua1aw library

In translating the Spanish word "mancomunada"


into English a similar difficulty is presented. In
the Philippine Islands at least we must probably
continue to tolerate the use of the English word
"joint" as an approximate English equivalent,
ambiguous as it may be to a reader indoctrinated
with the ideas of the common law. The Latin
phrase pro rata is a make shift, the use of which
is not to be commended. The Spanish word
"solidaria" is properly rendered in English by the
word "solidary," though it is not inaccurate here
to use the compound expression "joint and
several." The use of the Latin phrase in solidum"
is also permissible. We close these observations
with the suggestion that a person writing in
English may at times find it conducive to
precision to use the expanded expressions
"apportionable joint obligation" and "solidary
joint obligation," as conveying the full juridical
sense of "obligacion mancamunada" and
"obligacion solidaria," respectively.

From what has been said it is clear that


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

It is thus apparent that by the express and


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

There is no force, in our judgment, in the


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

Appellant apparently takes the position that had


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

Furthermore, even had Jaucian, in his appeal from


the decision in the cancellation suit, endeavored
to obtain judgment on his cross-complaint, the
death of the debtor would probably have required
the discontinuance of the action presented by the
cross-complaint or counterclaim, under section
703.

As already observed the case is such as not to


require the court to apply sections 746-749,
inclusive, of the Code of Civil Procedure, nor to
determine the conditions under which contingent
claims are barred. But a few words of comment
may be added to show further that the solidary
obligation upon which this proceeding is based is
not a contingent claim, such as is contemplated
in those sections.

The only concrete illustration of a contingent


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

Another simple illustration of a contingent


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

It is possible that "contingency," in the cases


contemplated in section 746, may depend upon
other facts than those which relate to the
creation or inception of liability. It may be, for
instance, that the circumstance that a liability is
subsidiary, and the execution has to be
postponed after judgment is obtained until the
exhaustion of the assets of the person or entity
primarily liable, makes a claim contingent within
the meaning of said section; but upon this point it
is unnecessary to express an opinion, It is enough
to say that where, as in the case now before us,
liability extends unconditionally to the entire
amount stated in the obligation, or, in other
words, where the debtor is liable in solidum and
without postponement of execution, the liability
is not contingent but absolute
For the reasons stated, the decision of the trial
court denying appellants petition and his motion
for a new trial was correct and must be affirmed.
No costs will be allowed on this appeal. So
ordered.

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


Avancea, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

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

REHABILITATION FINANCE CORPORATION,


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

Sixto de la Costa and Jose M. Garcia for


petitioner.
Juan T. Chuidian for respondents.

REYES, A., J.:


On June 17, 1948, Delfin Dominguez signed a
contract with Realty Investments, Inc., to
purchase a registered lot belonging to the latter,
making a down payment of P39.98 and promising
to pay the balance of the stipulated price in 119
monthly installments. Some three months
thereafter, to finance the improvement of a
house Dominguez had built on the lot of
Rehabilitation Finance Corporationhereafter
called the RFCagreed to loan him P10,000 on
the security of a mortgage upon said house and
lot, and, at his instance, wrote Realty
Investments a letter, dated September 17, 1948,
requesting that the necessary documents for the
transfer of title of the vendee be executed so that
the same could be registered together with
mortgage, this with the assurance that as soon
as title to the lot had been issued in the name of
Dominguez and the mortgage in favor of the RFC
registered as first lien on the lot and the building
thereon, the RFC would pay Realty Investments
"the balance of the purchase price of the lot in
the amount of P3,086.98." Complying with RFC's
request and relying on its assurance of payment,
Realty Investments, on the 20th of that same
month, deeded over the lot to Dominguez "free
of all liens and incumbrances" and thereafter the
mortgage deed, which Dominguez had executed
in favor of RFC three days before, was recorded
in the Registry of Deeds for the City of Manila as
first lien on the lot and the building thereon.
It would appear that once the mortgage was
registered, the RFC let Dominguez have P6,500
out of the proceeds of his loan, but that the
remainder of the loan was never released
because Dominguez defaulted in the payment of
the amortizations due on the amount he had
already received, and as a consequence the RFC
foreclosed the mortgage, bought the mortgaged
property in the foreclosure sale, and obtained
title thereto upon failure of the mortgagor to
exercise his right of redemption.

