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G.R. No. 82670 September 15, 1989

DOMETILA M. ANDRES, do!" b#$!e$$ #!der t%e !&me &!d $t'(e )IRENE*S +EARING AAREL,) petitioner,vs.MAN-A/T-RERS ANOER TR-ST /ORORATION &!d /O-RT O AEALS, respondents.

Roque A. Tamayo for petitioner.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

/ORTES, J.:

Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which, applying the doctrineof solutio indebiti , reversed the decision of the Regional Trial Court, Branch CV, Queon City !y deciding in favor ofprivate respondent.

"etitioner, using the !usiness name #$rene%s &earing Apparel,# was engaged in the manufacture of ladies garments,children%s wear, men%s apparel and linens for local and foreign !uyers. Among its foreign !uyers was 'acets 'unwear, $nc.(hereinafter referred to as 'AC)T*+ of the nited *tates.

$n the course of the !usiness transaction !etween the two, 'AC)T* from time to time remitted certain amounts of moneyto petitioner in payment for the items it had purchased. *ometime in August -/0, 'AC)T* instructed the 'irst 1ational*tate Ban2 of 1ew 3ersey, 1ewar2, 1ew 3ersey, .*.A. (hereinafter referred to as '1*B+ to transfer 4-0,000.00 topetitioner via "hilippine 1ational Ban2, *ta. Cru Branch, 5anila (hereinafter referred to as "1B+.

Acting on said instruction, '1*B instructed private respondent 5anufacturers 6anover and Trust Corporation to effect thea!ove7 mentioned transfer through its facilities and to charge the amount to the account of '1*B with private respondent.

Although private respondent was a!le to send a tele8 to "1B to pay petitioner 4-0,000.00 through the "ilipinas Ban2,where petitioner had an account, the payment was not effected immediately !ecause the payee designated in the tele8was only #&earing Apparel.# pon 9uery !y "1B, private respondent sent "1B another tele8 dated August :;, -/0stating that the payment was to !e made to #$rene%s &earing Apparel.# <n August :/, -/0, petitioner received theremittance of 4-0,000.00 through =emand =raft 1o. ::>?>@ of the "1B.

5eanwhile, on August :>, -/0, after learning a!out the delay in the remittance of the money to petitioner, 'AC)T*informed '1*B a!out the situation. <n *eptem!er /, -/0, unaware that petitioner had already received the remittance,'AC)T* informed private respondent a!out the delay and at the same time amended its instruction !y as2ing it to effectthe payment through the "hilippine Commercial and $ndustrial Ban2 (hereinafter referred to as "C$B+ instead of "1B.

Accordingly, private respondent, which was also unaware that petitioner had already received the remittance of4-0,000.00 from "1B instructed the "C$B to pay 4-0,000.00 to petitioner. 6ence, on *eptem!er --, -/0, petitionerreceived a second 4-0,000.00 remittance.

"rivate respondent de!ited the account of '1*B for the second 4-0,000.00 remittance effected through "C$B. 6owever,when '1*B discovered that private respondent had made a duplication of the remittance, it as2ed for a recredit of itsaccount in the amount of 4-0,000.00. "rivate respondent complied with the re9uest.

"rivate respondent as2ed petitioner for the return of the second remittance of 4-0,000.00 !ut the latter refused to pay. <n5ay -:, -/: a complaint was filed with the Regional Trial Court, Branch CV, Queon City which was decided in favor ofpetitioner as defendant. The trial court ruled that Art. :->@ of the 1ew Civil Code is not applica!le to the case !ecause thesecond remittance was made not !y mista2e !ut !y negligence and petitioner was not unjustly enriched !y virtue thereofRecord, p. :@. <n appeal, the Court of Appeals held that Art. :->@ is applica!le and reversed the RTC decision. Thedispositive portion of the Court of Appeals% decision reads as followsD

&6)R)'<R), the appealed decision is here!y R)V)R*)= and *)T A*$=) and another one entered infavor of plaintiff7appellant and against defendant7appellee =omelita (sic+ 5. Andres, doing !usiness underthe name and style #$rene%s &earing Apparel# to reim!urse andEor return to plaintiff7appellant the amountof 4-0,000.00, its e9uivalent in "hilippine currency, with interests at the legal rate from the filing of the



complaint on 5ay -:, -/: until the whole amount is fully paid, plus twenty percent (:0F+ of the amountdue as attomey%s feesG and to pay the costs.

