THIRD DIVISION

MAKATI STOCK EXCHANGE, G.R. No. 138814

INC., MA. VIVIAN
YUCHENGCO, ADOLFO M.
DUARTE, MYRON C. PAPA, Present:
NORBERTO C. NAZARENO,
GEORGE UY-TIOCO,
ANTONIO A. LOPA, RAMON B. YNARES-SANTIAGO, J.,
ARNAIZ, LUIS J.L. VIRATA, Chairperson,
and ANTONIO GARCIA, JR. AUSTRIA-MARTINEZ,
Petitioners, CHICO-NAZARIO,
NACHURA, and
PERALTA, JJ.
- versus -

MIGUEL V. CAMPOS,
substituted by JULIA ORTIGAS Promulgated:
[1]
VDA. DE CAMPOS,
Respondent. April 16, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the
Decision[2] dated 11 February 1997 and Resolution dated 18 May 1999 of the Court of Appeals
in CA-G.R. SP No. 38455.

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V.
Campos, who filed with the Securities, Investigation and Clearing Department (SICD) of the
Securities and Exchange Commission (SEC), a Petition against herein petitioners Makati Stock
Exchange, Inc. (MKSE) and MKSE directors, Ma. Vivian Yuchengco, Adolfo M. Duarte, Myron
C. Papa, Norberto C. Nazareno, George Uy-Tioco, Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L.
Virata, and Antonio Garcia, Jr. Respondent, in said Petition, sought: (1) the nullification of the
Resolution dated 3 June 1993 of the MKSE Board of Directors, which allegedly deprived him of
his right to participate equally in the allocation of Initial Public Offerings (IPO) of corporations
registered with MKSE; (2) the delivery of the IPO shares he was allegedly deprived of, for which
he would pay IPO prices; and (3) the payment of P2 million as moral damages, P1 million as
exemplary damages, and P500,000.00 as attorneys fees and litigation expenses.

On 14 February 1994, the SICD issued an Order granting respondents prayer for the
issuance of a Temporary Restraining Order to enjoin petitioners from implementing or enforcing
the 3 June 1993 Resolution of the MKSE Board of Directors.
The SICD subsequently issued another Order on 10 March 1994 granting respondents
application for a Writ of Preliminary Injunction, to continuously enjoin, during the pendency of
SEC Case No. 02-94-4678, the implementation or enforcement of the MKSE Board Resolution
in question. Petitioners assailed this SICD Order dated 10 March 1994 in a Petition
for Certiorari filed with the SEC en banc, docketed as SEC-EB No. 393.

On 11 March 1994, petitioners filed a Motion to Dismiss respondents Petition in SEC Case
No. 02-94-4678, based on the following grounds: (1) the Petition became moot due to the
cancellation of the license of MKSE; (2) the SICD had no jurisdiction over the Petition; and (3)
the Petition failed to state a cause of action.

The SICD denied petitioners Motion to Dismiss in an Order dated 4 May 1994. Petitioners
again challenged the 4 May 1994 Order of SICD before the SEC en banc through another Petition
for Certiorari, docketed as SEC-EB No. 403.

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified the 10
March 1994 Order of SICD in SEC Case No. 02-94-4678 granting a Writ of Preliminary
Injunction in favor of respondent. Likewise, in an Order dated 14 August 1995 in SEC-EB No.
403, the SEC en bancannulled the 4 May 1994 Order of SICD in SEC Case No. 02-94-4678
denying petitioners Motion to Dismiss, and accordingly ordered the dismissal of respondents
Petition before the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals assailing the Orders
of the SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393 and SEC-EB
No. 403, respectively. Respondents Petition before the appellate court was docketed as CA-G.R.
SP No. 38455.

On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R. SP No.
38455, granting respondents Petition for Certiorari, thus:
WHEREFORE, the petition in so far as it prays for annulment of the Orders dated May 31,
1995 and August 14, 1995 in SEC-EB Case Nos. 393 and 403 is GRANTED. The said orders are
hereby rendered null and void and set aside.

Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was denied
by the Court of Appeals in a Resolution dated 18 May 1999.
 Hence, the present Petition for Review raising the following arguments:

I.

THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE PETITION FILED
BY RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE A CAUSE OF ACTION.

II.

THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A MERE

ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF THE
MAKATI STOCK EXCHANGE, INC.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED TO MAKE
A DETERMINATION AS TO THE TRUTH OF RESPONDENTS ALLEGATIONS IN HIS
PETITION AND USED AS BASIS THE EVIDENCE ADDUCED DURING THE HEARING
ON THE APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION TO
DETERMINE THE EXISTENCE OR VALIDITY OF A STATED CAUSE OF ACTION.

IV.

IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE

BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING
PUBLIC. HENCE, RESPONDENTS CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT.[3]

On 18 September 2001, counsel for respondent manifested to this Court that his client died
on 7 May 2001. In a Resolution dated 24 October 2001, the Court directed the substitution of
respondent by his surviving spouse, Julia Ortigas vda. de Campos.

Petitioners want this Court to affirm the dismissal by the SEC en banc of respondents
Petition in SEC Case No. 02-94-4678 for failure to state a cause of action. On the other hand,
respondent insists on the sufficiency of his Petition and seeks the continuation of the proceedings
before the SICD.

A cause of action is the act or omission by which a party violates a right of another. [4] A
complaint states a cause of action where it contains three essential elements of a cause of action,
namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3)
the act or omission of the defendant in violation of said legal right. If these elements are absent,
the complaint becomes vulnerable to dismissal on the ground of failure to state a cause of action.

If a defendant moves to dismiss the complaint on the ground of lack of cause of action, he
is regarded as having hypothetically admitted all the averments thereof. The test of sufficiency of
the facts found in a complaint as constituting a cause of action is whether or not admitting the
facts alleged, the court can render a valid judgment upon the same in accordance with the prayer
thereof. The hypothetical admission extends to the relevant and material facts well pleaded in the
complaint and inferences fairly deducible therefrom. Hence, if the allegations in the complaint
furnish sufficient basis by which the complaint can be maintained, the same should not be
dismissed regardless of the defense that may be assessed by the defendant.[5]
Given the foregoing, the issue of whether respondents Petition in SEC Case No. 02-94-
4678 sufficiently states a cause of action may be alternatively stated as whether, hypothetically
admitting to be true the allegations in respondents Petition in SEC Case No. 02-94-4678, the
SICD may render a valid judgment in accordance with the prayer of said Petition.

A reading of the exact text of respondents Petition in SEC Case No. 02-94-4678 is,
therefore, unavoidable. Pertinent portions of the said Petition reads:

7. In recognition of petitioners invaluable services, the general membership of respondent

corporation [MKSE] passed a resolution sometime in 1989 amending its Articles of Incorporation,
to include the following provision therein:

ELEVENTH WHEREAS, Mr. Miguel Campos is the only surviving

incorporator of the Makati Stock Exchange, Inc. who has maintained his
membership;

WHEREAS, he has unselfishly served the Exchange in various capacities,

as governor from 1977 to the present and as President from 1972 to 1976 and again
as President from 1988 to the present;

WHEREAS, such dedicated service and leadership which has contributed

to the advancement and well being not only of the Exchange and its members but
also to the Securities industry, needs to be recognized and appreciated;

WHEREAS, as such, the Board of Governors in its meeting held on

February 09, 1989 has correspondingly adopted a resolution recognizing his
valuable service to the Exchange, reward the same, and preserve for posterity such
recognition by proposing a resolution to the membership body which would make
him as Chairman Emeritus for life and install in the Exchange premises a
commemorative bronze plaque in his honor;

NOW, THEREFORE, for and in consideration of the above premises, the

position of the Chairman Emeritus to be occupied by Mr. Miguel Campos during
his lifetime and irregardless of his continued membership in the Exchange with the
Privilege to attend all membership meetings as well as the meetings of the Board of
Governors of the Exchange, is hereby created.

8. Hence, to this day, petitioner is not only an active member of the respondent corporation,
but its Chairman Emeritus as well.

9. Correspondingly, at all times material to this petition, as an active member and Chairman
Emeritus of respondent corporation, petitioner has always enjoyed the right given to all the other
members to participate equally in the Initial Public Offerings (IPOs for brevity) of corporations.
 10. IPOs are shares of corporations offered for sale to the public, prior to the listing in the
trading floor of the countrys two stock exchanges. Normally, Twenty Five Percent (25%) of these
shares are divided equally between the two stock exchanges which in turn divide these equally
among their members, who pay therefor at the offering price.

11. However, on June 3, 1993, during a meeting of the Board of Directors of respondent-
corporation, individual respondents passed a resolution to stop giving petitioner the IPOs he is
entitled to, based on the ground that these shares were allegedly benefiting Gerardo O. Lanuza, Jr.,
who these individual respondents wanted to get even with, for having filed cases before the
Securities and Exchange (SEC) for their disqualification as member of the Board of Directors of
respondent corporation.

12. Hence, from June 3, 1993 up to the present time, petitioner has been deprived of his
right to subscribe to the IPOs of corporations listing in the stock market at their offering prices.

13. The collective act of the individual respondents in depriving petitioner of his right to a
share in the IPOs for the aforementioned reason, is unjust, dishonest and done in bad faith, causing
petitioner substantial financial damage.[6]

There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in favor
of respondent, particularly, respondents alleged right to subscribe to the IPOs of corporations
listed in the stock market at their offering prices; and stipulates the correlative obligation of
petitioners to respect respondents right, specifically, by continuing to allow respondent to
subscribe to the IPOs of corporations listed in the stock market at their offering prices.

However, the terms right and obligation in respondents Petition are not magic words that
would automatically lead to the conclusion that such Petition sufficiently states a cause of
action. Right and obligation are legal terms with specific legal meaning. A right is a claim or title
to an interest in anything whatsoever that is enforceable by law.[7] An obligation is defined in the
Civil Code as a juridical necessity to give, to do or not to do.[8] For every right enjoyed by any
person, there is a corresponding obligation on the part of another person to respect such
right. Thus, Justice J.B.L. Reyes offers[9] the definition given by Arias Ramos as a more complete
definition:

An obligation is a juridical relation whereby a person (called the creditor) may demand
from another (called the debtor) the observance of a determinative conduct (the giving, doing or
not doing), and in case of breach, may demand satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
 Therefore, an obligation imposed on a person, and the corresponding right granted to
another, must be rooted in at least one of these five sources. The mere assertion of a right and
claim of an obligation in an initiatory pleading, whether a Complaint or Petition, without
identifying the basis or source thereof, is merely a conclusion of fact and law. A pleading should
state the ultimate facts essential to the rights of action or defense asserted, as distinguished from
mere conclusions of fact or conclusions of law.[10] Thus, a Complaint or Petition filed by a person
claiming a right to the Office of the President of this Republic, but without stating the source of
his purported right, cannot be said to have sufficiently stated a cause of action. Also, a person
claiming to be the owner of a parcel of land cannot merely state that he has a right to the ownership
thereof, but must likewise assert in the Complaint either a mode of acquisition of ownership or at
least a certificate of title in his name.

In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege
respondents right to subscribe to the IPOs of corporations listed in the stock market at their
offering prices, and petitioners obligation to continue respecting and observing such right, the
Petition utterly failed to lay down the source or basis of respondents right and/or petitioners
obligation.

Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime
in 1989, granting him the position of Chairman Emeritus of MKSE for life. However, there is
nothing in the said Petition from which the Court can deduce that respondent, by virtue of his
position as Chairman Emeritus of MKSE, was granted by law, contract, or any other legal source,
the right to subscribe to the IPOs of corporations listed in the stock market at their offering prices.

A meticulous review of the Petition reveals that the allocation of IPO shares was merely
alleged to have been done in accord with a practicenormally observed by the members of the
stock exchange, to wit:

IPOs are shares of corporations offered for sale to the public, prior to their listing in the trading
floor of the countrys two stock exchanges. Normally, Twenty-Five Percent (25%) of these
shares are divided equally between the two stock exchanges which in turn divide these
equally among their members, who pay therefor at the offering price.[11] (Emphasis supplied)

A practice or custom is, as a general rule, not a source of a legally demandable or

enforceable right.[12] Indeed, in labor cases, benefits which were voluntarily given by the
employer, and which have ripened into company practice, are considered as rights that cannot be
diminished by the employer.[13] Nevertheless, even in such cases, the source of the employees
right is not custom, but ultimately, the law, since Article 100 of the Labor Code explicitly
prohibits elimination or diminution of benefits.

There is no such law in this case that converts the practice of allocating IPO shares to
MKSE members, for subscription at their offering prices, into an enforceable or demandable
right. Thus, even if it is hypothetically admitted that normally, twenty five percent (25%) of the
IPOs are divided equally between the two stock exchanges -- which, in turn, divide their
respective allocation equally among their members, including the Chairman Emeritus, who pay
for IPO shares at the offering price -- the Court cannot grant respondents prayer for damages
which allegedly resulted from the MKSE Board Resolution dated 3 June 1993 deviating from
said practice by no longer allocating any shares to respondent.

Accordingly, the instant Petition should be granted. The Petition in SEC Case No. 02-94-
4678 should be dismissed for failure to state a cause of action. It does not matter that the SEC en
banc, in its Order dated 14 August 1995 in SEC-EB No. 403, overstepped its bounds by not
limiting itself to the issue of whether respondents Petition before the SICD sufficiently stated a
cause of action. The SEC en banc may have been mistaken in considering extraneous evidence
in granting petitioners Motion to Dismiss, but its discussion thereof are merely superfluous
and obiter dictum. In the main, the SEC en banc did correctly dismiss the Petition in SEC Case
No. 02-94-4678 for its failure to state the basis for respondents alleged right, to wit:

Private respondent Campos has failed to establish the basis or authority for his alleged right
to participate equally in the IPO allocations of the Exchange.He cited paragraph 11 of the amended
articles of incorporation of the Exchange in support of his position but a careful reading of the said
provision shows nothing therein that would bear out his claim. The provision merely created the
position of chairman emeritus of the Exchange but it mentioned nothing about conferring upon the
occupant thereof the right to receive IPO allocations.[14]

With the dismissal of respondents Petition in SEC Case No. 02-94-4678, there is no more
need for this Court to resolve the propriety of the issuance by SCID of a writ of preliminary
injunction in said case.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated
11 February 1997 and its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455
are REVERSED and SET ASIDE. The Orders dated 31 May 1995 and 14 August 1995 of the
Securities and Exchange Commission en banc in SEC-EB Case No. 393 and No. 403,
respectively, are hereby reinstated. No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,

vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP
No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated 30
August 1991 and 27 September 1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu
Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before
the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among others, that
plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants
described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces
since 1935 and have been religiously paying the rental and complying with all the conditions of the
lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that
they are offering to sell the premises and are giving them priority to acquire the same; that during the
negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of
P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986
asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not
receive any reply, they sent another letter dated January 28, 1987 with the same request; that since
defendants failed to specify the terms and conditions of the offer to sell and because of information
received that defendants were about to sell the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property to them.

Defendants filed their answer denying the material allegations of the complaint and interposing a
special defense of lack of cause of action.

After the issues were joined, defendants filed a motion for summary judgment which was granted by
the lower court. The trial court found that defendants' offer to sell was never accepted by the
plaintiffs for the reason that the parties did not agree upon the terms and conditions of the proposed
sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will
have the right of first refusal. Thus the dispositive portion of the decision states:

WHEREFORE, judgment is hereby rendered in favor of the defendants and against

the plaintiffs summarily dismissing the complaint subject to the aforementioned
 condition that if the defendants subsequently decide to offer their property for sale for
a purchase price of Eleven Million Pesos or lower, then the plaintiffs has the option to
purchase the property or of first refusal, otherwise, defendants need not offer the
property to the plaintiffs if the purchase price is higher than Eleven Million Pesos.