Required to make good its promise to pay Realty


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

The trial court allowed recovery from Dominguez,


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

We find no merit in the appeal. While the amount


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

It is, however, contended for the RFC that its


obligation to pay "has been modified, if not
extinguished" by plaintiff's letter of September
20, 1948, which reads as follows:

September 20, 1948

The R. F. C.
Manila

SIRS:

In connection with your guarantee to pay us the


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

Yours truly,
REALTY INVESTMENTS, INC.
C. M. HONSKINS & CO., INC.
Managing Agents

By: (Sgd.) A. B. Aquino


President

Passing upon the above contention, the Court of


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

We are in accord with the above pronouncement.


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

In view of the foregoing, the decision appealed


from is affirmed, with costs against the RFC.

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


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

FIRST DIVISION

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

NICENCIO TAN QUIOMBING, Petitioner, v. COURT


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

M.B. Tomacruz Law Office for Petitioner.

Jose J. Francisco for Private Respondents.

DECISION

CRUZ, J.:

May one of the two solidary creditors sue by


himself alone for the recovery of amounts due to
both of them without joining the other creditor as
a co-plaintiff? In such a case, is the defendant
entitled to the dismissal of the complaint on the
ground of non-joinder of the second creditor as
an indispensable party? More to the point, is the
second solidary creditor an indispensable party?
These questions were raised in the case at bar,
with both the trial and respondent courts ruling in
favor of the defendants. The petitioner is now
before us, claiming that the said courts
committed reversible error and misread the
applicable laws in dismissing his complaint.

This case stemmed from a "Construction and


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

On October 10, 1984, Quiombing and Manuelita


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

On November 19, 1984, Manuelita Saligo signed


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

On October 9, 1986, Quiombing filed a complaint


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

Instead of filing an answer, the defendants


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

Rather than file the amended complaint,


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

The respondent court sustained the trial court


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

Refuting the petitioners second contention, the


respondent court declared that the "second
agreement referred to the Construction and
Service Agreement as its basis and specifically
stated that it (was) merely a `part of the original
agreement." 6

The concept of the solidary obligation requires a


brief restatement.

Distinguishing it from the joint obligation,


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

A joint obligation is one in which each of the


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

The same work describes the concept of active


solidarity thus:chanrob1es virtual 1aw library

The essence of active solidarity consists in the


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

It would follow from these observations that the


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

Article 1212 of the Civil Code


provides:chanrob1es virtual 1aw library
Each one of the solidary creditors may do
whatever may be useful to the others, but not
anything which may be prejudice to the latter.

Suing for the recovery of the contract price is


certainly a useful act that Quiombing could do by
himself alone.

Parenthetically, it must be observed that the


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

If Quiombing eventually collects the amount due


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

Regarding the possibility that the private


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

The respondent court was correct in ruling that


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

The rest of the pieces should easily fall into


place.

Section 7, Rule 3 of the Rules of Court mandates


the inclusion of indispensable parties as
follows:chanrob1es virtual 1aw library

Sec. 7. Compulsory joinder of indispensable


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

Indispensable parties are those with such an


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

According to Justice Jose Y. Feria, "where the


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

We hold that, although he signed the original


Construction and Service Agreement, Biscocho
need not be included as a co-plaintiff in the
complaint filed by the petitioner against the
private respondents. Quiombing as solidary
creditor can by himself alone enforce payment of
the construction costs by the private respondents
and as a solidary debtor may by himself alone be
held liable for any possible breach of contract
that may be proved by the private respondents.
In either case, the participation of Biscocho is not
at all necessary, much less indispensable.
WHEREFORE, the petition is GRANTED. The
decision of the respondent court dated March 27,
1990, is SET ASIDE, and the Regional Trial Court
of Antipolo, Rizal, is directed to REINSTATE Civil
Case No. 913-A. Costs against the private
respondents.

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


BALDOMERO INCIONG, JR., petitioner, vs. COURT
OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.