&ith costs against defendant7appellee.

*< <R=)R)=. Rollo, pp. :70.

Thereafter, this petition was filed. The sole issue in this case is whether or not the private respondent has the right torecover the second 4-0,000.00 remittance it had delivered to petitioner. The resolution of this issue would hinge on the

applica!ility of Art. :->@ of the 1ew Civil Code which provides thatD

Art. :->@. $f something received when there is no right to demand it, and it was unduly delivered throughmista2e, the o!ligation to return it arises.

This provision is ta2en from Art. -/> of the *panish Civil Code which provided thatD

Art. -/>. $f a thing is received when there was no right to claim it and which, through an error, has !eenunduly delivered, an o!ligation to restore it arises.

$n ele! v. Bal!ar!a, ; "hil. ?0 (-@:+, the Court, spea2ing through 5r. 3ustice Boco!o e8plained the nature of thisarticle thusD

Article -/> now Article :->@ of the Civil Code a!ove9uoted, is therefore applica!le. This legalprovision, which determines the 9uasi7contract of solution inde!iti, is one of the concrete manifestations ofthe ancient principle that no one shall enrich himself unjustly at the e8pense of another. $n the RomanHaw =igest the ma8im was formulated thusD "#ure naturae acquum est, neminem cum alterius detrimentoet in$uria fieri locupletiorem." And the "artidas declaredD "%inguno non deue enriquecerse torti!eramentecon dano de otro." *uch a8iom has grown through the centuries in legislation, in the science of law and incourt decisions. The lawma2er has found it one of the helpful guides in framing statutes and codes. Thus,it is unfolded in many articles scattered in the *panish Civil Code. (*ee for e8ample, articles, ?0, ?-,@?@, ?@;, ?@/, ;;, -->/, --?, -:>, -0, -0@, -/ and -/>, Civil Code.+ This time7honoredaphorism has also !een adopted !y jurists in their study of the conflict of rights. $t has !een accepted !ythe courts, which have not hesitated to apply it when the e8igencies of right and e9uity demanded itsassertion. $t is a part of that affluent reservoir of justice upon which judicial discretion draws whenever the

statutory laws are inade9uate !ecause they do not spea2 or do so with a confused voice. at p. ?:.

'or this article to apply the following re9uisites must concurD #(-+ that he who paid was not under o!ligation to do soG and,(:+ that payment was made !y reason of an essential mista2e of fact# City of Ce!u v. "iccio, --0 "hil. >>/, >? (-?0+.

$t is undisputed that private respondent delivered the second 4-0,000.00 remittance. 6owever, petitioner contends thatthe doctrine of solutio indebiti , does not apply !ecause its re9uisites are a!sent.

'irst, it is argued that petitioner had the right to demand and therefore to retain the second 4-0,000.00 remittance. $t isalleged that even after the two 4-0,000.00 remittances are credited to petitioner%s receiva!les from 'AC)T*, the latterallegedly still had a !alance of 4@,:@.00. 6ence, it is argued that the last 4-0,000.00 remittance !eing in payment of apre7e8isting de!t, petitioner was not there!y unjustly enriched.

The contention is without merit.

The contract of petitioner, as regards the sale of garments and other te8tile products, was with 'AC)T*. $t was the latterand not private respondent which was inde!ted to petitioner. <n the other hand, the contract for the transmittal of dollarsfrom the nited *tates to petitioner was entered into !y private respondent with '1*B. "etitioner, although named as thepayee was not privy to the contract of remittance of dollars. 1either was private respondent a party to the contract of sale!etween petitioner and 'AC)T*. There !eing no contractual relation !etween them, petitioner has no right to apply thesecond 4-0,000.00 remittance delivered !y mista2e !y private respondent to the outstanding account of 'AC)T*.