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in

CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago),
this Court affirmed with modification the lower court's judgment, holding:

In resume, there was no meeting of the minds between the parties concerning the
sale of the property. Absent such requirement, the claim for specific performance will
not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail
as there exists no justifiable ground for its award. Summary judgment for defendants
was properly granted. Courts may render summary judgment when there is no
genuine issue as to any material fact and the moving party is entitled to a judgment
as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites
obtaining, the decision of the court a quo is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is

hereby AFFIRMED, but subject to the following modification: The court a quo in the
aforestated decision gave the plaintiffs-appellants the right of first refusal only if the
property is sold for a purchase price of Eleven Million pesos or lower; however,
considering the mercurial and uncertain forces in our market economy today. We find
no reason not to grant the same right of first refusal to herein appellants in the event
that the subject property is sold for a price in excess of Eleven Million pesos. No
pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The
Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and substances" (Annex
H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the
Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in
question to herein petitioner Buen Realty and Development Corporation, subject to the following
terms and conditions:

1. That for and in consideration of the sum of FIFTEEN MILLION PESOS

(P15,000,000.00), receipt of which in full is hereby acknowledged, the VENDORS
hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs,
executors, administrators or assigns, the above-described property with all the
improvements found therein including all the rights and interest in the said property
free from all liens and encumbrances of whatever nature, except the pending
ejectment proceeding;

2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the
transfer of title in his favor and other expenses incidental to the sale of above-
described property including capital gains tax and accrued real estate taxes.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was
cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3,
1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees
demanding that the latter vacate the premises.

On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property
subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No.
105254/T-881 in the name of the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-
41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.

On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:

Presented before the Court is a Motion for Execution filed by plaintiff represented by
Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng
represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the rubber stamp and
signatures upon the copy of the Motion for Execution.

The gist of the motion is that the Decision of the Court dated September 21, 1990 as
modified by the Court of Appeals in its decision in CA G.R. CV-21123, and elevated
to the Supreme Court upon the petition for review and that the same was denied by
the highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there was an
Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final and executory.

It is the observation of the Court that this property in dispute was the subject of
the Notice of Lis Pendens and that the modified decision of this Court promulgated
by the Court of Appeals which had become final to the effect that should the
defendants decide to offer the property for sale for a price of P11 Million or lower,
and considering the mercurial and uncertain forces in our market economy today, the
same right of first refusal to herein plaintiffs/appellants in the event that the subject
property is sold for a price in excess of Eleven Million pesos or more.

WHEREFORE, defendants are hereby ordered to execute the necessary Deed of

Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of
first refusal and that a new Transfer Certificate of Title be issued in favor of the
buyer.

All previous transactions involving the same property notwithstanding the issuance of
another title to Buen Realty Corporation, is hereby set aside as having been
executed in bad faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the dispositive portion of which
reads:

WHEREFORE, let there be Writ of Execution issue in the above-entitled case

directing the Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of
Execution ordering the defendants among others to comply with the aforesaid Order
of this Court within a period of one (1) week from receipt of this Order and for
defendants to execute the necessary Deed of Sale of the property in litigation in favor
of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to cancel
and set aside the title already issued in favor of Buen Realty Corporation which was
 previously executed between the latter and defendants and to register the new title in
favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.

SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was
issued.1

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without
force and effect the above questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of
execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty,
at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as the right of first
refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental
precepts that may find some relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted
upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the
efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-
delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and
(c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the
passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render some service (Art.
1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection and,
finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place
upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so
established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the
cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in
a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain
formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the
prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation.
In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected
when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing
or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the
thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the
purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory
force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of
Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right
to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the
buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where
the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such
perfection.3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either
waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code).4

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed,
can be obligatory on the parties, and compliance therewith may accordingly be exacted.5

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract
of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the
Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price. (1451a)6

Observe, however, that the option is not the contract of sale itself.7 The optionee has the right, but not the obligation,
to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral
promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective
undertakings.8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an
offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers
or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus,
at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and
not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given
to the offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to
withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of
such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co.
vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying
the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural
Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw,
however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach
of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by
itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of
the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders
himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a
right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance
would be an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first
refusal, understood in its normal concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article 13199 of the same Code. An option or an
offer would require, among other things,10 a clear certainty on both the object and the cause or consideration of the
envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right,
however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at
best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts
(since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among
other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts.11 It is not to say, however, that the right of first refusal would
be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 1912 of the Civil Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in
favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In
fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the
right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an
action for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently
addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot
be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution
varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of
Appeals, in this regard, has observed:

Finally, the questioned writ of execution is in variance with the decision of the trial court as modified
by this Court. As already stated, there was nothing in said decision 13 that decreed the execution of a
deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of the price of the sale,
or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng
Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA,
122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time the
execution of any deed of sale between the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30
August 1991 and 27 September 1991, of the court a quo. Costs against petitioners.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 73345. April 7, 1993.

SOCIAL SECURITY SYSTEM, petitioner,

vs.
MOONWALK DEVELOPMENT & HOUSING CORPORATION, ROSITA U. ALBERTO, ROSITA U. ALBERTO, JMA
HOUSE, INC., MILAGROS SANCHEZ SANTIAGO, in her capacity as Register of Deeds for the Province of Cavite,
ARTURO SOLITO, in his capacity as Register of Deeds for Metro Manila District IV, Makati, Metro Manila and the
INTERMEDIATE APPELLATE COURT, respondents.

The Solicitor General for petitioner.

K.V. Faylona & Associates for private respondents.

DECISION

CAMPOS, JR., J p:

Before Us is a petition for review on certiorari of decision 1 of the then Intermediate Appellate Court affirming in toto
the decision of the former Court of First Instance of Rizal, Seventh Judicial District, Branch XXIX, Pasay City.

The facts as found by the Appellate Court are as follows:

"On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the Court of First Instance
of Rizal against Moonwalk Development & Housing Corporation, Moonwalk for short, alleging that the former had
committed an error in failing to compute the 12% interest due on delayed payments on the loan of Moonwalk —
resulting in a chain of errors in the application of payments made by Moonwalk and, in an unpaid balance on the
principal loan agreement in the amount of P7,053.77 and, also in not reflecting in its statement or account an unpaid
balance on the said penalties for delayed payments in the amount of P7,517,178.21 as of October 10, 1979.

Moonwalk answered denying SSS' claims and asserting that SSS had the opportunity to ascertain the truth but
failed to do so.

The trial court set the case for pre-trial at which pre-trial conference, the court issued an order giving both parties
thirty (30) days within which to submit a stipulation of facts.

The Order of October 6, 1980 dismissing the complaint followed the submission by the parties on September 19,
1980 of the following stipulation of Facts:

"1. On October 6, 1971, plaintiff approved the application of defendant Moonwalk for an interim loan in the amount
of THIRTY MILLION PESOS (P30,000,000.00) for the purpose of developing and constructing a housing project in
the provinces of Rizal and Cavite;

"2. Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00), the sum of P9,595,000.00 was
released to defendant Moonwalk as of November 28, 1973;

"3. A third Amended Deed of First Mortgage was executed on December 18, 1973 Annex `D' providing for
restructuring of the payment of the released amount of P9,595,000.00.
"4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter respectively, under paragraph 5 of the
aforesaid Third Amended Deed of First Mortgage substituted Associated Construction and Surveys Corporation,
Philippine Model Homes Development Corporation, Mariano Z. Velarde and Eusebio T. Ramos, as solidary obligors;

"5. On July 23, 1974, after considering additional releases in the amount of P2,659,700.00, made to defendant
Moonwalk, defendant Moonwalk delivered to the plaintiff a promissory note for TWELVE MILLION TWO HUNDRED
FIFTY FOUR THOUSAND SEVEN HUNDRED PESOS (P12,254,700.00) Annex `E', signed by Eusebio T. Ramos,
and the said Rosita U. Alberto and Rosita U. Alberto;

"6. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of P12,254,700.00 released to
it. The last payment made by Moonwalk in the amount of P15,004,905.74 were based on the Statement of Account,
Annex "F" prepared by plaintiff SSS for defendant;

"7. After settlement of the account stated in Annex 'F' plaintiff issued to defendant Moonwalk the Release of
Mortgage for Moonwalk's mortgaged properties in Cavite and Rizal, Annexes 'G' and 'H' on October 9, 1979 and
October 11, 1979 respectively.

"8. In letters to defendant Moonwalk, dated November 28, 1979 and followed up by another letter dated December
17, 1979, plaintiff alleged that it committed an honest mistake in releasing defendant.

"9. In a letter dated December 21, 1979, defendant's counsel told plaintiff that it had completely paid its obligations
to SSS;

"10. The genuineness and due execution of the documents marked as Annex (sic) 'A' to 'O' inclusive, of the
Complaint and the letter dated December 21, 1979 of the defendant's counsel to the plaintiff are admitted.

"Manila for Pasay City, September 2, 1980." 2

On October 6, 1990, the trial court issued an order dismissing the complaint on the ground that the obligation was
already extinguished by the payment by Moonwalk of its indebtedness to SSS and by the latter's act of cancelling
the real estate mortgages executed in its favor by defendant Moonwalk. The Motion for Reconsideration filed by
SSS with the trial court was likewise dismissed by the latter.

These orders were appealed to the Intermediate Appellate Court. Respondent Court reduced the errors assigned by
the SSS into this issue: ". . . are defendants-appellees, namely, Moonwalk Development and Housing Corporation,
Rosita U. Alberto, Rosita U. Alberto, JMA House, Inc. still liable for the unpaid penalties as claimed by plaintiff-
appellant or is their obligation extinguished?" 3 As We have stated earlier, the respondent Court held that
Moonwalk's obligation was extinguished and affirmed the trial court.

Hence, this Petition wherein SSS raises the following grounds for review:

"First, in concluding that the penalties due from Moonwalk are "deemed waived and/or barred," the appellate court
disregarded the basic tenet that waiver of a right must be express, made in a clear and unequivocal manner. There
is no evidence in the case at bar to show that SSS made a clear, positive waiver of the penalties, made with full
knowledge of the circumstances.

Second, it misconstrued the ruling that SSS funds are trust funds, and SSS, being a mere trustee, cannot perform
acts affecting the same, including condonation of penalties, that would diminish property rights of the owners and
beneficiaries thereof. (United Christian Missionary Society v. Social Security Commission, 30 SCRA 982, 988
[1969]).

Third, it ignored the fact that penalty at the rate of 12% p.a. is not inequitable.

Fourth, it ignored the principle that equity will cancel a release on the ground of mistake of fact." 4

The same problem which confronted the respondent court is presented before Us: Is the penalty demandable even
after the extinguishment of the principal obligation?
The former Intermediate Appellate Court, through Justice Eduard P. Caguioa, held in the negative. It reasoned,
thus:

"2. As we have explained under No. 1, contrary to what the plaintiff-appellant states in its Brief, what is sought to be
recovered in this case is not the 12% interest on the loan but the 12% penalty for failure to pay on time the
amortization. What is sought to be enforced therefore is the penal clause of the contract entered into between the
parties.

Now, what is a penal clause. A penal clause has been defined as

"an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the
performance thereof by imposing on the debtor a special presentation (generally consisting in the payment of a sum
of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled" (3 Castan 8th Ed. p. 118).

Now an accessory obligation has been defined as that attached to a principal obligation in order to complete the
same or take its place in the case of breach (4 Puig Peña Part 1 p. 76). Note therefore that an accessory obligation
is dependent for its existence on the existence of a principal obligation. A principal obligation may exist without an
accessory obligation but an accessory obligation cannot exist without a principal obligation. For example, the
contract of mortgage is an accessory obligation to enforce the performance of the main obligation of indebtedness.
An indebtedness can exist without the mortgage but a mortgage cannot exist without the indebtedness, which is the
principal obligation. In the present case, the principal obligation is the loan between the parties. The accessory
obligation of a penal clause is to enforce the main obligation of payment of the loan. If therefore the principal
obligation does not exist the penalty being accessory cannot exist.

Now then when is the penalty demandable? A penalty is demandable in case of non performance or late
performance of the main obligation. In other words in order that the penalty may arise there must be a breach of the
obligation either by total or partial non fulfillment or there is non fulfillment in point of time which is called mora or
delay. The debtor therefore violates the obligation in point of time if there is mora or delay. Now, there is no mora or
delay unless there is a demand. It is noteworthy that in the present case during all the period when the principal
obligation was still subsisting, although there were late amortizations there was no demand made by the creditor,
plaintiff-appellant for the payment of the penalty. Therefore up to the time of the letter of plaintiff-appellant there was
no demand for the payment of the penalty, hence the debtor was no in mora in the payment of the penalty.

However, on October 1, 1979, plaintiff-appellant issued its statement of account (Exhibit F) showing the total
obligation of Moonwalk as P15,004,905.74, and forthwith demanded payment from defendant-appellee. Because of
the demand for payment, Moonwalk made several payments on September 29, October 9 and 19, 1979
respectively, all in all totalling P15,004,905.74 which was a complete payment of its obligation as stated in Exhibit F.
Because of this payment the obligation of Moonwalk was considered extinguished, and pursuant to said
extinguishment, the real estate mortgages given by Moonwalk were released on October 9, 1979 and October 10,
1979 (Exhibits G and H). For all purposes therefore the principal obligation of defendant-appellee was deemed
extinguished as well as the accessory obligation of real estate mortgage; and that is the reason for the release of all
the Real Estate Mortgages on October 9 and 10, 1979 respectively.

Now, besides the Real Estate Mortgages, the penal clause which is also an accessory obligation must also be
deemed extinguished considering that the principal obligation was considered extinguished, and the penal clause
being an accessory obligation. That being the case, the demand for payment of the penal clause made by plaintiff-
appellant in its demand letter dated November 28, 1979 and its follow up letter dated December 17, 1979 (which
parenthetically are the only demands for payment of the penalties) are therefore ineffective as there was nothing to
demand. It would be otherwise, if the demand for the payment of the penalty was made prior to the extinguishment
of the obligation because then the obligation of Moonwalk would consist of: 1) the principal obligation 2) the interest
of 12% on the principal obligation and 3) the penalty of 12% for late payment for after demand, Moonwalk would be
in mora and therefore liable for the penalty.

Let it be emphasized that at the time of the demand made in the letters of November 28, 1979 and December 17,
1979 as far as the penalty is concerned, the defendant-appellee was not in default since there was no mora prior to
the demand. That being the case, therefore, the demand made after the extinguishment of the principal obligation
which carried with it the extinguishment of the penal clause being merely an accessory obligation, was an exercise
in futility.
3. At the time of the payment made of the full obligation on October 10, 1979 together with the 12% interest by
defendant-appellee Moonwalk, its obligation was extinguished. It being extinguished, there was no more need for
the penal clause. Now, it is to be noted that penalty at anytime can be modified by the Court. Even substantial
performance under Art. 1234 authorizes the Court to consider it as complete performance minus damages. Now,
Art, 1229 Civil Code of the Philippines provides:

"ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts
if it is iniquitous or unconscionable."

If the penalty can be reduced after the principal obligation has been partly or irregularly complied with by the debtor,
which is nonetheless a breach of the obligation, with more reason the penal clause is not demandable when full
obligation has been complied with since in that case there is no breach of the obligation. In the present case, there
has been as yet no demand for payment of the penalty at the time of the extinguishment of the obligation, hence
there was likewise an extinguishment of the penalty.

Let Us emphasize that the obligation of defendant-appellee was fully complied with by the debtor, that is, the
amount loaned together with the 12% interest has been fully paid by the appellee. That being so, there is no basis
for demanding the penal clause since the obligation has been extinguished. Here there has been a waiver of the
penal clause as it was not demanded before the full obligation was fully paid and extinguished. Again, emphasis
must be made on the fact that plaintiff-appellant has not lost anything under the contract since in got back in full the
amount loan (sic) as well as the interest thereof. The same thing would have happened if the obligation was paid on
time, for then the penal clause, under the terms of the contract would not apply. Payment of the penalty does not
mean gain or loss of plaintiff-appellant since it is merely for the purpose of enforcing the performance of the main
obligation has been fully complied with and extinguished, the penal clause has lost its raison d' entre." 5

We find no reason to depart from the appellate court's decision. We, however, advance the following reasons for the
denial of this petition.

Article 1226 of the Civil Code provides:

"Art. 1226. In obligations with a penal clause, he penalty shall substitute the indemnity for damages and the
payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall
be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code."
(Emphasis Ours.)