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

BALDOMERO INCIONG, JR., petitioner, vs. COURT


OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
SYLLABUS

1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE


RULE; DOES NOT SPECIFY THAT THE WRITTEN
AGREEMENT BE A PUBLIC INSTRUMENT.- Clearly,
the rule does not specify that the written
agreement be a public document. What is
required is that the agreement be in writing as
the rule is in fact founded on "long experience
that written evidence is so much more certain
and accurate than that which rests in fleeting
memory only, that it would be unsafe, when
parties have expressed the terms of their
contract in writing, to admit weaker evidence to
control and vary the stronger and to show that
the parties intended a different contract from
that expressed in the writing signed by them"
[FRANCISCO, THE RULES OF COURT OF THE
PHILIPPINES, Vol. VII, Part I, 1990 ed., p. 179]
Thus, for the parol evidence rule to apply, a
written contract need not be in any particular
form, or be signed by both parties. As a general
rule, bills, notes and other instruments of a
similar nature are not subject to be varied or
contradicted by parol or extrinsic evidence.

2. CIVIL LAW; OBLIGATIONS; SOLIDARY OR JOINT


AND SEVERAL OBLIGATION, DEFINED.- A solidary
or joint and several obligation is one in which
each debtor is liable for the entire obligation, and
each creditor is entitled to demand the whole
obligation. [TOLENTINO, CIVIL CODE OF THE
PHILIPPINES, Vol. IV, 1991 ed., p. 217] Section 4,
Chapter 3, Title 1, Book IV of the Civil Code states
the law on joint and several obligations. Under
Art. 1207 thereof, when there are two or more
debtors in one and the same obligation, the
presumption is that the obligation is joint so that
each of the debtors is liable only for the
proportionate part of the debt. There is a solidary
liability only when the obligation expressly so
states, when the law so provides or when the
nature of the obligation so requires. [Sesbreo v.
Court of Appeals, G.R. No. 89252, May 24, 1993,
222 SCRA 466, 481.]

3. ID.; GUARANTY; GUARANTOR AS


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

APPEARANCES OF COUNSEL

Emilio G. Abrogena for petitioner.


Teogenes X. Velez for private respondent.
DECISION

ROMERO, J.:

This is a petition for review on certiorari of the


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

"WHEREFORE, defendant BALDOMERO L.


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

The counterclaim, as well as the cross claim, are


dismissed for lack of merit.

SO ORDERED."

Petitioner's liability resulted from the promissory


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

Said due date expired without the promissors


having paid their obligation. Consequently, on
November 14, 1983 and on June 8, 1984, private
respondent sent petitioner telegrams demanding
payment thereof.[2] On December 11, 1984
private respondent also sent by registered mail a
final letter of demand to Rene C. Naybe. Since
both obligors did not respond to the demands
made, private respondent filed on January 24,
1986 a complaint for collection of the sum of
P50,000.00 against the three obligors.
On November 25, 1986, the complaint was
dismissed for failure of the plaintiff to prosecute
the case. However, on January 9, 1987, the lower
court reconsidered the dismissal order and
required the sheriff to serve the summonses. On
January 27, 1987, the lower court dismissed the
case against defendant Pantanosas as prayed for
by the private respondent herein. Meanwhile,
only the summons addressed to petitioner was
served as the sheriff learned that defendant
Naybe had gone to Saudi Arabia.

In his answer, petitioner alleged that sometime in


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

Petitioner alleged further that five (5) copies of a


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

In the aforementioned decision of the lower


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

The lower court also noted that petitioner was a


holder of a Bachelor of Laws degree and a labor
consultant who was supposed to take due care of
his concerns, and that, on the witness stand, Pio
Tio denied having participated in the alleged
business venture although he knew for a fact that
the falcata logs operation was encouraged by the
bank for its export potential.
Petitioner appealed the said decision to the Court
of Appeals which, in its decision of August 31,
1990, affirmed that of the lower court. His motion
for reconsideration of the said decision having
been denied, he filed the instant petition for
review on certiorari.

On February 6,1991, the Court denied the


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

Unfazed, petitioner filed a motion for leave to file


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

Nonetheless, we find the petition unmeritorious.


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

The affidavit is clearly intended to buttress


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

The above-stated points are clearly factual.