"etitioner ne8t contends that the payment !y respondent !an2 of the second 4-0,000.00 remittance was not made !ymista2e !ut was the result of negligence of its employees. $n connection with this the Court of Appeals made the followingfinding of factsD



The fact that 'acets sent only one remittance of 4-0,000.00 is not disputed. $n the written interrogatoriessent to the 'irst 1ational *tate Ban2 of 1ew 3ersey through the Consulate Ieneral of the "hilippines in1ew Jor2, Adelaide C. *chachel, the investigation and reconciliation cler2 in the said !an2 testified that are9uest to remit a payment for 'acet 'unwear $nc. was made in August, -/0. The total amount which the'irst 1ational *tate Ban2 of 1ew 3ersey actually re9uested the plaintiff7appellant 5anufacturers 6anoverK Trust Corporation to remit to $rene%s &earing Apparel was * 4-0,000.00. <nly one remittance wasre9uested !y 'irst 1ational *tate Ban2 of 1ew 3ersey as per instruction of 'acets 'unwear ()8hi!it #3#,pp. @7>+.

That there was a mista2e in the second remittance of * 4-0,000.00 is !orne out !y the fact that !othremittances have the same reference invoice num!er which is :? /0. ()8hi!its #A7-7 =eposition of 5r.*tanley "anasow# and #A7:7=eposition of 5r. *tanley "anasow#+.

"laintiff7appellant made the second remittance on the wrong assumption that defendant7appellee did notreceive the first remittance of * 4-0,000.00. Rollo, pp. :?7:;.

$t is evident that the claim of petitioner is anchored on the appreciation of the attendant facts which petitioner would havethis Court review. The Court holds that the finding !y the Court of Appeals that the second 4-0,000.00 remittance wasmade !y mista2e, !eing !ased on su!stantial evidence, is final and conclusive. The rule regarding 9uestions of fact !eingraised with this Court in a petition for certiorari under Rule @> of the Revised Rules of Court has !een stated in Remalantev. Ti!e, I.R. 1o. >>-@, 'e!ruary :>, -//, ->/ *CRA -/, thusD

The rule in this jurisdiction is that only 9uestions of law may !e raised in a petition for certiorari under Rule@> of the Revised Rules of Court. #The jurisdiction of the *upreme Court in cases !rought to it from theCourt of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of fact!eing conclusive# Chan v. Court of Appeals, I.R. 1o. H7:;@//, 3une 0, -;0, *CRA ;;, reiteratinga long line of decisions. This Court has emphatically declared that #it is not the function of the *upremeCourt to analye or weigh such evidence all over again, its jurisdiction !eing limited to reviewing errors oflaw that might have !een committed !y the lower court# Tiongco v. =e la 5erced, I.R. 1o. H7:@@:?, 3uly:>, -;@, >/ *CRA /G Corona v. Court of Appeals, I.R. 1o. H7?:@/:, April :/, -/, -:- *CRA /?>GBani9ued v. Court of Appeals, I. R. 1o. H7@;>-, 'e!ruary :0, -/@, -:; *CRA >?. #Barring, therefore,a showing that the findings complained of are totally devoid of support in the record, or that they are soglaringly erroneous as to constitute serious a!use of discretion, such findings must stand, for this Court isnot e8pected or re9uired to e8amine or contrast the oral and documentary evidence su!mitted !y theparties# *anta Ana, 3r. v. 6ernande, I.R. 1o. H7-?@, =ecem!er -;, -??, -/ *CRA ;-. at pp. -@@7

-@>.

"etitioner invo2es the e9uita!le principle that when one of two innocent persons must suffer !y the wrongful act of a thirdperson, the loss must !e !orne !y the one whose negligence was the pro8imate cause of the loss.

The rule is that principles of e9uity cannot !e applied if there is a provision of law specifically applica!le to a case "hil.Ra!!it Bus Hines, $nc. v. Arciaga, I.R. 1o. H7:;0-, 5arch -?, -/;,-@/ *CRA @G La!at, 3r. v. Court of Appeals, I.R.1o. H?>/, 3uly -0, -/?, -@: *CRA >/;G Rural Ban2 of "arana9ue, $nc. v. Remolado, I.R. 1o. ?:0>-, 5arch -/, -/>,-> *CRA @0G Cru v. "ahati, / "hil. ;// (->?+. 6ence, the Court in the case of De arcia v. 'ourt of Appeals, I.R.1o. H7:0:?@, 3anuary 0, -;-, ; *CRA -:, citing A!nar v. (apdiangco, I.R. 1o. H7-/>?, 5arch -, -?>, - *CRA@/?, heldD

... The common law principle that where one of two innocent persons must suffer !y a fraud perpetrated

!y another, the law imposes the loss upon the party who, !y his misplaced confidence, has ena!led thefraud to !e committed, cannot !e applied in a case which is covered !y an e8press provision of the newCivil Code, specifically Article >>. Between a common law principle and a statutory provision, the lattermust prevail in this jurisdiction. at p. ->.