A penal clause is an accessory undertaking to assume greater liability in case of breach. 6 It has a double function:
(1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of
greater responsibility in the event of breach. 7 From the foregoing, it is clear that a penal clause is intended to
prevent the obligor from defaulting in the performance of his obligation. Thus, if there should be default, the penalty
may be enforced. One commentator of the Civil Code wrote:

"Now when is the penalty deemed demandable in accordance with the provisions of the Civil Code? We must make
a distinction between a positive and a negative obligation. With regard to obligations which are positive (to give and
to do), the penalty is demandable when the debtor is in mora; hence, the necessity of demand by the debtor unless
the same is excused . . ." 8

When does delay arise? Under the Civil Code, delay begins from the time the obligee judicially or extrajudicially
demands from the obligor the performance of the obligation.

"Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation."

There are only three instances when demand is not necessary to render the obligor in default. These are the
following:
"(1) When the obligation or the law expressly so declares;

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or

(3) When the demand would be useless, as when the obligor has rendered it beyond his power to perform." 9

This case does not fall within any of the established exceptions. Hence, despite the provision in the promissory note
that "(a)ll amortization payments shall be made every first five (5) days of the calendar month until the principal and
interest on the loan or any portion thereof actually released has been fully paid," 10 petitioner is not excused from
making a demand. It has been established that at the time of payment of the full obligation, private respondent
Moonwalk has long been delinquent in meeting its monthly arrears and in paying the full amount of the loan itself as
the obligation matured sometime in January, 1977. But mere delinquency in payment does not necessarily mean
delay in the legal concept. To be in default ". . . is different from mere delay in the grammatical sense, because it
involves the beginning of a special condition or status which has its own peculiar effects or results." 11 In order that
the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the
performance judicially and extrajudicially. 12 Default generally begins from the moment the creditor demands the
performance of the obligation. 13

Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its monthly amortizations.
Neither did it show that petitioner demanded the payment of the stipulated penalty upon the failure of Moonwalk to
meet its monthly amortization. What the complaint itself showed was that SSS tried to enforce the obligation
sometime in September, 1977 by foreclosing the real estate mortgages executed by Moonwalk in favor of SSS. But
this foreclosure did not push through upon Moonwalk's requests and promises to pay in full. The next demand for
payment happened on October 1, 1979 when SSS issued a Statement of Account to Moonwalk. And in accordance
with said statement, Moonwalk paid its loan in full. What is clear, therefore, is that Moonwalk was never in default
because SSS never compelled performance. Though it tried to foreclose the mortgages, SSS itself desisted from
doing so upon the entreaties of Moonwalk. If the Statement of Account could properly be considered as demand for
payment, the demand was complied with on time. Hence, no delay occurred and there was, therefore, no occasion
when the penalty became demandable and enforceable. Since there was no default in the performance of the main
obligation — payment of the loan — SSS was never entitled to recover any penalty, not at the time it made the
Statement of Account and certainly, not after the extinguishment of the principal obligation because then, all the
more that SSS had no reason to ask for the penalties. Thus, there could never be any occasion for waiver or even
mistake in the application for payment because there was nothing for SSS to waive as its right to enforce the penalty
did not arise.

SSS, however, in buttressing its claim that it never waived the penalties, argued that the funds it held were trust
funds and as trustee, the petitioner could not perform acts affecting the funds that would diminish property rights of
the owners and beneficiaries thereof. To support its claim, SSS cited the case of United Christian Missionary
Society v. Social Security Commission. 14

We looked into the case and found out that it is not applicable to the present case as it dealt not with the right of the
SSS to collect penalties which were provided for in contracts which it entered into but with its right to collect
premiums and its duty to collect the penalty for delayed payment or non-payment of premiums. The Supreme Court,
in that case, stated:

"No discretion or alternative is granted respondent Commission in the enforcement of the law's mandate that the
employer who fails to comply with his legal obligation to remit the premiums to the System within the prescribed
period shall pay a penalty of three (3%) per month. The prescribed penalty is evidently of a punitive character,
provided by the legislature to assure that employers do not take lightly the State's exercise of the police power in the
implementation of the Republic's declared policy "to develop, establish gradually and perfect a social security
system which shall be suitable to the needs of the people throughout the Philippines and (to) provide protection to
employers against the hazards of disability, sickness, old age and death . . ."

Thus, We agree with the decision of the respondent court on the matter which We quote, to wit:
"Note that the above case refers to the condonation of the penalty for the non remittance of the premium which is
provided for by Section 22(a) of the Social Security Act . . . In other words, what was sought to be condoned was the
penalty provided for by law for non remittance of premium for coverage under the Social Security Act.

The case at bar does not refer to any penalty provided for by law nor does it refer to the non remittance of premium.
The case at bar refers to a contract of loan entered into between plaintiff and defendant Moonwalk Development
and Housing Corporation. Note, therefore, that no provision of law is involved in this case, nor is there any penalty
imposed by law nor a case about non-remittance of premium required by law. The present case refers to a contract
of loan payable in installments not provided for by law but by agreement of the parties. Therefore, the ratio
decidendi of the case of United Christian Missionary Society vs. Social Security Commission which plaintiff-
appellant relies is not applicable in this case; clearly, the Social Security Commission, which is a creature of the
Social Security Act cannot condone a mandatory provision of law providing for the payment of premiums and for
penalties for non remittance. The life of the Social Security Act is in the premiums because these are the funds from
which the Social Security Act gets the money for its purposes and the non-remittance of the premiums is penalized
not by the Social Security Commission but by law.

xxx xxx xxx

It is admitted that when a government created corporation enters into a contract with private party concerning a
loan, it descends to the level of a private person. Hence, the rules on contract applicable to private parties are
applicable to it. The argument therefore that the Social Security Commission cannot waive or condone the penalties
which was applied in the United Christian Missionary Society cannot apply in this case. First, because what was not
paid were installments on a loan but premiums required by law to be paid by the parties covered by the Social
Security Act. Secondly, what is sought to be condoned or waived are penalties not imposed by law for failure to
remit premiums required by law, but a penalty for non payment provided for by the agreement of the parties in the
contract between them . . ." 15

WHEREFORE, in view of the foregoing, the petition is DISMISSED and the decision of the respondent court is
AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-48889 May 11, 1989

DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,

vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of First Instance of Iloilo
and SPOUSES PATRICIO CONFESOR and JOVITA VILLAFUERTE, respondents.

GANCACO, J.:

The issue posed in this petition for review on certiorari is the validity of a promissory note which was executed in
consideration of a previous promissory note the enforcement of which had been barred by prescription.

On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan from the
Agricultural and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the sum of P2,000.00,
Philippine Currency, as evidenced by a promissory note of said date whereby they bound themselves jointly and
severally to pay the account in ten (10) equal yearly amortizations. As the obligation remained outstanding and
unpaid even after the lapse of the aforesaid ten-year period, Confesor, who was by then a member of the Congress
of the Philippines, executed a second promissory note on April 11, 1961 expressly acknowledging said loan and
promising to pay the same on or before June 15, 1961. The new promissory note reads as follows —

I hereby promise to pay the amount covered by my promissory note on or before June 15, 1961.
Upon my failure to do so, I hereby agree to the foreclosure of my mortgage. It is understood that if I
can secure a certificate of indebtedness from the government of my back pay I will be allowed to pay
the amount out of it.

Said spouses not having paid the obligation on the specified date, the DBP filed a complaint dated September 11,
1970 in the City Court of Iloilo City against the spouses for the payment of the loan.

After trial on the merits a decision was rendered by the inferior court on December 27, 1976, the dispositive part of
which reads as follows:

WHEREFORE, premises considered, this Court renders judgment, ordering the defendants Patricio
Confesor and Jovita Villafuerte Confesor to pay the plaintiff Development Bank of the Philippines,
jointly and severally, (a) the sum of P5,760.96 plus additional daily interest of P l.04 from September
17, 1970, the date Complaint was filed, until said amount is paid; (b) the sum of P576.00 equivalent
to ten (10%) of the total claim by way of attorney's fees and incidental expenses plus interest at the
legal rate as of September 17,1970, until fully paid; and (c) the costs of the suit.

Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo wherein in due course a decision was
rendered on April 28, 1978 reversing the appealed decision and dismissing the complaint and counter-claim with
costs against the plaintiff.

A motion for reconsideration of said decision filed by plaintiff was denied in an order of August 10, 1978. Hence this
petition wherein petitioner alleges that the decision of respondent judge is contrary to law and runs counter to
decisions of this Court when respondent judge (a) refused to recognize the law that the right to prescription may be
renounced or waived; and (b) that in signing the second promissory note respondent Patricio Confesor can bind the
conjugal partnership; or otherwise said respondent became liable in his personal capacity. The petition is impressed
with merit. The right to prescription may be waived or renounced. Article 1112 of Civil Code provides:

Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained,
but not the right to prescribe in the future.
 Prescription is deemed to have been tacitly renounced when the renunciation results from acts
which imply the abandonment of the right acquired.

There is no doubt that prescription has set in as to the first promissory note of February 10, 1940. However, when
respondent Confesor executed the second promissory note on April 11, 1961 whereby he promised to pay the
amount covered by the previous promissory note on or before June 15, 1961, and upon failure to do so, agreed to
the foreclosure of the mortgage, said respondent thereby effectively and expressly renounced and waived his right
to the prescription of the action covering the first promissory note.

This Court had ruled in a similar case that –

... when a debt is already barred by prescription, it cannot be enforced by the creditor. But a new
contract recognizing and assuming the prescribed debt would be valid and enforceable ... . 1

Thus, it has been held —

Where, therefore, a party acknowledges the correctness of a debt and promises to pay it after the
same has prescribed and with full knowledge of the prescription he thereby waives the benefit of
prescription. 2

This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay the debt. The
consideration of the new promissory note is the pre-existing obligation under the first promissory note. The statutory
limitation bars the remedy but does not discharge the debt.

A new express promise to pay a debt barred ... will take the case from the operation of the statute of
limitations as this proceeds upon the ground that as a statutory limitation merely bars the remedy
and does not discharge the debt, there is something more than a mere moral obligation to support a
promise, to wit a – pre-existing debt which is a sufficient consideration for the new the new promise;
upon this sufficient consideration constitutes, in fact, a new cause of action. 3

... It is this new promise, either made in express terms or deduced from an acknowledgement as a
legal implication, which is to be regarded as reanimating the old promise, or as imparting vitality to
the remedy (which by lapse of time had become extinct) and thus enabling the creditor to recover
upon his original contract. 4

However, the court a quo held that in signing the promissory note alone, respondent Confesor cannot thereby bind
his wife, respondent Jovita Villafuerte, citing Article 166 of the New Civil Code which provides:

Art. 166. Unless the wife has been declared a non compos mentis or a spend thrift, or is under civil
interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real
property of the conjugal partnership without, the wife's consent. If she ay compel her to refuses
unreasonably to give her consent, the court m grant the same.

We disagree. Under Article 165 of the Civil Code, the husband is the administrator of the conjugal partnership. As
such administrator, all debts and obligations contracted by the husband for the benefit of the conjugal partnership,
are chargeable to the conjugal partnership. 5 No doubt, in this case, respondent Confesor signed the second
promissory note for the benefit of the conjugal partnership. Hence the conjugal partnership is liable for this
obligation.

WHEREFORE, the decision subject of the petition is reversed and set aside and another decision is hereby
rendered reinstating the decision of the City Court of Iloilo City of December 27, 1976, without pronouncement as to
costs in this instance. This decision is immediately executory and no motion for extension of time to file motion for
reconsideration shall be granted.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Baguio City

SPECIAL THIRD DIVISION

G.R. No. 133347 April 23, 2010

ABS-CBN BROADCASTING CORPORATION, EUGENIO LOPEZ, JR., AUGUSTO ALMEDA-LOPEZ, and

OSCAR M. LOPEZ, Petitioners,
vs.
OFFICE OF THE OMBUDSMAN, ROBERTO S. BENEDICTO, EXEQUIEL B. GARCIA, MIGUEL V. GONZALES,
and SALVADOR (BUDDY) TAN, Respondents.

RESOLUTION

NACHURA, J.:

Before us is a Motion for Reconsideration filed by petitioners Eugenio, Jr., Oscar and Augusto Almeda, all surnamed
Lopez, in their capacity as officers and on behalf of petitioner ABS-CBN Broadcasting Corporation (ABS-CBN), of
our Decision in G.R. No. 133347, dismissing their petition for certiorari because of the absence of grave abuse of
discretion in the Ombudsman Resolution which, in turn, found no probable cause to indict respondents for the
following violations of the Revised Penal Code (RPC): (1) Article 298 – Execution of Deeds by Means of Violence or
Intimidation; (2) Article 315, paragraphs 1[b], 2[a], and 3[a] – Estafa; (3) Article 308 – Theft; (4) Article 302 –
Robbery; (5) Article 312 – Occupation of Real Property or Usurpation of Real Rights in Property; and (6) Article 318
– Other Deceits.

The assailed Decision disposed of the case on two (2) points: (1) the dropping of respondents Roberto S. Benedicto
and Salvador (Buddy) Tan as respondents in this case due to their death, consistent with our rulings in People v.
Bayotas1 and Benedicto v. Court of Appeals;2 and (2) our finding that the Ombudsman did not commit grave abuse
of discretion in dismissing petitioners’ criminal complaint against respondents.

Undaunted, petitioners ask for a reconsideration of our Decision on the following grounds:

I.

WITH DUE RESPECT, THE EXECUTION AND VALIDITY OF THE LETTER-AGREEMENT DATED 8 JUNE 1973
ARE PLAINLY IRRELEVANT TO ASCERTAINING THE CRIMINAL LIABILITY OF THE RESPONDENTS AND,
THEREFORE, THE ISSUE AS TO WHETHER SAID AGREEMENT WAS RATIFIED OR NOT IS IMMATERIAL IN
THE PRESENT CASE.

II.

WITH DUE RESPECT, RESPONDENTS BENEDICTO AND TAN SHOULD NOT BE DROPPED AS
RESPONDENTS SIMPLY BECAUSE THEY MET THEIR UNTIMELY DEMISE DURING THE PENDENCY OF THE
CASE.3

Before anything else, we note that petitioners filed a Motion to Refer the Case to the Court en banc.4 Petitioners
aver that the arguments contained in their Motion for Reconsideration, such as: (1) the irrelevance of the civil law
concept of ratification in determining whether a crime was committed; and (2) the continuation of the criminal
complaints against respondents Benedicto and Tan who have both died, to prosecute their possible civil liability
therefor, present novel questions of law warranting resolution by the Court en banc.

In the main, petitioners argue that the Decision is contrary to law because: (1) the ratification of the June 8, 1973
letter-agreement is immaterial to the determination of respondents’ criminal liability for the aforestated felonies in the
RPC; and (2) the very case cited in our Decision, i.e. People v. Bayotas,5 allows for the continuation of a criminal
case to prosecute civil liability based on law and is independent of the civil liability arising from the crime.
We disagree with petitioners. The grounds relied upon by petitioners in both motions, being intertwined, shall be
discussed jointly. Before we do so, parenthetically, the counsel for respondent Miguel V. Gonzales belatedly
informed this Court of his client’s demise on July 20, 2007.6 Hence, as to Gonzales, the case must also be
dismissed.1avv phi 1

Contrary to petitioners’ assertion, their motion for reconsideration does not contain a novel question of law as would
merit the attention of this Court sitting en banc. We also find no cogent reason to reconsider our Decision.

First and foremost, there is, as yet, no criminal case against respondents, whether against those who are living or
those otherwise dead.

The question posed by petitioners on this long-settled procedural issue does not constitute a novel question of law.
Nowhere in People v. Bayotas7 does it state that a criminal complaint may continue and be prosecuted as an
independent civil action. In fact, Bayotas, once and for all, harmonized the rules on the extinguished and on the
subsisting liabilities of an accused who dies. We definitively ruled:

From this lengthy disquisition, we summarize our ruling herein:

1. Death of an accused pending appeal of his conviction extinguishes his criminal liability as well as the civil
liability based solely thereon. As opined by Justice Regalado, in this regard, "the death of the accused prior
to final judgment terminates his criminal liability and only the civil liability directly arising from and based
solely on the offense committed, i.e., civil liability ex delicto in senso strictiore."