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

Nor is there merit in petitioner's assertion that


since the promissory note "is not a public deed
with the formalities prescribed by law but x x x a
mere commercial paper which does not bear the
signature of x x x attesting witnesses," parol
evidence may "overcome" the contents of the
promissory note.[9] The first paragraph of the
parol evidence rule[10] states:

"When the terms of an agreement have been


reduced to writing, it is considered as containing
all the terms agreed upon and there can be,
between the parties and their successors-in-
interest, no evidence of such terms other than
the contents of the written agreement."

Clearly, the rule does not specify that the written


agreement be a public document.
What is required is that agreement be in writing
as the rule is in fact founded on "long experience
that written evidence is so much more certain
and accurate than that which rests in fleeting
memory only, that it would be unsafe, when
parties have expressed the terms of their
contract in writing, to admit weaker evidence to
control and vary the stronger and to show that
the parties intended a different contract from
that expressed in the writing signed by
them."[11] Thus, for the parol evidence rule to
apply, a written contract need not be in any
particular form, or be signed by both parties.[12]
As a general rule, bills, notes and other
instruments of a similar nature are not subject to
be varied or contradicted by parol or extrinsic
evidence.[13]

By alleging fraud in his answer,[14] petitioner


was actually in the right direction towards
proving that he and his co-makers agreed to a
loan of P5,000.00 only considering that, where a
parol contemporaneous agreement was the
inducing and moving cause of the written
contract, it may be shown by parol evidence.[15]
However, fraud must be established by clear and
convincing evidence, mere preponderance of
evidence, not even being adequate.[16]
Petitioner's attempt to prove fraud must,
therefore, fail as it was evidenced only by his
own uncorroborated and, expectedly, self-serving
testimony.
Petitioner also argues that the dismissal of the
complaint against Naybe, the principal debtor,
and against Pantanosas, his co-maker,
constituted a release of his obligation, especially
because the dismissal of the case against
Pantanosas was upon the motion of private
respondent itself. He cites as basis for his
argument, Article 2080 of the Civil Code which
provides that:

"The guarantors, even though they be solidary,


are released from their obligation whenever by
some act of the creditor, they cannot be
subrogated to the rights, mortgages, and
preferences of the latter."

It is to be noted, however, that petitioner signed


the promissory note as a solidary co-maker and
not as a guarantor. This is patent even from the
first sentence of the promissory note which
states as follows:

"Ninety one (91) days after date, for value


received, I/we, JOINTLY and SEVERALLY promise
to pay to the PHILIPPINE BANK OF
COMMUNICATIONS at its office in the City of
Cagayan de Oro, Philippines the sum of FIFTY
THOUSAND ONLY (P50,000. 00) Pesos, Philippine
Currency, together with interest x x x at the rate
of SIXTEEN (16) per cent per annum until fully
paid."
A solidary or joint and several obligation is one in
which each debtor is liable for the entire
obligation, and each creditor is entitled to
demand the whole obligation.[17] On the other
hand, Article 2047 of the Civil Code states:

"By guaranty a person, called the guarantor,


binds himself to the creditor to fulfill the
obligation of the principal debtor in case the
latter should fail to do so.

If a person binds himself solidarily with the


principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be observed,
In such a case the contract is called a
suretyship." (Italics supplied.)

While a guarantor may bind himself solidarily


with the principal debtor, the liability of a
guarantor is different from that of a solidary
debtor. Thus, Tolentino explains:

"A guarantor who binds himself in solidum with


the principal debtor under the provisions of the
second paragraph does not become a solidary
co-debtor to all intents and purposes. There is a
difference between a solidary co-debtor, and a
fiador in solidum (surety). The later, outside of
the liability he assumes to pay the debt before
the property of the principal debtor has been
exhausted, retains all the other rights, actions
and benefits which pertain to him by reason of
the fiansa; while a solidary co-debtor has no
other rights than those bestowed upon him in
Section 4, Chapter 3, title I, Book IV of the Civil
Code."[18]

Section 4, Chapter 3, Title I, Book IV of the Civil


Code states the law on joint and several
obligations. Under Art. 1207 thereof, when there
are two or more debtors in one and the same
obligation, the presumption is that the obligation
is joint so that each of the debtors is liable only
for a proportionate part of the debt. There is a
solidarity liability only when the obligation
expressly so states, when the law so provides or
when the nature of the obligation so requires.[19]

Because the promissory note involved in this


case expressly states that the three signatories
therein are jointly and severally liable, any one,
some or all of them may be proceeded against
for the entire obligation.[20] The choice is left to
the solidary creditor to determine against whom
he will enforce collection.[21] Consequently, the
dismissal of the case against Judge Pontanosas
may not be deemed as having discharged
petitioner from liability as well. As regards Naybe,
suffice it to say that the court never acquired
jurisdiction over him. Petitioner, therefore, may
only have recourse against his co-makers, as
provided by law.