6aving shown that Art. :->@ of the Civil Code, which em!odies the doctrine of solutio indebiti , applies in the case at !ar,the Court must reject the common law principle invo2ed !y petitioner.

'inally, in her attempt to defeat private respondent%s claim, petitioner ma2es much of the fact that from the time thesecond 4-0,000.00 remittance was made, five hundred and ten days had elapsed !efore private respondent demandedthe return thereof. 1eedless to say, private respondent instituted the complaint for recovery of the second 4-0,000.00



remittance well within the si8 years prescriptive period for actions !ased upon a 9uasi7contract Art. --@> of the 1ew CivilCode.

&6)R)'<R), the petition is =)1$)= and the decision of the Court of Appeals is here!y A''$R5)=.

*< <R=)R)=.

"JAT K *<1* $1C vs C$TJ <' 5A1$HA I.R. 1o. H7-;@@; April 0, -?

'ACT*D

"laintiff Ionalo "uyat K *ons $nc is engaged in the !usiness of manufacturing and selling all 2inds of furniture.

Acting pursuant to an ordinance, the defendant City Treasurer of 5anila assessed from plaintiff retail dealerMs ta8 the

sales of furniture manufactured and sold !y it and its factory site.

All assessments were paid !y plaintiff without protest in the erroneous !elief that it was lia!le thereof not 2nowing that

pursuant to an ordinance, it is e8empt from the payment of ta8es !eing a manufacturer of various 2inds of furniture.

After learning a!out the ordinance, plaintiff filed with defendant City Treasurer of 5anila a formal re9uest for refund of the

retail dealerMs ta8es unduly paid.

The City Treasurer, however, denied the said re9uest for refund.

$**)D &hether or not the defendant is o!liged to refund the amount which the plaintiff paid

6)H=D Jes. The plaintiff was actually e8empted from paying the ta8 assessed, hence, it was clearly an error or mista2e

which ma2es it fall under Art :->@ of solution inde!iti. Art :->@ provides that if something is received when there is no

right to demand it, and it was unduly delivered through mista2e, the o!ligation to return it arises.

Alongside with this, Art :->? is also applica!le which states that if the payer was in dou!t whether the de!t was due, he

may recover if he proves that it was not due. "laintiff had duly proved that ta8es were not lawfully due. Therefore, there is

no dou!t that the provisions of solution inde!iti apply in this case.

1AT$<1AH "<&)R C<R"<RAT$<1 V C<RT <' A"")AH*

I.R. 1o. -:@;/. 5ARC6 /, :00>



'actsD<n -> 1ovem!er -;, the <ffice of the "resident of the "hilippines issued 5emorandum <rder 1o. / instructing

the 1"C to !uild the Agus Regulation =am at the mouth of Agus River in Hanao del *ur, at a normal ma8imum water level

of Ha2e Hanao at ;0: meters elevation. "ursuant thereto, petitioner !uilt and operated the said dam in -;/. "rivate

respondents 6adji A!dul Carim A!dullah, Caris A!dullah, 6adji Ali Hangco and =iamael "angcatan own fishponds along

the Ha2e Hanao shore. $n <cto!er and 1ovem!er of -/?, all the improvements were washed away when the water level

of the la2e escalated and the su!ject la2eshore area was flooded. "rivate respondents !lamed the inundation on the Agus

Regulation =am !uilt and operated !y the 1"C in -;/. They theoried that 1"C failed to increase the outflow of water

even as the water level of the la2e rose due to the heavy rains.

$ssueD&hether or not the Court of Appeals erred in affirming the trial courtMs verdict that petitioner was legally answera!le

for the damages endured !y the private respondents.

RulingD5emorandum <rder 1o. / clothes the 1"C with the power to !uild the Agus Regulation =am and to operate it

for the purpose of generating energy. Twin to such power are the dutiesD (-+ to maintain the normal ma8imum la2e

elevation at ;0: meters, and (:+ to !uild !enchmar2s to warn the inha!itants in the area that cultivation of land !elow said

elevation is for!idden.