2. Corollarily, the claim for civil liability survives notwithstanding the death of accused, if the same may also
be predicated on a source of obligation other than delict. Article 1157 of the Civil Code enumerates these
other sources of obligation from which the civil liability may arise as a result of the same act or omission:

a) Law

b) Contracts

c) Quasi-contracts

d) xxx xxx xxx

e) Quasi-delicts

3. Where the civil liability survives, as explained in Number 2 above, an action for recovery thereof may be
pursued but only by filing a separate civil action and subject to Section 1, Rule 111 of the 1985 Rules on
Criminal Procedure as amended. This separate civil action may be enforced either against the
executor/administrator or the estate of the accused, depending on the source of obligation upon which the
same is based as explained above.

4. Finally, the private offended party need not fear a forfeiture of his right to file this separate civil action by
prescription, in cases where during the prosecution of the criminal action and prior to its extinction, the
private offended party instituted together therewith the civil action. In such case, the statute of limitations on
the civil liability is deemed interrupted during the pendency of the criminal case, conformably with provisions
of Article 1155 of the Civil Code, that should thereby avoid any apprehension on a possible [de]privation of
right by prescription.

From the foregoing, it is quite apparent that Benedicto, Tan, and Gonzales, who all died during the pendency of this
case, should be dropped as party respondents. If on this score alone, our ruling does not warrant reconsideration.
We need not even delve into the explicit declaration in Benedicto v. Court of Appeals.8

Second, and more importantly, we dismissed the petition for certiorari filed by petitioners because they failed to
show grave abuse of discretion on the part of the Ombudsman when he dismissed petitioners’ criminal complaint
against respondents for lack of probable cause. We reiterate that our inquiry was limited to a determination of
whether the Ombudsman committed grave abuse of discretion when he found no probable cause to indict
respondents for various felonies under the RPC. The invocation of our certiorari jurisdiction over the act of a
constitutional officer, such as the Ombudsman, must adhere to the strict requirements provided in the Rules of Court
and in jurisprudence. The determination of whether there was grave abuse of discretion does not, in any way,
constitute a novel question of law.

We first pointed out in our Decision that the complaint-affidavits of petitioners, apart from a blanket charge that
remaining respondents, Gonzales (who we thought was alive at that time) and Exequiel Garcia, are officers of
KBS/RPN and/or alter egos of Benedicto, are bereft of sufficient ground to engender a well-founded belief that
crimes have been committed and that respondents, namely, Gonzales and Garcia, are probably guilty thereof and
should be held for trial. Certainly, no grave abuse of discretion can be imputed to the Ombudsman that would
warrant a reversal of his Resolution.

The charges of individual petitioners Eugenio, Jr., Oscar and Augusto Almeda against respondents, Gonzales and
Garcia, contained in their respective complaint-affidavits simply consisted of the following:

1. Complaint-affidavit of Eugenio, Jr.

32.1. I was briefed that Senator Estanislao Fernandez in representation of Benedicto, met with Senator Tañada at
the Club Filipino in June 1976. Discussions were had on how to arrive at the "reasonable rental" for the use of ABS-
CBN stations and facilities. A second meeting at Club Filipino took place on July 7, 1976 between Senators Tañada
and Fernandez, who brought along Atty. Miguel Gonzales, a close associate and lawyer of Benedicto and an officer
of KBS.

xxxx

38.2. The illegal takeover of ABS-CBN stations, studios and facilities, and the loss and/or damages caused to our
assets occurred while Benedicto, Exequiel Garcia, Miguel Gonzales, and Salvador Tan were in possession, control
and management of our network. Roberto S. Benedicto was the Chairman of the Board of KBS-RPN and its Chief
Executive Officer (CEO), to whom most of the KBS-RPN officers reported while he was in Metro Manila. Miguel
Gonzales, the Vice-President of KBS, and Exequiel Garcia, the Treasurer, were the alter egos of Benedicto
whenever the latter was out of the country; x x x.9

2. Complaint-affidavit of Oscar

25. All the illegal activities as complained of above, were done upon the orders, instructions and directives of
Roberto S. Benedicto, the Chairman of the Board and Chief Executive Officer of the KBS/RPN group; Miguel
Gonzales and Exequiel Garcia, close colleagues and business partners of Benedicto who were either
directors/officers KBS/RPN and who acted as Benedicto’s alter egos whenever the latter was out of the country; x x
x.

xxxx

38. Senator Estanislao Fernandez, in representation of Benedicto, met with Senator Tañada at the Club Filipino on
June 1976. Discussions were had on how to arrive at the "reasonable rental" for the use of ABS stations and
facilities. A second meeting at Club Filipino took place on July 7, 1976 between Senators Tañada and Fernandez,
who brought along Atty. Mike Gonzales, a close associate and friend of Benedicto and an officer of KBS.10

3. Complaint-affidavit of Augusto Almeda

21.1. Barely two weeks from their entry into the ABS Broadcast Center, KBS personnel started making unauthorized
withdrawals from the ABS Stock Room. All these withdrawals of supplies and equipment were made under the
orders of Benedicto, Miguel Gonzales, Exequiel Garcia, and Salvador Tan, the Chairman, the Vice-President,
Treasurer, and the General Manager of KBS, respectively. No payment was ever made by either Benedicto or KBS
for all the supplies and equipment withdrawn from the ABS Broadcast Center.

xxxx
31. Senator Estanislao Fernandez, in representation of Benedicto, met with Senator Tañada at the Club Filipino on
June 1976. Discussions were had on how to arrive at the "reasonable rental" for the use of ABS stations and
facilities. A second meeting at Club Filipino took place on July 7, 1976 between Senators Tañada and Fernandez,
who brought along Atty. Mike Gonzales, a close associate and friend of Benedicto and an officer of KBS.11

From the foregoing, it is beyond cavil that there is no reason for us to depart from our policy of non-interference with
the Ombudsman’s finding of probable cause or lack thereof. On the strength of these allegations, we simply could
not find any rational basis to impute grave abuse of discretion to the Ombudsman’s dismissal of the criminal
complaints.

Third, we did not state in the Decision that ratification extinguishes criminal liability. We simply applied ratification in
determining the conflicting claims of petitioners regarding the execution of the letter-agreement. Petitioners,
desperate to attach criminal liability to respondents’ acts, specifically to respondent Benedicto, alleged in their
complaint-affidavits that Benedicto forced, coerced and intimidated petitioners into signing the letter-agreement. In
other words, petitioners disown this letter-agreement that they were supposedly forced into signing, such that this
resulted in a violation of Article 298 of the RPC (Execution of Deeds by means of Violence or Intimidation).

However, three elements must concur in order for an offender to be held liable under Article 298:

(1) that the offender has intent to defraud another.

(2) that the offender compels him to sign, execute, or deliver any public instrument or document.

(3) that the compulsion is by means of violence or intimidation.12

The element of intent to defraud is not present because, even if, initially, as claimed by petitioners, they were forced
to sign the letter-agreement, petitioners made claims based thereon and invoked the provisions thereof. In fact,
petitioners wanted respondents to honor the letter-agreement and to pay rentals for the use of the ABS-CBN
facilities. By doing so, petitioners effectively, although they were careful not to articulate this fact, affirmed their
signatures in this letter-agreement.

True, ratification is primarily a principle in our civil law on contracts. Yet, their subsequent acts in negotiating for the
rentals of the facilities ― which translate into ratification of the letter-agreement ― cannot be disregarded simply
because ratification is a civil law concept. The claims of petitioners must be consistent and must, singularly,
demonstrate respondents’ culpability for the crimes they are charged with. Sadly, petitioners failed in this regard
because, to reiterate, they effectively ratified and advanced the validity of this letter-agreement in their claim against
the estate of Benedicto.

Finally, we take note of the conflicting claim of petitioners by filing a separate civil action to enforce a claim against
the estate of respondent Benedicto. Petitioners do not even specifically deny this fact and simply sidestep this issue
which was squarely raised in the Decision. The Rules of Court has separate provisions for different claims against
the estate of a decedent under Section 5 of Rule 86 and Section 1 of Rule 87:

RULE 86.

SECTION 5. Claims which must be filed under the notice. If not filed, barred; exceptions. – All claims for money
against the decedent, arising from contract, express or implied, whether the same be due, not due, or contingent, all
claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in the notice; otherwise they are barred forever, except that they may
be set forth as counter claims in any action that the executor or administrator may bring against the claimants. Xxx
Claims not yet due, or contingent, may be approved at their present value.

RULE 87.

SECTION 1. Actions which may and which may not be brought against executor or administrator. – No action upon
a claim for the recovery of money or debt or interest thereon shall be commenced against the executor or
administrator; but actions to recover real or personal property, or an interest therein, from the estate, or to enforce a
lien thereon, and actions to recover damages for an injury to person or property, real or personal, may be
commenced against him.

If, as insisted by petitioners, respondents committed felonies in forcing them to sign the letter-agreement, petitioners
should have filed an action against the executor or administrator of Benedicto’s estate based on Section 1, Rule 87
of the Rules of Court. But they did not. Instead they filed a claim against the estate based on contract, the
unambiguous letter-agreement, under Section 5, Rule 86 of the Rules of Court. The existence of this claim against
the estate of Benedicto as opposed to the filing of an action against the executor or administrator of Benedicto’s
estate forecloses all issues on the circumstances surrounding the execution of this letter- agreement.

We are not oblivious of the fact that, in the milieu prevailing during the Marcos years, incidences involving
intimidation of businessmen were not uncommon. Neither are we totally unaware of the reputed closeness of
Benedicto to President Marcos. However, given the foregoing options open to them under the Rules of Court,
petitioners’ choice of remedies by filing their claim under Section 5, Rule 86 ― after Marcos had already been
ousted and full democratic space restored ― works against their contention, challenging the validity of the letter-
agreement. Now, petitioners must live with the consequences of their choice.

WHEREFORE, in light of the foregoing, the Motion to Refer the Case to the Court en banc and the Motion for
Reconsideration are DENIED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-4089 January 12, 1909

ARTURO PELAYO, plaintiff-appellant,

vs.
MARCELO LAURON, ET AL., defendants-appellees.

J.H. Junquera, for appellant.

Filemon Sotto, for appellee.

TORRES, J.:

On the 23rd of November, 1906, Arturo Pelayo, a physician residing in Cebu, filed a complaint against Marcelo
Lauron and Juana Abella setting forth that on or about the 13th of October of said year, at night, the plaintiff was
called to the house of the defendants, situated in San Nicolas, and that upon arrival he was requested by them to
render medical assistance to their daughter-in-law who was about to give birth to a child; that therefore, and after
consultation with the attending physician, Dr. Escaño, it was found necessary, on account of the difficult birth, to
remove the fetus by means of forceps which operation was performed by the plaintiff, who also had to remove the
afterbirth, in which services he was occupied until the following morning, and that afterwards, on the same day, he
visited the patient several times; that the just and equitable value of the services rendered by him was P500, which
the defendants refuse to pay without alleging any good reason therefor; that for said reason he prayed that the
judgment be entered in his favor as against the defendants, or any of them, for the sum of P500 and costs, together
with any other relief that might be deemed proper.

In answer to the complaint counsel for the defendants denied all of the allegation therein contained and alleged as a
special defense, that their daughter-in-law had died in consequence of the said childbirth, and that when she was
alive she lived with her husband independently and in a separate house without any relation whatever with them,
and that, if on the day when she gave birth she was in the house of the defendants, her stay their was accidental
and due to fortuitous circumstances; therefore, he prayed that the defendants be absolved of the complaint with
costs against the plaintiff.

The plaintiff demurred to the above answer, and the court below sustained the demurrer, directing the defendants,
on the 23rd of January, 1907, to amend their answer. In compliance with this order the defendants presented, on the
same date, their amended answer, denying each and every one of the allegations contained in the complaint, and
requesting that the same be dismissed with costs.

As a result of the evidence adduced by both parties, judgment was entered by the court below on the 5th of April,
1907, whereby the defendants were absolved from the former complaint, on account of the lack of sufficient
evidence to establish a right of action against the defendants, with costs against the plaintiff, who excepted to the
said judgment and in addition moved for a new trial on the ground that the judgment was contrary to law; the motion
was overruled and the plaintiff excepted and in due course presented the corresponding bill of exceptions. The
motion of the defendants requesting that the declaration contained in the judgment that the defendants had
demanded therefrom, for the reason that, according to the evidence, no such request had been made, was also
denied, and to the decision the defendants excepted.

Assuming that it is a real fact of knowledge by the defendants that the plaintiff, by virtue of having been sent for by
the former, attended a physician and rendered professional services to a daughter-in-law of the said defendants
during a difficult and laborious childbirth, in order to decide the claim of the said physician regarding the recovery of
his fees, it becomes necessary to decide who is bound to pay the bill, whether the father and mother-in-law of the
patient, or the husband of the latter.
According to article 1089 of the Civil Code, obligations are created by law, by contracts, by quasi-contracts, and by
illicit acts and omissions or by those in which any kind of fault or negligence occurs.

Obligations arising from law are not presumed. Those expressly determined in the code or in special laws, etc., are
the only demandable ones. Obligations arising from contracts have legal force between the contracting parties and
must be fulfilled in accordance with their stipulations. (Arts. 1090 and 1091.)

The rendering of medical assistance in case of illness is comprised among the mutual obligations to which the
spouses are bound by way of mutual support. (Arts. 142 and 143.)

If every obligation consists in giving, doing or not doing something (art. 1088), and spouses are mutually bound to
support each other, there can be no question but that, when either of them by reason of illness should be in need of
medical assistance, the other is under the unavoidable obligation to furnish the necessary services of a physician in
order that health may be restored, and he or she may be freed from the sickness by which life is jeopardized; the
party bound to furnish such support is therefore liable for all expenses, including the fees of the medical expert for
his professional services. This liability originates from the above-cited mutual obligation which the law has expressly
established between the married couple.

In the face of the above legal precepts it is unquestionable that the person bound to pay the fees due to the plaintiff
for the professional services that he rendered to the daughter-in-law of the defendants during her childbirth, is the
husband of the patient and not her father and mother- in-law, the defendants herein. The fact that it was not the
husband who called the plaintiff and requested his assistance for his wife is no bar to the fulfillment of the said
obligation, as the defendants, in view of the imminent danger, to which the life of the patient was at that moment
exposed, considered that medical assistance was urgently needed, and the obligation of the husband to furnish his
wife in the indispensable services of a physician at such critical moments is specially established by the law, as has
been seen, and compliance therewith is unavoidable; therefore, the plaintiff, who believes that he is entitled to
recover his fees, must direct his action against the husband who is under obligation to furnish medical assistance to
his lawful wife in such an emergency.

From the foregoing it may readily be understood that it was improper to have brought an action against the
defendants simply because they were the parties who called the plaintiff and requested him to assist the patient
during her difficult confinement, and also, possibly, because they were her father and mother-in-law and the
sickness occurred in their house. The defendants were not, nor are they now, under any obligation by virtue of any
legal provision, to pay the fees claimed, nor in consequence of any contract entered into between them and the
plaintiff from which such obligation might have arisen.

In applying the provisions of the Civil Code in an action for support, the supreme court of Spain, while recognizing
the validity and efficiency of a contract to furnish support wherein a person bound himself to support another who
was not his relative, established the rule that the law does impose the obligation to pay for the support of a stranger,
but as the liability arose out of a contract, the stipulations of the agreement must be held. (Decision of May 11,
1897.)

Within the meaning of the law, the father and mother-in-law are strangers with respect to the obligation that
devolves upon the husband to provide support, among which is the furnishing of medical assistance to his wife at
the time of her confinement; and, on the other hand, it does not appear that a contract existed between the
defendants and the plaintiff physician, for which reason it is obvious that the former can not be compelled to pay
fees which they are under no liability to pay because it does not appear that they consented to bind themselves.

The foregoing suffices to demonstrate that the first and second errors assigned to the judgment below are
unfounded, because, if the plaintiff has no right of action against the defendants, it is needless to declare whether or
not the use of forceps is a surgical operation.