WHEREFORE, the instant petition for review on


certiorari is hereby DENIED and the questioned
decision of the Court of Appeals is AFFIRMED.
Costs against petitioner.

SO ORDERED.

Regalado (Chairman), Puno, Mendoza, and Torres,


Jr., JJ., concur.

SECOND DIVISION
[G.R. No. 134100. September 29, 2000]

PURITA ALIPIO, petitioner, vs. COURT OF APPEALS


and ROMEO G. JARING, represented by his
Attorney-In-Fact RAMON G. JARING, respondents.
DECISION
MENDOZA, J.:

The question for decision in this case is whether


a creditor can sue the surviving spouse for the
collection of a debt which is owed by the conjugal
partnership of gains, or whether such claim must
be filed in proceedings for the settlement of the
estate of the decedent. The trial court and the
Court of Appeals ruled in the affirmative. We
reverse.

The facts are as follows:

Respondent Romeo Jaring[1] was the lessee of a


14.5 hectare fishpond in Barito, Mabuco,
Hermosa, Bataan. The lease was for a period of
five years ending on September 12, 1990. On
June 19, 1987, he subleased the fishpond, for the
remaining period of his lease, to the spouses
Placido and Purita Alipio and the spouses
Bienvenido and Remedios Manuel. The stipulated
amount of rent was P485,600.00, payable in two
installments of P300,000.00 and P185,600.00,
with the second installment falling due on June
30, 1989. Each of the four sublessees signed the
contract.

The first installment was duly paid, but of the


second installment, the sublessees only satisfied
a portion thereof, leaving an unpaid balance of
P50,600.00. Despite due demand, the sublessees
failed to comply with their obligation, so that, on
October 13, 1989, private respondent sued the
Alipio and Manuel spouses for the collection of
the said amount before the Regional Trial Court,
Branch 5, Dinalupihan, Bataan. In the alternative,
he prayed for the rescission of the sublease
contract should the defendants fail to pay the
balance.
Petitioner Purita Alipio moved to dismiss the case
on the ground that her husband, Placido Alipio,
had passed away on December 1, 1988.[2] She
based her action on Rule 3, 21 of the 1964 Rules
of Court which then provided that "when the
action is for recovery of money, debt or interest
thereon, and the defendant dies before final
judgment in the Court of First Instance, it shall be
dismissed to be prosecuted in the manner
especially provided in these rules." This provision
has been amended so that now Rule 3, 20 of the
1997 Rules of Civil Procedure provides:

When the action is for the recovery of money


arising from contract, express or implied, and the
defendant dies before entry of final judgment in
the court in which the action was pending at the
time of such death, it shall not be dismissed but
shall instead be allowed to continue until entry of
final judgment. A favorable judgment obtained by
the plaintiff therein shall be enforced in the
manner especially provided in these Rules for
prosecuting claims against the estate of a
deceased person.

The trial court denied petitioner's motion on the


ground that since petitioner was herself a party
to the sublease contract, she could be
independently impleaded in the suit together
with the Manuel spouses and that the death of
her husband merely resulted in his exclusion
from the case.[3] The Manuel spouses failed to
file their answer. For this reason, they were
declared in default.

On February 26, 1991, the lower court rendered


judgment after trial, ordering petitioner and the
Manuel spouses to pay private respondent the
unpaid balance of P50,600.00 plus attorney's
fees in the amount of P10,000.00 and the costs
of the suit.

Petitioner appealed to the Court of Appeals on


the ground that the trial court erred in denying
her motion to dismiss. In its decision[4] rendered
on July 10, 1997, the appellate court dismissed
her appeal. It held:

The rule that an action for recovery of money,


debt or interest thereon must be dismissed when
the defendant dies before final judgment in the
regional trial court, does not apply where there
are other defendants against whom the action
should be maintained. This is the teaching of
Climaco v. Siy Uy, wherein the Supreme Court
held:

Upon the facts alleged in the complaint, it is clear


that Climaco had a cause of action against the
persons named as defendants therein. It was,
however, a cause of action for the recovery of
damages, that is, a sum of money, and the
corresponding action is, unfortunately, one that
does not survive upon the death of the
defendant, in accordance with the provisions of
Section 21, Rule 3 of the Rules of Court.

xxxxxxxxx

However, the deceased Siy Uy was not the only


defendant, Manuel Co was also named defendant
in the complaint. Obviously, therefore, the order
appealed from is erroneous insofar as it
dismissed the case against Co. (Underlining
added)

Moreover, it is noted that all the defendants,


including the deceased, were signatories to the
contract of sub-lease. The remaining defendants
cannot avoid the action by claiming that the
death of one of the parties to the contract has
totally extinguished their obligation as held in
Imperial Insurance, Inc. v. David:

We find no merit in this appeal. Under the law


and well settled jurisprudence, when the
obligation is a solidary one, the creditor may
bring his action in toto against any of the debtors
obligated in solidum. Thus, if husband and wife
bound themselves jointly and severally, in case
of his death, her liability is independent of and
separate from her husband's; she may be sued
for the whole debt and it would be error to hold
that the claim against her as well as the claim
against her husband should be made in the
decedent's estate. (Agcaoili vs. Vda. de Agcaoili,
90 Phil. 97).[5]
Petitioner filed a motion for reconsideration, but
it was denied on June 4, 1998.[6] Hence this
petition based on the following assignment of
errors:

A. THE RESPONDENT COURT COMMITTED


REVERSIBLE ERROR IN APPLYING CLIMACO v. SIY
UY, 19 SCRA 858, IN SPITE OF THE FACT THAT
THE PETITIONER WAS NOT SEEKING THE
DISMISSAL OF THE CASE AGAINST REMAINING
DEFENDANTS BUT ONLY WITH RESPECT TO THE
CLAIM FOR PAYMENT AGAINST HER AND HER
HUSBAND WHICH SHOULD BE PROSECUTED AS A
MONEY CLAIM.

B. THE RESPONDENT COURT COMMITTED


REVERSIBLE ERROR IN APPLYING IMPERIAL
INSURANCE INC. v. DAVID, 133 SCRA 317, WHICH
IS NOT APPLICABLE BECAUSE THE SPOUSES IN
THIS CASE DID NOT BIND THEMSELVES JOINTLY
AND SEVERALLY IN FAVOR OF RESPONDENT
JARING.[7]

The petition is meritorious. We hold that a


creditor cannot sue the surviving spouse of a
decedent in an ordinary proceeding for the
collection of a sum of money chargeable against
the conjugal partnership and that the proper
remedy is for him to file a claim in the settlement
of estate of the decedent.
First. Petitioner's husband died on December 1,
1988, more than ten months before private
respondent filed the collection suit in the trial
court on October 13, 1989. This case thus falls
outside of the ambit of Rule 3, 21 which deals
with dismissals of collection suits because of the
death of the defendant during the pendency of
the case and the subsequent procedure to be
undertaken by the plaintiff, i.e., the filing of claim
in the proceeding for the settlement of the
decedent's estate. As already noted, Rule 3, 20 of
the 1997 Rules of Civil Procedure now provides
that the case will be allowed to continue until
entry of final judgment. A favorable judgment
obtained by the plaintiff therein will then be
enforced in the manner especially provided in the
Rules for prosecuting claims against the estate of
a deceased person. The issue to be resolved is
whether private respondent can, in the first
place, file this case against petitioner.