Therefore, in view of the consideration hereinbefore set forth, it is our opinion that the judgment appealed from
should be affirmed with the costs against the appellant. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 183204 January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.

DECISION

DEL CASTILLO, J.:

Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid upon demand by the depositor.2

This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the April 2, 2008 Decision4 and the
May 30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. 89086.

Factual Antecedents

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized and existing
under the laws of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the owner of China Golden Bridge
Travel Services,7 a travel agency.8 Respondent Yo Yuk To is the mother of respondent Rosales.9

In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.11 As of August 4, 2004,
respondents’ Joint Peso Account showed a balance of ₱2,515,693.52.12

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National applying for a
retiree’s visa from the Philippine Leisure and Retirement Authority (PLRA), to petitioner’s branch in Escolta to open
a savings account, as required by the PLRA.13 Since Liu Chiu Fang could speak only in Mandarin, respondent
Rosales acted as an interpreter for her.14

On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar Account15 with an initial
deposit of US$14,000.00.16

On July 31, 2003, petitioner issued a "Hold Out" order against respondents’ accounts.17

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre, filed before the
Office of the Prosecutor of Manila a criminal case for Estafa through False Pretences, Misrepresentation, Deceit,
and Use of Falsified Documents, docketed as I.S. No. 03I-25014,18 against respondent Rosales.19 Petitioner accused
respondent Rosales and an unidentified woman as the ones responsible for the unauthorized and fraudulent
withdrawal of US$75,000.00 from Liu Chiu Fang’s dollar account with petitioner’s Escolta Branch.20Petitioner alleged
that on February 5, 2003, its branch in Escolta received from the PLRA a Withdrawal Clearance for the dollar
account of Liu Chiu Fang;21 that in the afternoon of the same day, respondent Rosales went to petitioner’s Escolta
Branch to inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her
dollar deposits in cash;22 that Gutierrez told respondent Rosales to come back the following day because the bank
did not have enough dollars;23 that on February 6, 2003, respondent Rosales accompanied an unidentified impostor
of Liu Chiu Fang to the bank;24 that the impostor was able to withdraw Liu Chiu Fang’s dollar deposit in the amount
of US$75,000.00;25 that on March 3, 2003, respondents opened a dollar account with petitioner; and that the bank
later discovered that the serial numbers of the dollar notes deposited by respondents in the amount of
US$11,800.00 were the same as those withdrawn by the impostor.26

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from the dollar
account of Liu Chiu Fang.27 Respondent Rosales claimed that she did not go to the bank on February 5,
2003.28Neither did she inform Gutierrez that Liu Chiu Fang was going to close her account.29 Respondent Rosales
further claimed that after Liu Chiu Fang opened an account with petitioner, she lost track of her.30 Respondent
Rosales’ version of the events that transpired thereafter is as follows:

On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at the bank to close
her account.31 At noon of the same day, respondent Rosales went to the bank to make a transaction.32 While she
was transacting with the teller, she caught a glimpse of a woman seated at the desk of the Branch Operating Officer,
Melinda Perez (Perez).33 After completing her transaction, respondent Rosales approached Perez who informed her
that Liu Chiu Fang had closed her account and had already left.34 Perez then gave a copy of the Withdrawal
Clearance issued by the PLRA to respondent Rosales.35 On June 16, 2003, respondent Rosales received a call from
Liu Chiu Fang inquiring about the extension of her PLRA Visa and her dollar account.36 It was only then that Liu Chiu
Fang found out that her account had been closed without her knowledge.37 Respondent Rosales then went to the
bank to inform Gutierrez and Perez of the unauthorized withdrawal.38 On June 23, 2003, respondent Rosales and Liu
Chiu Fang went to the PLRA Office, where they were informed that the Withdrawal Clearance was issued on the
basis of a Special Power of Attorney (SPA) executed by Liu Chiu Fang in favor of a certain Richard So.39 Liu Chiu
Fang, however, denied executing the SPA.40 The following day, respondent Rosales, Liu Chiu Fang, Gutierrez, and
Perez met at the PLRA Office to discuss the unauthorized withdrawal.41 During the conference, the bank officers
assured Liu Chiu Fang that the money would be returned to her.42

On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the criminal case
for lack of probable cause.43 Unfazed, petitioner moved for reconsideration.

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a Complaint44 for Breach
of Obligation and Contract with Damages, docketed as Civil Case No. 04110895 and raffled to Branch 21, against
petitioner. Respondents alleged that they attempted several times to withdraw their deposits but were unable to
because petitioner had placed their accounts under "Hold Out" status.45 No explanation, however, was given by
petitioner as to why it issued the "Hold Out" order.46 Thus, they prayed that the "Hold Out" order be lifted and that
they be allowed to withdraw their deposits.47 They likewise prayed for actual, moral, and exemplary damages, as
well as attorney’s fees.48

Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing the "Hold Out"
order.49 It averred that due to the fraudulent scheme of respondent Rosales, it was compelled to reimburse Liu Chiu
Fang the amount of US$75,000.0050 and to file a criminal complaint for Estafa against respondent Rosales.51

While the case for breach of contract was being tried, the City Prosecutor of Manila issued a Resolution dated
February 18, 2005, reversing the dismissal of the criminal complaint.52 An Information, docketed as Criminal Case
No. 05-236103,53 was then filed charging respondent Rosales with Estafa before Branch 14 of the RTC of Manila.54

Ruling of the Regional Trial Court

On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for damages for breach of
contract.56The RTC ruled that it is the duty of petitioner to release the deposit to respondents as the act of withdrawal
of a bank deposit is an act of demand by the creditor.57 The RTC also said that the recourse of petitioner is against
its negligent employees and not against respondents.58 The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner] METROPOLITAN BANK &
TRUST COMPANY to allow [respondents] ANA GRACE ROSALES and YO YUK TO to withdraw their Savings and
Time Deposits with the agreed interest, actual damages of ₱50,000.00, moral damages of ₱50,000.00, exemplary
damages of ₱30,000.00 and 10% of the amount due [respondents] as and for attorney’s fees plus the cost of suit.

The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.

SO ORDERED.59

Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.

On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages because "the basis
for [respondents’] claim for such damages is the professional fee that they paid to their legal counsel for
[respondent] Rosales’ defense against the criminal complaint of [petitioner] for estafa before the Office of the City
Prosecutor of Manila and not this case."60 Thus, the CA disposed of the case in this wise:

WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch 21, Manila in Civil
Case No. 04-110895 is AFFIRMED with MODIFICATION that the award of actual damages to [respondents]
Rosales and Yo Yuk To is hereby DELETED.

SO ORDERED.61

Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008 Resolution.62

Issues

Hence, this recourse by petitioner raising the following issues:

A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE APPLICATION AND
AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.

B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S EMPLOYEES WERE NEGLIGENT IN
RELEASING LIU CHIU FANG’S FUNDS.

C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY DAMAGES,
AND ATTORNEY’S FEES.63

Petitioner’s Arguments

Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the Application and
Agreement for Deposit Account.64 It posits that the said clause applies to any and all kinds of obligation as it does
not distinguish between obligations arising ex contractu or ex delictu.65 Petitioner also contends that the fraud
committed by respondent Rosales was clearly established by evidence;66 thus, it was justified in issuing the "Hold-
Out" order.67 Petitioner likewise denies that its employees were negligent in releasing the dollars.68 It claims that it
was the deception employed by respondent Rosales that caused petitioner’s employees to release Liu Chiu Fang’s
funds to the impostor.69

Lastly, petitioner puts in issue the award of moral and exemplary damages and attorney’s fees. It insists that
respondents failed to prove that it acted in bad faith or in a wanton, fraudulent, oppressive or malevolent manner.70

Respondents’ Arguments

Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their deposits because
they have no monetary obligation to petitioner.71 They insist that petitioner miserably failed to prove its accusations
against respondent Rosales.72 In fact, no documentary evidence was presented to show that respondent Rosales
participated in the unauthorized withdrawal.73 They also question the fact that the list of the serial numbers of the
dollar notes fraudulently withdrawn on February 6, 2003, was not signed or acknowledged by the alleged
impostor.74Respondents likewise maintain that what was established during the trial was the negligence of
petitioner’s employees as they allowed the withdrawal of the funds without properly verifying the identity of the
depositor.75Furthermore, respondents contend that their deposits are in the nature of a loan; thus, petitioner had the
obligation to return the deposits to them upon demand.76 Failing to do so makes petitioner liable to pay respondents
moral and exemplary damages, as well as attorney’s fees.77

Our Ruling

The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with respondents, and
(2) if so, whether it is liable for damages. The issue of whether petitioner’s employees were negligent in allowing the
withdrawal of Liu Chiu Fang’s dollar deposits has no bearing in the resolution of this case. Thus, we find no need to
discuss the same.

The "Hold Out" clause does not apply

to the instant case.

Petitioner claims that it did not breach its contract with respondents because it has a valid reason for issuing the
"Hold Out" order. Petitioner anchors its right to withhold respondents’ deposits on the Application and Agreement for
Deposit Account, which reads:

Authority to Withhold, Sell and/or Set Off:

The Bank is hereby authorized to withhold as security for any and all obligations with the Bank, all monies,
properties or securities of the Depositor now in or which may hereafter come into the possession or under the
control of the Bank, whether left with the Bank for safekeeping or otherwise, or coming into the hands of the Bank in
any way, for so much thereof as will be sufficient to pay any or all obligations incurred by Depositor under the
Account or by reason of any other transactions between the same parties now existing or hereafter contracted, to
sell in any public or private sale any of such properties or securities of Depositor, and to apply the proceeds to the
payment of any Depositor’s obligations heretofore mentioned.

xxxx

JOINT ACCOUNT

xxxx

The Bank may, at any time in its discretion and with or without notice to all of the Depositors, assert a lien on any
balance of the Account and apply all or any part thereof against any indebtedness, matured or unmatured, that may
then be owing to the Bank by any or all of the Depositors. It is understood that if said indebtedness is only owing
from any of the Depositors, then this provision constitutes the consent by all of the depositors to have the Account
answer for the said indebtedness to the extent of the equal share of the debtor in the amount credited to the
Account.78

Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for Deposit Account is misplaced.

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the sources of
obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and quasi-
delict. In this case, petitioner failed to show that respondents have an obligation to it under any law, contract, quasi-
contract, delict, or quasi-delict. And although a criminal case was filed by petitioner against respondent Rosales, this
is not enough reason for petitioner to issue a "Hold Out" order as the case is still pending and no final judgment of
conviction has been rendered against respondent Rosales. In fact, it is significant to note that at the time petitioner
issued the "Hold Out" order, the criminal complaint had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation, there was no legal basis for petitioner to issue the
"Hold Out" order. Accordingly, we agree with the findings of the RTC and the CA that the "Hold Out" clause does not
apply in the instant case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably refused to release
respondents’ deposit despite demand. Having breached its contract with respondents, petitioner is liable for
damages.

Respondents are entitled to moral and

exemplary damages and attorney’s fees. 1âwphi1
In cases of breach of contract, moral damages may be recovered only if the defendant acted fraudulently or in bad
faith,80 or is "guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations."81

In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals that petitioner
issued the "Hold Out" order in bad faith. First of all, the order was issued without any legal basis. Second, petitioner
did not inform respondents of the reason for the "Hold Out."82 Third, the order was issued prior to the filing of the
criminal complaint. Records show that the "Hold Out" order was issued on July 31, 2003,83 while the criminal
complaint was filed only on September 3, 2003.84 All these taken together lead us to conclude that petitioner acted in
bad faith when it breached its contract with respondents. As we see it then, respondents are entitled to moral
damages.

As to the award of exemplary damages, Article 222985 of the Civil Code provides that exemplary damages may be
imposed "by way of example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages." They are awarded only if the guilty party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner
when it refused to release the deposits of respondents without any legal basis. We need not belabor the fact that the
banking industry is impressed with public interest.87 As such, "the highest degree of diligence is expected, and high
standards of integrity and performance are even required of it."88 It must therefore "treat the accounts of its
depositors with meticulous care and always to have in mind the fiduciary nature of its relationship with them."89 For
failing to do this, an award of exemplary damages is justified to set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 220890 of the Civil Code.

In closing, it must be stressed that while we recognize that petitioner has the right to protect itself from fraud or
suspicions of fraud, the exercise of his right should be done within the bounds of the law and in accordance with due
process, and not in bad faith or in a wanton disregard of its contractual obligation to respondents.

WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May 30, 2008
Resolution of the Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice
 Republic of the Philippines
SUPREME COURT
Baguio City

THIRD DIVISION

G.R. No. 179337 April 30, 2008

JOSEPH SALUDAGA, petitioner,

vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of FEU, respondents.

DECISION

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 29, 2007 Decision2 of
the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the November 10, 2004 Decision3 of the
Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 and dismissing the complaint filed by
petitioner; as well as its August 23, 2007 Resolution4 denying the Motion for Reconsideration.5

The antecedent facts are as follows:

Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was
shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996.
Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he
sustained.6Meanwhile, Rosete was brought to the police station where he explained that the shooting was
accidental. He was eventually released considering that no formal complaint was filed against him.

Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their
obligation to provide students with a safe and secure environment and an atmosphere conducive to learning.
Respondents, in turn, filed a Third-Party Complaint7 against Galaxy Development and Management Corporation
(Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D.
Imperial (Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of petitioner, if
any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party
Complaint against AFP General Insurance.8

On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive portion of which
reads:

WHEREFORE, from the foregoing, judgment is hereby rendered ordering:

1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and severally
Joseph Saludaga the amount of P35,298.25 for actual damages with 12% interest per annum from
the filing of the complaint until fully paid; moral damages of P300,000.00, exemplary damages of
P500,000.00, attorney's fees of P100,000.00 and cost of the suit;

2. Galaxy Management and Development Corp. and its president, Col. Mariano Imperial to indemnify
jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity as President of
FEU) for the above-mentioned amounts;

3. And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to
costs.

SO ORDERED.9
Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal portion of which
provides, viz:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is hereby
REVERSED and SET ASIDE. The complaint filed by Joseph Saludaga against appellant Far Eastern
University and its President in Civil Case No. 98-89483 is DISMISSED.

SO ORDERED.10

Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based on the following
grounds:

THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND

JURISPRUDENCE IN RULING THAT:

5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM A
GUNSHOT WOUND SUFFERED BY THE PETITIONER FROM THE HANDS OF NO LESS THAN THEIR
OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN CONTRACTUAL OBLIGATION TO
PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO PROVIDE HIM WITH A SAFE AND
SECURE EDUCATIONAL ENVIRONMENT;

5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE WAS WALKING
ON HIS WAY TO THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE BY VIRTUE
OF THE CONTRACT FOR SECURITY SERVICES BETWEEN GALAXY AND FEU NOTWITHSTANDING
THE FACT THAT PETITIONER, NOT BEING A PARTY TO IT, IS NOT BOUND BY THE SAME UNDER
THE PRINCIPLE OF RELATIVITY OF CONTRACTS; and

5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY WHICH
WOULD PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT FEU.11

Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe
learning environment. The pertinent portions of petitioner's Complaint read:

6.0. At the time of plaintiff's confinement, the defendants or any of their representative did not bother to visit
and inquire about his condition. This abject indifference on the part of the defendants continued even after
plaintiff was discharged from the hospital when not even a word of consolation was heard from them.
Plaintiff waited for more than one (1) year for the defendants to perform their moral obligation but the wait
was fruitless. This indifference and total lack of concern of defendants served to exacerbate plaintiff's
miserable condition.

xxxx

11.0. Defendants are responsible for ensuring the safety of its students while the latter are within the
University premises. And that should anything untoward happens to any of its students while they are within
the University's premises shall be the responsibility of the defendants. In this case, defendants, despite
being legally and morally bound, miserably failed to protect plaintiff from injury and thereafter, to mitigate
and compensate plaintiff for said injury;

12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between them. Under this
contract, defendants are supposed to ensure that adequate steps are taken to provide an atmosphere
conducive to study and ensure the safety of the plaintiff while inside defendant FEU's premises. In the
instant case, the latter breached this contract when defendant allowed harm to befall upon the plaintiff when
he was shot at by, of all people, their security guard who was tasked to maintain peace inside the campus.12

In Philippine School of Business Administration v. Court of Appeals,13 we held that:

 When an academic institution accepts students for enrollment, there is established a contract between them,
resulting in bilateral obligations which both parties are bound to comply with. For its part, the school
undertakes to provide the student with an education that would presumably suffice to equip him with the
necessary tools and skills to pursue higher education or a profession. On the other hand, the student
covenants to abide by the school's academic requirements and observe its rules and regulations.

Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an
atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly,
no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and
other sciences when bullets are flying or grenades exploding in the air or where there looms around the
school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps
are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof.14

It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such, there was
created a contractual obligation between the two parties. On petitioner's part, he was obliged to comply with the
rules and regulations of the school. On the other hand, respondent FEU, as a learning institution is mandated to
impart knowledge and equip its students with the necessary skills to pursue higher education or a profession. At the
same time, it is obliged to ensure and take adequate steps to maintain peace and order within the campus.

It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief.15 In the instant case, we find that, when petitioner was shot inside
the campus by no less the security guard who was hired to maintain peace and secure the premises, there is a
prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment
to its students.

In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event because they
could not have reasonably foreseen nor avoided the accident caused by Rosete as he was not their employee;16and
that they complied with their obligation to ensure a safe learning environment for their students by having exercised
due diligence in selecting the security services of Galaxy.

After a thorough review of the records, we find that respondents failed to discharge the burden of proving that they
exercised due diligence in providing a safe learning environment for their students. They failed to prove that they
ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement.
Indeed, certain documents about Galaxy were presented during trial; however, no evidence as to the qualifications
of Rosete as a security guard for the university was offered.

Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards
assigned to them actually possess the qualifications required in the Security Service Agreement. It was not proven
that they examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its
contract with Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating
the qualifications of the guards is negligence on the part of respondents. A learning institution should not be allowed
to completely relinquish or abdicate security matters in its premises to the security agency it hired. To do so would
result to contracting away its inherent obligation to ensure a safe learning environment for its students.

Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered,
respondents must show that no negligence or misconduct was committed that may have occasioned the loss. An
act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and
injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's
participation - whether by active intervention, neglect or failure to act - the whole occurrence is humanized and
removed from the rules applicable to acts of God.17

Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable
for damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment,
respondent FEU is liable to petitioner for damages. It is essential in the award of damages that the claimant must
have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection
to defendant's acts.18
In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and other medical
expenses.19 While the trial court correctly imposed interest on said amount, however, the case at bar involves an
obligation arising from a contract and not a loan or forbearance of money. As such, the proper rate of legal interest
is six percent (6%) per annum of the amount demanded. Such interest shall continue to run from the filing of the
complaint until the finality of this Decision.20 After this Decision becomes final and executory, the applicable rate
shall be twelve percent (12%) per annum until its satisfaction.

The other expenses being claimed by petitioner, such as transportation expenses and those incurred in hiring a
personal assistant while recuperating were however not duly supported by receipts.21 In the absence thereof, no
actual damages may be awarded. Nonetheless, temperate damages under Art. 2224 of the Civil Code may be
recovered where it has been shown that the claimant suffered some pecuniary loss but the amount thereof cannot
be proved with certainty. Hence, the amount of P20,000.00 as temperate damages is awarded to petitioner.

As regards the award of moral damages, there is no hard and fast rule in the determination of what would be a fair
amount of moral damages since each case must be governed by its own peculiar circumstances.22 The testimony of
petitioner about his physical suffering, mental anguish, fright, serious anxiety, and moral shock resulting from the
shooting incident23 justify the award of moral damages. However, moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The
award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to
obtain means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed
at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the
suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise
balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption
on the part of the trial court.24 We deem it just and reasonable under the circumstances to award petitioner moral
damages in the amount of P100,000.00.

Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of damages is reasonable in
view of Article 2208 of the Civil Code.25 However, the award of exemplary damages is deleted considering the
absence of proof that respondents acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. In Powton
Conglomerate, Inc. v. Agcolicol,26 we held that:

[A] corporation is invested by law with a personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf
of the corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a
corporate director, trustee or officer along (although not necessarily) with the corporation may so validly
attach, as a rule, only when - (1) he assents to a patently unlawful act of the corporation, or when he is guilty
of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in
damages to the corporation, its stockholders or other persons; (2) he consents to the issuance of watered
down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation; or
(4) he is made by a specific provision of law personally answerable for his corporate action.27

None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus should not be
held solidarily liable with respondent FEU.

Incidentally, although the main cause of action in the instant case is the breach of the school-student contract,
petitioner, in the alternative, also holds respondents vicariously liable under Article 2180 of the Civil Code, which
provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions,
but also for those of persons for whom one is responsible.

xxxx

Employers shall be liable for the damages caused by their employees and household helpers acting within
the scope of their assigned tasks, even though the former are not engaged in any business or industry.
 xxxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damage.

We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under Art.
2180 of the Civil Code because respondents are not the employers of Rosete. The latter was employed by Galaxy.
The instructions issued by respondents' Security Consultant to Galaxy and its security guards are ordinarily no more
than requests commonly envisaged in the contract for services entered into by a principal and a security agency.
They cannot be construed as the element of control as to treat respondents as the employers of Rosete.28

As held in Mercury Drug Corporation v. Libunao:29

In Soliman, Jr. v. Tuazon,30 we held that where the security agency recruits, hires and assigns the works of
its watchmen or security guards to a client, the employer of such guards or watchmen is such agency, and
not the client, since the latter has no hand in selecting the security guards. Thus, the duty to observe the
diligence of a good father of a family cannot be demanded from the said client:

… [I]t is settled in our jurisdiction that where the security agency, as here, recruits, hires and assigns
the work of its watchmen or security guards, the agency is the employer of such guards or
watchmen. Liability for illegal or harmful acts committed by the security guards attaches to the
employer agency, and not to the clients or customers of such agency. As a general rule, a client or
customer of a security agency has no hand in selecting who among the pool of security guards or
watchmen employed by the agency shall be assigned to it; the duty to observe the diligence of a
good father of a family in the selection of the guards cannot, in the ordinary course of events, be
demanded from the client whose premises or property are protected by the security guards.

xxxx

The fact that a client company may give instructions or directions to the security guards assigned to it, does
not, by itself, render the client responsible as an employer of the security guards concerned and liable for
their wrongful acts or omissions.31

We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber Company of the
Philippines v. Tempengko,32 we held that:

The third-party complaint is, therefore, a procedural device whereby a 'third party' who is neither a party nor
privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by
the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for
contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-party
complaint is actually independent of and separate and distinct from the plaintiff's complaint. Were it not for
this provision of the Rules of Court, it would have to be filed independently and separately from the original
complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's claim against a third-
party in the original and principal case with the object of avoiding circuitry of action and unnecessary
proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from
one particular set of facts.33

Respondents and Galaxy were able to litigate their respective claims and defenses in the course of the trial of
petitioner's complaint. Evidence duly supports the findings of the trial court that Galaxy is negligent not only in the
selection of its employees but also in their supervision. Indeed, no administrative sanction was imposed against
Rosete despite the shooting incident; moreover, he was even allowed to go on leave of absence which led
eventually to his disappearance.34 Galaxy also failed to monitor petitioner's condition or extend the necessary
assistance, other than the P5,000.00 initially given to petitioner. Galaxy and Imperial failed to make good their
pledge to reimburse petitioner's medical expenses.
For these acts of negligence and for having supplied respondent FEU with an unqualified security guard, which
resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such
damages equivalent to the above-mentioned amounts awarded to petitioner.

Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in
directing the affairs of the security agency. It was Imperial who assured petitioner that his medical expenses will be
shouldered by Galaxy but said representations were not fulfilled because they presumed that petitioner and his
family were no longer interested in filing a formal complaint against them.35

WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in CA-G.R. CV No.
87050 nullifying the Decision of the trial court and dismissing the complaint as well as the August 23, 2007
Resolution denying the Motion for Reconsideration are REVERSED and SET ASIDE. The Decision of the Regional
Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 finding respondent FEU liable for damages for breach of
its obligation to provide students with a safe and secure learning atmosphere, is AFFIRMED with the
following MODIFICATIONS:

a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the amount of
P35,298.25, plus 6% interest per annum from the filing of the complaint until the finality of this Decision. After this
decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its
satisfaction;

b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of P20,000.00; moral
damages in the amount of P100,000.00; and attorney's fees and litigation expenses in the amount of P50,000.00;

c. the award of exemplary damages is DELETED.

The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of respondents are
likewise DISMISSED.

Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D. Imperial
are ORDEREDto jointly and severally pay respondent FEU damages equivalent to the above-mentioned amounts
awarded to petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 158911 March 4, 2008

MANILA ELECTRIC COMPANY, Petitioner,

vs.
MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA RAMOY-RAMOS, ROSEMARIE RAMOY,
OFELIA DURIAN and CYRENE PANADO, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Decision1 of
the Court of Appeals (CA) dated December 16, 2002, ordering petitioner Manila Electric Company (MERALCO) to
pay Leoncio Ramoy2 moral and exemplary damages and attorney's fees, and the CA Resolution3 dated July 1,
2003, denying petitioner's motion for reconsideration, be reversed and set aside.

The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately summarized the facts as culled from the
records, thus:

The evidence on record has established that in the year 1987 the National Power Corporation (NPC) filed with the
MTC Quezon City a case for ejectment against several persons allegedly illegally occupying its properties in Baesa,
Quezon City. Among the defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at
bar. On April 28, 1989 after the defendants failed to file an answer in spite of summons duly served, the MTC
Branch 36, Quezon City rendered judgment for the plaintiff [MERALCO] and "ordering the defendants to demolish or
remove the building and structures they built on the land of the plaintiff and to vacate the premises." In the case of
Leoncio Ramoy, the Court found that he was occupying a portion of Lot No. 72-B-2-B with the exact location of his
apartments indicated and encircled in the location map as No. 7. A copy of the decision was furnished Leoncio
Ramoy (Exhibits 2, 2-A, 2-B, 2-C, pp. 128-131, Record; TSN, July 2, 1993, p. 5).

On June 20, 1990 NPC wrote Meralco requesting for the "immediate disconnection of electric power supply to all
residential and commercial establishments beneath the NPC transmission lines along Baesa, Quezon City (Exh. 7,
p. 143, Record). Attached to the letter was a list of establishments affected which included plaintiffs Leoncio and
Matilde Ramoy (Exh. 9), as well as a copy of the court decision (Exh. 2). After deliberating on NPC's letter, Meralco
decided to comply with NPC's request (Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued notices of disconnection to
all establishments affected including plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-C), Matilde Ramoy/Matilde
Macabagdal (Exhibits 3-D to 3-E), Rosemarie Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose Valiza (Exh. 3-H)
and Cyrene S. Panado (Exh. 3-I).

In a letter dated August 17, 1990 Meralco requested NPC for a joint survey to determine all the establishments
which are considered under NPC property in view of the fact that "the houses in the area are very close to each
other" (Exh. 12). Shortly thereafter, a joint survey was conducted and the NPC personnel pointed out the electric
meters to be disconnected (Exh. 13; TSN, October 8, 1993, p. 7; TSN, July 1994, p. 8).

In due time, the electric service connection of the plaintiffs [herein respondents] was disconnected (Exhibits D to G,
with submarkings, pp. 86-87, Record).

Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a parcel of land covered by TCT
No. 326346, a portion of which was occupied by plaintiffs Rosemarie Ramoy, Ofelia Durian, Jose Valiza and Cyrene
S. Panado as lessees. When the Meralco employees were disconnecting plaintiffs' power connection, plaintiff
Leoncio Ramoy objected by informing the Meralco foreman that his property was outside the NPC property and
pointing out the monuments showing the boundaries of his property. However, he was threatened and told not to
interfere by the armed men who accompanied the Meralco employees. After the electric power in Ramoy's
apartment was cut off, the plaintiffs-lessees left the premises.

During the ocular inspection ordered by the Court and attended by the parties, it was found out that the residence of
plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside the NPC property. This was confirmed by
defendant's witness R.P. Monsale III on cross-examination (TSN, October 13, 1993, pp. 10 and 11). Monsale also
admitted that he did not inform his supervisor about this fact nor did he recommend re-connection of plaintiffs' power
supply (Ibid., p. 14).

The record also shows that at the request of NPC, defendant Meralco re-connected the electric service of four
customers previously disconnected none of whom was any of the plaintiffs (Exh. 14).4

The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral damages, exemplary
damages and attorney's fees. However, the RTC ordered MERALCO to restore the electric power supply of
respondents.

Respondents then appealed to the CA. In its Decision dated December 16, 2002, the CA faulted MERALCO for not
requiring from National Power Corporation (NPC) a writ of execution or demolition and in not coordinating with the
court sheriff or other proper officer before complying with the NPC's request. Thus, the CA held MERALCO liable for
moral and exemplary damages and attorney's fees. MERALCO's motion for reconsideration of the Decision was
denied per Resolution dated July 1, 2003.

Hence, herein petition for review on certiorari on the following grounds:

THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO NEGLIGENT WHEN IT
DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF RESPONDENTS.

II

THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY'S FEES AGAINST MERALCO UNDER THE CIRCUMSTANCES THAT THE LATTER ACTED IN
GOOD FAITH IN THE DISCONNECTION OF THE ELECTRIC SERVICES OF THE RESPONDENTS. 5

The petition is partly meritorious.

MERALCO admits6 that respondents are its customers under a Service Contract whereby it is obliged to supply
respondents with electricity. Nevertheless, upon request of the NPC, MERALCO disconnected its power supply to
respondents on the ground that they were illegally occupying the NPC's right of way. Under the Service Contract,
"[a] customer of electric service must show his right or proper interest over the property in order that he will be
provided with and assured a continuous electric service."7 MERALCO argues that since there is a Decision of the
Metropolitan Trial Court (MTC) of Quezon City ruling that herein respondents were among the illegal occupants of
the NPC's right of way, MERALCO was justified in cutting off service to respondents.

Clearly, respondents' cause of action against MERALCO is anchored on culpa contractual or breach of contract for
the latter's discontinuance of its service to respondents under Article 1170 of the Civil Code which provides:

Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages.

In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court expounded on the nature of culpa
contractual, thus:

"In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not
permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a
contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promissee
that may include his "expectation interest," which is his interest in having the benefit of his bargain by being put in as
good a position as he would have been in had the contract been performed, or his "reliance interest," which is his
interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he
would have been in had the contract not been made; or his "restitution interest," which is his interest in having
restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either
for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a
new duty, that is, to make recompense to the one who has been injured by the failure of another to observe his
contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence x x
x or of the attendance of fortuitous event, to excuse him from his ensuing liability.9 (Emphasis supplied)

Article 1173 also provides that the fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of
the place. The Court emphasized in Ridjo Tape & Chemical Corporation v. Court of Appeals10 that "as a public utility,
MERALCO has the obligation to discharge its functions with utmost care and diligence."11

The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to exercise the
utmost degree of care and diligence required of it. To repeat, it was not enough for MERALCO to merely rely on the
Decision of the MTC without ascertaining whether it had become final and executory. Verily, only upon finality of
said Decision can it be said with conclusiveness that respondents have no right or proper interest over the subject
property, thus, are not entitled to the services of MERALCO.

Although MERALCO insists that the MTC Decision is final and executory, it never showed any documentary
evidence to support this allegation. Moreover, if it were true that the decision was final and executory, the most
prudent thing for MERALCO to have done was to coordinate with the proper court officials in determining which
structures are covered by said court order. Likewise, there is no evidence on record to show that this was done by
MERALCO.

The utmost care and diligence required of MERALCO necessitates such great degree of prudence on its part, and
failure to exercise the diligence required means that MERALCO was at fault and negligent in the performance of its
obligation. In Ridjo Tape,12 the Court explained:

[B]eing a public utility vested with vital public interest, MERALCO is impressed with certain obligations towards its
customers and any omission on its part to perform such duties would be prejudicial to its interest. For in the final
analysis, the bottom line is that those who do not exercise such prudence in the discharge of their duties shall be
made to bear the consequences of such oversight.13

This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.