Petitioner and her late husband, together with


the Manuel spouses, signed the sublease
contract binding themselves to pay the amount
of stipulated rent. Under the law, the Alipios'
obligation (and also that of the Manuels) is one
which is chargeable against their conjugal
partnership. Under Art. 161(1) of the Civil Code,
the conjugal partnership is liable for

All debts and obligations contracted by the


husband for the benefit of the conjugal
partnership, and those contracted by the wife,
also for the same purpose, in the cases where
she may legally bind the partnership.[8]

When petitioner's husband died, their conjugal


partnership was automatically dissolved[9] and
debts chargeable against it are to be paid in the
settlement of estate proceedings in accordance
with Rule 73, 2 which states:

Where estate settled upon dissolution of


marriage. When the marriage is dissolved by the
death of the husband or wife, the community
property shall be inventoried, administered, and
liquidated, and the debts thereof paid, in the
testate or intestate proceedings of the deceased
spouse. If both spouses have died, the conjugal
partnership shall be liquidated in the testate or
intestate proceedings of either.

As held in Calma v. Taedo,[10] after the death of


either of the spouses, no complaint for the
collection of indebtedness chargeable against the
conjugal partnership can be brought against the
surviving spouse. Instead, the claim must be
made in the proceedings for the liquidation and
settlement of the conjugal property. The reason
for this is that upon the death of one spouse, the
powers of administration of the surviving spouse
ceases and is passed to the administrator
appointed by the court having jurisdiction over
the settlement of estate proceedings.[11] Indeed,
the surviving spouse is not even a de facto
administrator such that conveyances made by
him of any property belonging to the partnership
prior to the liquidation of the mass of conjugal
partnership property is void.[12]

The ruling in Calma v. Taedo was reaffirmed in


the recent case of Ventura v. Militante.[13] In that
case, the surviving wife was sued in an amended
complaint for a sum of money based on an
obligation allegedly contracted by her and her
late husband. The defendant, who had earlier
moved to dismiss the case, opposed the
admission of the amended complaint on the
ground that the death of her husband terminated
their conjugal partnership and that the plaintiff's
claim, which was chargeable against the
partnership, should be made in the proceedings
for the settlement of his estate. The trial court
nevertheless admitted the complaint and ruled,
as the Court of Appeals did in this case, that
since the defendant was also a party to the
obligation, the death of her husband did not
preclude the plaintiff from filing an ordinary
collection suit against her. On appeal, the Court
reversed, holding that

as correctly argued by petitioner, the conjugal


partnership terminates upon the death of either
spouse. . . . Where a complaint is brought against
the surviving spouse for the recovery of an
indebtedness chargeable against said conjugal
[partnership], any judgment obtained thereby is
void. The proper action should be in the form of a
claim to be filed in the testate or intestate
proceedings of the deceased spouse.

In many cases as in the instant one, even after


the death of one of the spouses, there is no
liquidation of the conjugal partnership. This does
not mean, however, that the conjugal partnership
continues. And private respondent cannot be said
to have no remedy. Under Sec. 6, Rule 78 of the
Revised Rules of Court, he may apply in court for
letters of administration in his capacity as a
principal creditor of the deceased . . . if after
thirty (30) days from his death, petitioner failed
to apply for administration or request that
administration be granted to some other person.
[14]

The cases relied upon by the Court of Appeals in


support of its ruling, namely, Climaco v. Siy
Uy[15] and Imperial Insurance, Inc. v. David,[16]
are based on different sets of facts. In Climaco,
the defendants, Carlos Siy Uy and Manuel Co,
were sued for damages for malicious prosecution.
Thus, apart from the fact the claim was not
against any conjugal partnership, it was one
which does not survive the death of defendant
Uy, which merely resulted in the dismissal of the
case as to him but not as to the remaining
defendant Manuel Co.

With regard to the case of Imperial, the spouses


therein jointly and severally executed an
indemnity agreement which became the basis of
a collection suit filed against the wife after her
husband had died. For this reason, the Court
ruled that since the spouses' liability was
solidary, the surviving spouse could be
independently sued in an ordinary action for the
enforcement of the entire obligation.

It must be noted that for marriages governed by


the rules of conjugal partnership of gains, an
obligation entered into by the husband and wife
is chargeable against their conjugal partnership
and it is the partnership which is primarily bound
for its repayment.[17] Thus, when the spouses
are sued for the enforcement of an obligation
entered into by them, they are being impleaded
in their capacity as representatives of the
conjugal partnership and not as independent
debtors such that the concept of joint or solidary
liability, as between them, does not apply. But
even assuming the contrary to be true, the
nature of the obligation involved in this case, as
will be discussed later, is not solidary but rather
merely joint, making Imperial still inapplicable to
this case.