The next question is: Are respondents entitled to moral and exemplary damages and attorney's fees?

Article 2220 of the Civil Code provides:

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith.

In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by withholding from him and his tenants the
supply of electricity to which they were entitled under the Service Contract. This is contrary to public policy because,
as discussed above, MERALCO, being a vital public utility, is expected to exercise utmost care and diligence in the
performance of its obligation. It was incumbent upon MERALCO to do everything within its power to ensure that the
improvements built by respondents are within the NPC’s right of way before disconnecting their power supply. The
Court emphasized in Samar II Electric Cooperative, Inc. v. Quijano14 that:

Electricity is a basic necessity the generation and distribution of which is imbued with public interest, and
its provider is a public utility subject to strict regulation by the State in the exercise of police power. Failure to
comply with these regulations will give rise to the presumption of bad faith or abuse of right.15 (Emphasis
supplied)

Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the performance of its obligation to
Leoncio Ramoy, its customer, is tantamount to bad faith. Leoncio Ramoy testified that he suffered wounded feelings
because of MERALCO's actions.16 Furthermore, due to the lack of power supply, the lessees of his four apartments
on subject lot left the premises.17 Clearly, therefore, Leoncio Ramoy is entitled to moral damages in the amount
awarded by the CA.

Leoncio Ramoy, the lone witness for respondents, was the only one who testified regarding the effects on him of
MERALCO's electric service disconnection. His co-respondents Matilde Ramoy, Rosemarie Ramoy, Ofelia Durian
and Cyrene Panado did not present any evidence of damages they suffered.

It is a hornbook principle that damages may be awarded only if proven. In Mahinay v. Velasquez, Jr.,18 the Court
held thus:

In order that moral damages may be awarded, there must be pleading and proof of moral suffering, mental
anguish, fright and the like. While respondent alleged in his complaint that he suffered mental anguish, serious
anxiety, wounded feelings and moral shock, he failed to prove them during the trial. Indeed, respondent should
have taken the witness stand and should have testified on the mental anguish, serious anxiety, wounded
feelings and other emotional and mental suffering he purportedly suffered to sustain his claim for moral damages.
Mere allegations do not suffice; they must be substantiated by clear and convincing proof. No other person could
have proven such damages except the respondent himself as they were extremely personal to him.

In Keirulf vs. Court of Appeals, we held:

"While no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of
indemnity being left to the discretion of the court, it is nevertheless essential that the claimant should satisfactorily
show the existence of the factual basis of damages and its causal connection to defendant’s acts. This is so
because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. In Francisco vs.
GSIS, the Court held that there must be clear testimony on the anguish and other forms of mental suffering.
Thus, if the plaintiff fails to take the witness stand and testify as to his/her social humiliation, wounded feelings and
anxiety, moral damages cannot be awarded. In Cocoland Development Corporation vs. National Labor Relations
Commission, the Court held that "additional facts must be pleaded and proven to warrant the grant of moral
damages under the Civil Code, these being, x x x social humiliation, wounded feelings, grave anxiety, etc. that
resulted therefrom."

x x x The award of moral damages must be anchored to a clear showing that respondent actually experienced
mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar injury. There was no better
witness to this experience than respondent himself. Since respondent failed to testify on the witness stand, the
trial court did not have any factual basis to award moral damages to him.19 (Emphasis supplied)

Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may be awarded moral damages.20

With regard to exemplary damages, Article 2232 of the Civil Code provides that in contracts and quasi-contracts, the
court may award exemplary damages if the defendant, in this case MERALCO, acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner, while Article 2233 of the same Code provides that such damages
cannot be recovered as a matter of right and the adjudication of the same is within the discretion of the court. 1avv phi 1

The Court finds that MERALCO fell short of exercising the due diligence required, but its actions cannot be
considered wanton, fraudulent, reckless, oppressive or malevolent. Records show that MERALCO did take some
measures, i.e., coordinating with NPC officials and conducting a joint survey of the subject area, to verify which
electric meters should be disconnected although these measures are not sufficient, considering the degree of
diligence required of it. Thus, in this case, exemplary damages should not be awarded.
Since the Court does not deem it proper to award exemplary damages in this case, then the CA's award for
attorney's fees should likewise be deleted, as Article 2208 of the Civil Code states that in the absence of
stipulation, attorney's fees cannot be recovered except in cases provided for in said Article, to wit:

Article 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs,
cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid,
just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of
litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

None of the grounds for recovery of attorney's fees are present.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATION. The award for exemplary damages and attorney's fees is DELETED.

No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-23749 April 29, 1977

FAUSTINO CRUZ, plaintiff-appellant,

vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC., defendants-appellees.

BARREDO, J.:

Appeal from the order dated August 13, 1964 of the Court of First Instance of Quezon City in Civil Case No. Q-
7751, Faustino Cruz vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc., dismissing the complaint of appellant
Cruz for the recovery of improvements he has made on appellees' land and to compel appellees to convey to him
3,000 square meters of land on three grounds: (1) failure of the complaint to state a cause of action; (2) the cause of
action of plaintiff is unenforceable under the Statute of Frauds; and (3) the action of the plaintiff has already
prescribed.

Actually, a perusal of plaintiff-appellant's complaint below shows that he alleged two separate causes of action,
namely: (1) that upon request of the Deudors (the family of Telesforo Deudor who laid claim on the land in question
on the strength of an "informacion posesoria" ) plaintiff made permanent improvements valued at P30,400.00 on
said land having an area of more or less 20 quinones and for which he also incurred expenses in the amount of
P7,781.74, and since defendants-appellees are being benefited by said improvements, he is entitled to
reimbursement from them of said amounts and (2) that in 1952, defendants availed of plaintiff's services as an
intermediary with the Deudors to work for the amicable settlement of Civil Case No. Q-135, then pending also in the
Court of First Instance of Quezon City, and involving 50 quinones of land, of Which the 20 quinones aforementioned
form part, and notwithstanding his having performed his services, as in fact, a compromise agreement entered into
on March 16, 1963 between the Deudors and the defendants was approved by the court, the latter have refused to
convey to him the 3,000 square meters of land occupied by him, (a part of the 20 quinones above) which said
defendants had promised to do "within ten years from and after date of signing of the compromise agreement", as
consideration for his services.

Within the Period allowed by the rules, the defendants filed separate motions to dismiss alleging three Identical
grounds: (1) As regards that improvements made by plaintiff, that the complaint states no cause of action, the
agreement regarding the same having been made by plaintiff with the Deudors and not with the defendants, hence
the theory of plaintiff based on Article 2142 of the Code on unjust enrichment is untenable; and (2) anent the alleged
agreement about plaintiffs services as intermediary in consideration of which, defendants promised to convey to him
3,000 square meters of land, that the same is unenforceable under the Statute of Frauds, there being nothing in
writing about it, and, in any event, (3) that the action of plaintiff to compel such conveyance has already prescribed.

Plaintiff opposed the motion, insisting that Article 2142 of the applicable to his case; that the Statute of Frauds
cannot be invoked by defendants, not only because Article 1403 of the Civil Code refers only to "sale of real
property or of an interest therein" and not to promises to convey real property like the one supposedly promised by
defendants to him, but also because, he, the plaintiff has already performed his part of the agreement, hence the
agreement has already been partly executed and not merely executory within the contemplation of the Statute; and
that his action has not prescribed for the reason that defendants had ten years to comply and only after the said ten
years did his cause of action accrue, that is, ten years after March 16, 1963, the date of the approval of the
compromise agreement, and his complaint was filed on January 24, 1964.

Ruling on the motion to dismiss, the trial court issued the herein impugned order of August 13, 1964:
 In the motion, dated January 31, 1964, defendant Gregorio Araneta, Inc. prayed that the complaint
against it be dismissed on the ground that (1) the claim on which the action is founded is
unenforceable under the provision of the Statute of Frauds; and (2) the plaintiff's action, if any has
already prescribed. In the other motion of February 11, 1964, defendant J. M. Tuason & Co., Inc.
sought the dismissal of the plaintiffs complaint on the ground that it states no cause of action and on
the Identical grounds stated in the motion to dismiss of defendant Gregorio Araneta, Inc. The said
motions are duly opposed by the plaintiff.

From the allegations of the complaint, it appears that, by virtue of an agreement arrived at in 1948 by
the plaintiff and the Deudors, the former assisted the latter in clearing, improving, subdividing and
selling the large tract of land consisting of 50 quinones covered by the informacion posesoria in the
name of the late Telesforo Deudor and incurred expenses, which are valued approximately at
P38,400.00 and P7,781.74, respectively; and, for the reasons that said improvements are being
used and enjoyed by the defendants, the plaintiff is seeking the reimbursement for the services and
expenses stated above from the defendants.

Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the plaintiffs claim for the reimbursement
of the amounts of P38,400.00 and P7,781.74 is concerned, it is not a privy to the plaintiff's
agreement to assist the Deudors n improving the 50 quinones. On the other hand, the plaintiff
countered that, by holding and utilizing the improvements introduced by him, the defendants are
unjustly enriching and benefiting at the expense of the plaintiff; and that said improvements
constitute a lien or charge of the property itself

On the issue that the complaint insofar as it claims the reimbursement for the services rendered and
expenses incurred by the plaintiff, states no cause of action, the Court is of the opinion that the same
is well-founded. It is found that the defendants are not parties to the supposed express contract
entered into by and between the plaintiff and the Deudors for the clearing and improvement of the 50
quinones. Furthermore in order that the alleged improvement may be considered a lien or charge on
the property, the same should have been made in good faith and under the mistake as to the title.
The Court can take judicial notice of the fact that the tract of land supposedly improved by the
plaintiff had been registered way back in 1914 in the name of the predecessors-in-interest of
defendant J. M. Tuason & Co., Inc. This fact is confirmed in the decision rendered by the Supreme
Court on July 31, 1956 in Case G. R. No. L-5079 entitled J.M. Tuason & Co. Inc. vs. Geronimo
Santiago, et al., Such being the case, the plaintiff cannot claim good faith and mistake as to the title
of the land.

On the issue of statute of fraud, the Court believes that same is applicable to the instant case. The
allegation in par. 12 of the complaint states that the defendants promised and agreed to cede,
transfer and convey unto the plaintiff the 3,000 square meters of land in consideration of certain
services to be rendered then. it is clear that the alleged agreement involves an interest in real
property. Under the provisions of See. 2(e) of Article 1403 of the Civil Code, such agreement is not
enforceable as it is not in writing and subscribed by the party charged.

On the issue of statute of limitations, the Court holds that the plaintiff's action has prescribed. It is
alleged in par. 11 of the complaint that, sometime in 1952, the defendants approached the plaintiff to
prevail upon the Deudors to enter to a compromise agreement in Civil Case No. Q-135 and allied
cases. Furthermore, par. 13 and 14 of the complaint alleged that the plaintiff acted as emissary of
both parties in conveying their respective proposals and couter-proposals until the final settlement
was effected on March 16, 1953 and approved by Court on April 11, 1953. In the present action,
which was instituted on January 24, 1964, the plaintiff is seeking to enforce the supposed agreement
entered into between him and the defendants in 1952, which was already prescribed.

WHEREFORE, the plaintiffs complaint is hereby ordered DISMISSED without pronouncement as to

costs.

SO ORDERED. (Pp. 65-69, Rec. on Appeal,)

On August 22, 1964, plaintiff's counsel filed a motion for reconsideration dated August 20, 1964 as follows:
Plaintiff through undersigned counsel and to this Honorable Court, respectfully moves to reconsider
its Order bearing date of 13 August 1964, on the following grounds:

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST DEFENDANTS

IN SO FAR AS PLAINTIFF'S CLAIM PAYMENT OF SERVICES AND REIMBURSEMENT OF HIS
EXPENSES, IS CONCERNED;

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS., THE SAME HAS NOT
PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO;

ARGUMENT

Plaintiff's complaint contains two (2) causes of action — the first being an action for sum of money in
the amount of P7,781.74 representing actual expenses and P38,400.00 as reasonable
compensation for services in improving the 50 quinones now in the possession of defendants. The
second cause of action deals with the 3,000 sq. ms. which defendants have agreed to transfer into
Plaintiff for services rendered in effecting the compromise between the Deudors and defendants;

Under its order of August 3, 1964, this Honorable Court dismissed the claim for sum of money on the
ground that the complaint does not state a cause of action against defendants. We respectfully
submit:

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST DEFENDANTS

IN SO FAR AS PLAINTIFF'S CLAIM FOR PAYMENT OF SERVICES AND REIMBURSEMENT OF
HIS EXPENSES IS CONCERNED.

Said this Honorable Court (at p. 2, Order):

ORDER

xxx xxx xxx

On the issue that the complaint, in so far as it claims the reimbursement for the services rendered
and expenses incurred by the plaintiff, states no cause of action, the Court is of the opinion that the
same is well-founded. It is found that the defendants are not parties to the supposed express
contract entered into by and between the plaintiff and the Deudors for the clearing and improvement
of the 50 quinones. Furthermore, in order that the alleged improvement may he considered a lien or
charge on the property, the same should have been made in good faith and under the mistake as to
title. The Court can take judicial notice of the fact that the tract of land supposedly improved by the
plaintiff had been registered way back in 1914 in the name of the predecessors-in-interest of
defendant J. M. Tuason & Co., Inc. This fact is confirmed in the decision rendered by the Supreme
Court on July 31, 1956 in case G. R. No. L-5079 entitled 'J M. Tuason & Co., Inc. vs, Geronimo
Santiago, et al.' Such being the case, the plaintiff cannot claim good faith and mistake as to the title
of the land.

The position of this Honorable Court (supra) is that the complaint does not state a cause of action in
so far as the claim for services and expenses is concerned because the contract for the
improvement of the properties was solely between the Deudors and plaintiff, and defendants are not
privies to it. Now, plaintiff's theory is that defendants are nonetheless liable since they are utilizing
and enjoying the benefit's of said improvements. Thus under paragraph 16 of "he complaint, it is
alleged:

(16) That the services and personal expenses of plaintiff mentioned in paragraph 7
hereof were rendered and in fact paid by him to improve, as they in fact resulted in
considerable improvement of the 50 quinones, and defendants being now in
possession of and utilizing said improvements should reimburse and pay plaintiff for
such services and expenses.
Plaintiff's cause of action is premised inter alia, on the theory of unjust enrichment under Article 2142
of the civil Code:

ART. 2142. Certain lawful voluntary and unilateral acts give rise to the juridical
relation of quasi-contract to the end that no one shill be unjustly enriched or benefited
at the expense of another.

In like vein, Article 19 of the same Code enjoins that:

ART. 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give every-one his due and observe honesty and good faith.

We respectfully draw the attention of this Honorable Court to the fact that ARTICLE 2142 (SUPRA)
DEALS WITH QUASI-CONTRACTS or situations WHERE THERE IS NO CONTRACT BETWEEN
THE PARTIES TO THE ACTION. Further, as we can readily see from the title thereof (Title XVII),
that the Same bears the designation 'EXTRA CONTRACTUAL OBLIGATIONS' or obligations which
do not arise from contracts. While it is true that there was no agreement between plaintiff and
defendants herein for the improvement of the 50 quinones since the latter are presently enjoying and
utilizing the benefits brought about through plaintiff's labor and expenses, defendants should pay
and reimburse him therefor under the principle that 'no one may enrich himself at the expense of
another.' In this posture, the complaint states a cause of action against the defendants.

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS. THE SAME HAS NOT
PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO.

The Statute of Frauds is CLEARLY inapplicable to this case:

At page 2 of this Honorable Court's order dated 13 August 1964, the Court ruled as follows:

ORDER

xxx xxx xxx

On the issue of statute of fraud, the Court believes that same is applicable to the
instant Case, The allegation in par. 12 of the complaint states that the defendants
promised and agree to cede, transfer and convey unto the plaintiff, 3,000 square
meters of land in consideration of certain services to be rendered then. It is clear that
the alleged agreement involves an interest in real property. Under the provisions of
Sec. 2(e) of Article 1403 of the Civil Code, such agreement is not enforceable as it is
not in writing and subscribed by the party charged.