From the foregoing, it is clear that private


respondent cannot maintain the present suit
against petitioner. Rather, his remedy is to file a
claim against the Alipios in the proceeding for the
settlement of the estate of petitioner's husband
or, if none has been commenced, he can file a
petition either for the issuance of letters of
administration[18] or for the allowance of will,
[19] depending on whether petitioner's husband
died intestate or testate. Private respondent
cannot short-circuit this procedure by lumping his
claim against the Alipios with those against the
Manuels considering that, aside from petitioner's
lack of authority to represent their conjugal
estate, the inventory of the Alipios' conjugal
property is necessary before any claim
chargeable against it can be paid. Needless to
say, such power exclusively pertains to the court
having jurisdiction over the settlement of the
decedent's estate and not to any other court.

Second. The trial court ordered petitioner and the


Manuel spouses to pay private respondent the
unpaid balance of the agreed rent in the amount
of P50,600.00 without specifying whether the
amount is to be paid by them jointly or solidarily.
In connection with this, Art. 1207 of the Civil
Code provides:

The concurrence of two or more creditors or of


two or more debtors in one and the same
obligation does not imply that each one of the
former has a right to demand, or that each one of
the latter is bound to render, entire compliance
with the prestations. There is a solidary liability
only when the obligation expressly so estates, or
when the law or the nature of the obligation
requires solidarity.

Indeed, if from the law or the nature or the


wording of the obligation the contrary does not
appear, an obligation is presumed to be only
joint, i.e., the debt is divided into as many equal
shares as there are debtors, each debt being
considered distinct from one another.[20]

Private respondent does not cite any provision of


law which provides that when there are two or
more lessees, or in this case, sublessees, the
latter's obligation to pay the rent is solidary. To be
sure, should the lessees or sublessees refuse to
vacate the leased property after the expiration of
the lease period and despite due demands by the
lessor, they can be held jointly and severally
liable to pay for the use of the property. The basis
of their solidary liability is not the contract of
lease or sublease but the fact that they have
become joint tortfeasors.[21] In the case at bar,
there is no allegation that the sublessees refused
to vacate the fishpond after the expiration of the
term of the sublease. Indeed, the unpaid balance
sought to be collected by private respondent in
his collection suit became due on June 30, 1989,
long before the sublease expired on September
12, 1990.

Neither does petitioner contend that it is the


nature of lease that when there are more than
two lessees or sublessees their liability is
solidary. On the other hand, the pertinent portion
of the contract involved in this case reads:[22]

2. That the total lease rental for the sub-leased


fishpond for the entire period of three (3) years
and two (2) months is FOUR HUNDRED EIGHT-
FIVE THOUSAND SIX HUNDRED (P485,600.00)
PESOS, including all the improvements, prawns,
milkfishes, crabs and related species thereon as
well all fishing equipment, paraphernalia and
accessories. The said amount shall be paid to the
Sub-Lessor by the Sub-Lessees in the following
manner, to wit:

A. Three hundred thousand (P300,000.00) Pesos


upon signing this contract; and

B. One Hundred Eight-Five Thousand Six-Hundred


(P185,6000.00) Pesos to be paid on June 30,
1989.

Clearly, the liability of the sublessees is merely


joint. Since the obligation of the Manuel and
Alipio spouses is chargeable against their
respective conjugal partnerships, the unpaid
balance of P50,600.00 should be divided into two
so that each couple is liable to pay the amount of
P25,300.00.

WHEREFORE, the petition is GRANTED.


Bienvenido Manuel and Remedios Manuel are
ordered to pay the amount of P25,300.00, the
attorney's fees in the amount of P10,000.00 and
the costs of the suit. The complaint against
petitioner is dismissed without prejudice to the
filing of a claim by private respondent in the
proceedings for the settlement of estate of
Placido Alipio for the collection of the share of the
Alipio spouses in the unpaid balance of the rent
in the amount of P25,300.00.

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, Buena, and


De Leon, Jr., JJ., concur.