To bring this issue in sharper focus, shall reproduce not only paragraph 12 of the complaint but also
the other pertinent paragraphs therein contained. Paragraph 12 states thus:

COMPLAINT

xxx xxx xxx

12). That plaintiff conferred with the aforesaid representatives of defendants several times and on
these occasions, the latter promised and agreed to cede, transfer and convey unto plaintiff the 3,000
sq. ms. (now known as Lots 16-B, 17 and 18) which plaintiff was then occupying and continues to
occupy as of this writing, for and in consideration of the following conditions:

(a) That plaintiff succeed in convincing the DEUDORS to enter into a compromise
agreement and that such agreement be actually entered into by and between the
DEUDORS and defendant companies;
 (b) That as of date of signing the compromise agreement, plaintiff shall be the owner
of the 3,000 sq. ms. but the documents evidencing his title over this property shall be
executed and delivered by defendants to plaintiff within ten (10) years from and after
date of signing of the compromise agreement;

(c) That plaintiff shall, without any monetary expense of his part, assist in clearing the
20 quinones of its occupants;

13). That in order to effect a compromise between the parties. plaintiff not only as well acted as
emissary of both parties in conveying their respective proposals and counter- proposals until
succeeded in convinzing the DEUDORS to settle with defendants amicably. Thus, on March 16,
1953, a Compromise Agreement was entered into by and between the DEUDORS and the
defendant companies; and on April 11, 1953, this agreement was approved by this Honorable Court;

14). That in order to comply with his other obligations under his agreement with defendant
companies, plaintiff had to confer with the occupants of the property, exposing himself to physical
harm, convincing said occupants to leave the premises and to refrain from resorting to physical
violence in resisting defendants' demands to vacate;

That plaintiff further assisted defendants' employees in the actual demolition and
transferof all the houses within the perimeter of the 20 quinones until the end of
1955, when said area was totally cleared and the houses transferred to another area
designated by the defendants as 'Capt. Cruz Block' in Masambong, Quezon City.
(Pars. 12, 13 and 14, Complaint; Emphasis supplied)

From the foregoing, it is clear then the agreement between the parties mentioned in paragraph 12
(supra) of the complaint has already been fully EXECUTED ON ONE PART, namely by the plaintiff.
Regarding the applicability of the statute of frauds (Art. 1403, Civil Code), it has been uniformly held
that the statute of frauds IS APPLICABLE ONLY TO EXECUTORY CONTRACTS BUT NOT
WHERE THE CONTRACT HAS BEEN PARTLY EXECUTED:

SAME ACTION TO ENFORCE. — The statute of frauds has been uniformly

interpreted to be applicable to executory and not to completed or contracts.
Performance of the contracts takes it out of the operation of the statute. ...

The statute of the frauds is not applicable to contracts which are either totally or
partially performed, on the theory that there is a wide field for the commission of
frauds in executory contracts which can only be prevented by requiring them to be in
writing, a facts which is reduced to a minimum in executed contracts because the
intention of the parties becomes apparent buy their execution and execution, in mots
cases, concluded the right the parties. ... The partial performance may be proved by
either documentary or oral evidence. (At pp. 564-565, Tolentino's Civil Code of the
Philippines, Vol. IV, 1962 Ed.; Emphasis supplied).

Authorities in support of the foregoing rule are legion. Thus Mr. Justice Moran in his 'Comments on
the Rules of Court', Vol. III, 1974 Ed., at p. 167, states:

2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY

CONTRACTS: CONTRACTS WHICH ARE EITHER TOTALLY OR PARTIALLY
PERFORMED ARE WITHOUT THE STATUE. The statute of frauds is
applicable only to executory contracts. It is neither applicable to executed
contracts nor to contracts partially performed. The reason is simple. In executory
contracts there is a wide field for fraud because unless they be in writing there is no
palpable evidence of the intention of the contracting parties. The statute has been
enacted to prevent fraud. On the other hand the commission of fraud in executed
contracts is reduced to minimum in executed contracts because (1) the intention of
the parties is made apparent by the execution and (2) execution concludes, in most
cases, the rights of the parties. (Emphasis supplied)
Under paragraphs 13 and 14 of the complaint (supra) one can readily see that the plaintiff has
fulfilled ALL his obligation under the agreement between him defendants concerning the 3,000 sq.
ms. over which the latter had agreed to execute the proper documents of transfer. This fact is further
projected in paragraph 15 of the complaint where plaintiff states;

15). That in or about the middle of 1963, after all the conditions stated in paragraph
12 hereof had been fulfilled and fully complied with, plaintiff demanded of said
defendants that they execute the Deed of Conveyance in his favor and deliver the
title certificate in his name, over the 3,000 sq. ms. but defendants failed and refused
and continue to fail and refuse to heed his demands. (par. 15, complaint; Emphasis
supplied).

In view of the foregoing, we respectfully submit that this Honorable court erred in holding that the
statute of frauds is applicable to plaintiff's claim over the 3,000 sq. ms. There having been full
performance of the contract on plaintiff's part, the same takes this case out of the context of said
statute.

Plaintiff's Cause of Action had NOT Prescribed:

With all due respect to this Honorable court, we also submit that the Court committed error in holding
that this action has prescribed:

ORDER

xxx xxx xxx

On the issue of the statute of limitations, the Court holds that the plaintiff's action has
prescribed. It is alleged in par. III of the complaint that, sometime in 1952, the
defendants approached the plaintiff to prevail upon the Deudors to enter into a
compromise agreement in Civil Case No. Q-135 and allied cases. Furthermore, pars.
13 and 14 of the complaint alleged that plaintiff acted as emissary of both parties in
conveying their respective proposals and counter-proposals until the final settlement
was affected on March 16, 1953 and approved by the Court on April 11, 1953. In the
present actin, which was instituted on January 24, 1964, the plaintiff is seeking to
enforce the supposed agreement entered into between him and the defendants in
1952, which has already proscribed. (at p. 3, Order).

The present action has not prescribed, especially when we consider carefully the terms of the
agreement between plaintiff and the defendants. First, we must draw the attention of this Honorable
Court to the fact that this is an action to compel defendants to execute a Deed of Conveyance over
the 3,000 sq. ms. subject of their agreement. In paragraph 12 of the complaint, the terms and
conditions of the contract between the parties are spelled out. Paragraph 12 (b) of the complaint
states:

(b) That as of date of signing the compromise agreement, plaintiff shall be the owner
of the 3,000 sq. ms. but the documents evidencing his title over this property shall be
executed and delivered by defendants to plaintiff within ten (10) years from and after
date of signing of the compromise agreement. (Emphasis supplied).

The compromise agreement between defendants and the Deudors which was conclude through the
efforts of plaintiff, was signed on 16 March 1953. Therefore, the defendants had ten (10) years
signed on 16 March 1953. Therefore, the defendants had ten (10) years from said date within which
to execute the deed of conveyance in favor of plaintiff over the 3,000 sq. ms. As long as the 10 years
period has not expired, plaintiff had no right to compel defendants to execute the document and the
latter were under no obligation to do so. Now, this 10-year period elapsed on March 16, 1963. THEN
and ONLY THEN does plaintiff's cause of action plaintiff on March 17, 1963. Thus, under paragraph
15, of the complaint (supra) plaintiff made demands upon defendants for the execution of the deed
'in or about the middle of 1963.
 Since the contract now sought to be enforced was not reduced to writing, plaintiff's cause of action
expires on March 16, 1969 or six years from March 16, 1963 WHEN THE CAUSE OF ACTION
ACCRUED (Art. 1145, Civil Code).

In this posture, we gain respectfully submit that this Honorable Court erred in holding that plaintiff's
action has prescribed.

PRAYER

WHEREFORE, it is respectfully prayed that " Honorable Court reconsider its Order dated August 13,
1964; and issue another order denying the motions to dismiss of defendants G. Araneta, Inc. and J.
M. Tuason Co. Inc. for lack of merit. (Pp. 70-85, Record on Appeal.)

Defendants filed an opposition on the main ground that "the arguments adduced by the plaintiff are merely
reiterations of his arguments contained in his Rejoinder to Reply and Opposition, which have not only been refuted
in herein defendant's Motion to Dismiss and Reply but already passed upon by this Honorable Court."

On September 7, 1964, the trial court denied the motion for reconsiderations thus:

After considering the plaintiff's Motion for Reconsideration of August 20, 1964 and it appearing that
the grounds relied upon in said motion are mere repetition of those already resolved and discussed
by this Court in the order of August 13, 1964, the instant motion is hereby denied and the findings
and conclusions arrived at by the Court in its order of August 13, 1964 are hereby reiterated and
affirmed.

SO ORDERED. (Page 90, Rec. on Appeal.)

Under date of September 24, 1964, plaintiff filed his record on appeal.

In his brief, appellant poses and discusses the following assignments of error:

I. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT ON THE GROUND
THAT APPELLANT'S CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY UNENFORCEABLE
UNDER THE STATUTE OF FRAUDS;

II. THAT THE COURT A QUO FURTHER COMMITTED ERROR IN DISMISSING APPELLANT'S
COMPLAINT ON THE GROUND THAT HIS CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY
BARRED BY THE STATUTE OF LIMITATIONS; and

III. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT FOR FAILURE TO
STATE A CAUSE OF ACTION IN SO FAR AS APPELLANT'S CLAIM FOR REIMBURSEMENT OF
EXPENSES AND FOR SERVICES RENDERED IN THE IMPROVEMENT OF THE FIFTY (50)
QUINONES IS CONCERNED.

We agree with appellant that the Statute of Frauds was erroneously applied by the trial court. It is elementary that
the Statute refers to specific kinds of transactions and that it cannot apply to any that is not enumerated therein. And
the only agreements or contracts covered thereby are the following:

(1) Those entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;

(2) Those do not comply with the Statute of Frauds as set forth in this number, In the following cases
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:
 (a) An agreement that by its terms is not to be performed within a year from the
making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to

marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them of such things in action, or pay at the
time some part of the purchase money; but when a sale is made by auction and entry
is made by the auctioneer in his sales book, at the time of the sale, of the amount
and kind of property sold, terms of sale, price, names of the purchasers and person
on whose account the sale is made, it is a sufficient memorandum:

(e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein:

(f) a representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract. (Art. 1403, civil Code.)

In the instant case, what appellant is trying to enforce is the delivery to him of 3,000 square meters of land which he
claims defendants promised to do in consideration of his services as mediator or intermediary in effecting a
compromise of the civil action, Civil Case No. 135, between the defendants and the Deudors. In no sense may such
alleged contract be considered as being a "sale of real property or of any interest therein." Indeed, not all dealings
involving interest in real property come under the Statute.

Moreover, appellant's complaint clearly alleges that he has already fulfilled his part of the bargains to induce the
Deudors to amicably settle their differences with defendants as, in fact, on March 16, 1963, through his efforts, a
compromise agreement between these parties was approved by the court. In other words, the agreement in
question has already been partially consummated, and is no longer merely executory. And it is likewise a
fundamental principle governing the application of the Statute that the contract in dispute should be purely executory
on the part of both parties thereto.

We cannot, however, escape taking judicial notice, in relation to the compromise agreement relied upon by
appellant, that in several cases We have decided, We have declared the same rescinded and of no effect. In J. M.
Tuason & Co., Inc. vs. Bienvenido Sanvictores, 4 SCRA 123, the Court held:

It is also worthy of note that the compromise between Deudors and Tuason, upon which Sanvictores
predicates his right to buy the lot he occupies, has been validly rescinded and set aside, as
recognized by this Court in its decision in G.R. No. L-13768, Deudor vs. Tuason, promulgated on
May 30, 1961.

We repeated this observation in J.M. Tuason & Co., Inc. vs. Teodosio Macalindong, 6 SCRA 938. Thus, viewed
from what would be the ultimate conclusion of appellant's case, We entertain grave doubts as to whether or not he
can successfully maintain his alleged cause of action against defendants, considering that the compromise
agreement that he invokes did not actually materialize and defendants have not benefited therefrom, not to mention
the undisputed fact that, as pointed out by appellees, appellant's other attempt to secure the same 3,000 square
meters via the judicial enforcement of the compromise agreement in which they were supposed to be reserved for
him has already been repudiated by the courts. (pp. 5-7. Brief of Appellee Gregorio Araneta, Inc.)

As regards appellant's third assignment of error, We hold that the allegations in his complaint do not sufficiently
Appellants' reliance. on Article 2142 of Civil Code is misplaced. Said article provides:
 Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the
end that no one shall be unjustly enriched or benefited at the expense of another.

From the very language of this provision, it is obvious that a presumed qauasi-contract cannot emerge as against
one party when the subject mater thereof is already covered by an existing contract with another party. Predicated
on the principle that no one should be allowed to unjustly enrich himself at the expense of another, Article 2124
creates the legal fiction of a quasi-contract precisely because of the absence of any actual agreement between the
parties concerned. Corollarily, if the one who claims having enriched somebody has done so pursuant to a contract
with a third party, his cause of action should be against the latter, who in turn may, if there is any ground therefor,
seek relief against the party benefited. It is essential that the act by which the defendant is benefited must have
been voluntary and unilateral on the part of the plaintiff. As one distinguished civilian puts it, "The act is voluntary.
because the actor in quasi-contracts is not bound by any pre-existing obligation to act. It is unilateral, because it
arises from the sole will of the actor who is not previously bound by any reciprocal or bilateral agreement. The
reason why the law creates a juridical relations and imposes certain obligation is to prevent a situation where a
person is able to benefit or take advantage of such lawful, voluntary and unilateral acts at the expense of said
actor." (Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at bar, since appellant has a clearer and
more direct recourse against the Deudors with whom he had entered into an agreement regarding the
improvements and expenditures made by him on the land of appellees. it Cannot be said, in the sense contemplated
in Article 2142, that appellees have been enriched at the expense of appellant.

In the ultimate. therefore, Our holding above that appellant's first two assignments of error are well taken cannot
save the day for him. Aside from his having no cause of action against appellees, there is one plain error of
omission. We have found in the order of the trial court which is as good a ground as any other for Us to terminate
this case favorably to appellees. In said order Which We have quoted in full earlier in this opinion, the trial court
ruled that "the grounds relied upon in said motion are mere repetitions of those already resolved and discussed by
this Court in the order of August 13, 1964", an observation which We fully share. Virtually, therefore. appellant's
motion for reconsideration was ruled to be pro-forma. Indeed, a cursory reading of the record on appeal reveals that
appellant's motion for reconsideration above-quoted contained exactly the same arguments and manner of
discussion as his February 6, 1964 "Opposition to Motion to Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-
25, Rec. on Appeal) as well as his February 17, 1964 "Opposition to Motion to Dismiss of Defendant J. M. Tuason &
Co." (pp. 33-45, Rec. on Appeal and his February 29, 1964 "Rejoinder to Reply Oil Defendant J. M. Tuason & Co."
(pp. 52-64, Rec. on Appeal) We cannot see anything in said motion for reconsideration that is substantially different
from the above oppositions and rejoinder he had previously submitted and which the trial court had already
considered when it rendered its main order of dismissal. Consequently, appellant's motion for reconsideration did
not suspend his period for appeal. (Estrada vs. Sto. Domingo, 28 SCRA 890, 905-6.) And as this point was covered
by appellees' "Opposition to Motion for Reconsideration" (pp. 8689), hence, within the frame of the issues below, it
is within the ambit of Our authority as the Supreme Court to consider the same here even if it is not discussed in the
briefs of the parties. (Insular Life Assurance Co., Ltd. Employees Association-NATU vs. Insular Life Assurance Co.,
Ltd. [Resolution en banc of March 10, 1977 in G. R. No. L-25291).

Now, the impugned main order was issued on August 13, 1964, while the appeal was made on September 24, 1964
or 42 days later. Clearly, this is beyond the 30-day reglementary period for appeal. Hence, the subject order of
dismissal was already final and executory when appellant filed his appeal.

WHEREFORE, the appeal of Faustino Cruz in this case is dismissed. No costs.