&ith respect to its jo! to maintain the normal ma8imum level of the la2e at ;0: meters, the Court of Appeals, echoing thetrial court, o!served with alacrity that when the water level rises due to the rainy season, the 1"C ought to release more

water to the Agus River to avoid flooding and prevent the water from going over the ma8imum level. And yet, petitioner

failed to do so, resulting in the inundation of the near!y estates. Conse9uently, even assuming that the fishponds were

erected !elow the ;0:7meter level, 1"C must, nonetheless, !ear the !runt for such damages inasmuch as it has the duty

to erect and maintain the !enchmar2s precisely to warn the owners of the neigh!oring properties not to !uild f ishponds

!elow these mar2s. &ithout such points of reference, the inha!itants in said areas are clueless whether or not their

improvements are within the prohi!ited area. Conversely, without such !enchmar2s, 1"C has no way of telling if the

fishponds, su!ject matter of the present controversy, are indeed !elow the prescri!ed ma8imum level of elevation. =ue to

1"CMs negligence in the performance of its duties, it shall !e held lia!le for the resulting damages suffered !y private

respondents.

NI/OLAS SAN/E3

4$.

SEERINA RIGOS

'ACT*D

1icolas *anche and *everinaRigos e8ecuted an instrument entitled #<ption to "urchase,# where!y 5rs. Rigos agreed,

promised and committed to sell to *anche a parcel of land within two (:+ years from said date with the understanding

that said option shall !e deemed terminated and elapsed if *anche shall fail to e8ercise his right to !uy the property

within the stipulated period. $nasmuch as several tenders of payment made !y *anche within said period, were rejected

!y 5rs. Rigos, on 5arch -:, -?, the former deposited said amount with the Court of 'irst $nstance of 1ueva )cija andcommenced against the latter the present action, for specific performance and damages.

Rigos contended that the contract !etween them was only a#!(&ter&( prom$e to $e((, and the same !eing unsupported

!y any valua!le consideration, !y force of the 1ew Civil Code, is null and void.

*anche alleged in his compliant that, !y virtue of the option under consideration, #defendant agreed and committed to

sell# and #the plaintiff agreed and committed to !uy# the land descri!ed in the option.

The lower court rendered judgment in favor of *anche and ordered Rigos to accept the sum *anche judicially

consigned, and to e8ecute in his favor the re9uisite deed of conveyance.



$**)D

&hether there was a contract to !uy and sell !etween the parties or only a unilateral promise to sell.

C<RT RH$1ID

The *upreme Court affirmed the lower courtMs decision.

The instrument e8ecuted in -?- is not a #o!tr&t to b#' &!d $e((,# !ut merely granted *A1C6)L an option to !uy, as

indicated !y its own title #Opto! to #r%&$e.# The option did not impose upon *anche the o!ligation to purchase

Rigos% property. Rigos #agreed, promised and committed# herself to sell the land to *anche, !ut there is nothing in the

contract to indicate that her aforementioned agreement, promise and underta2ing is supported !y a consideration #distinct

from the price# stipulated for the sale of the land.

Article -@; refers to #an accepted unilateral promise to !uy or to sell.# *ince there may !e no valid contract without a

cause or consideration, the promisor is not !ound !y his promise and may, accordingly, withdraw it. "ending notice of its

withdrawal, his accepted promise parta2es, however, of the nature of an offer to sell which, if accepted, results in a

perfected contract of sale.

IA$*A1< V $1*RA1C)

'ACT*D

$ntercapitol 5ar2eting Corporation ($5C+ is the ma2er of &rangler Blue 3eans. while Hevi *trauss ("hils.+ $nc.

(H*"$+ is the local distri!utor of products !earing trademar2s owned !y Hevi *trauss K Co

$5C and H*"$ separately o!tained from $nsurance Company of 1orth America fire insurance policies for their

!oo2 de!t endorsements related to their ready7made clothing materials which have !een sold or delivered to various

customers and dealers of the $nsured anywhere in the "hilippines which are unpaid @> days after the time of the loss

'e!ruary :>, --D Iaisano *uperstore Comple8 in Cagayan de <ro City, owned !y Iaisano Cagayan, $nc.,

containing the ready7made clothing materials sold and delivered !y $5C and H*"$ was consumed !y fire.

'e!ruary @, -:D $nsurance Company of 1orth America filed a complaint for damages against Iaisano Cagayan,

$nc. alleges that $5C and H*"$ filed their claims under their respective fire insurance policies which it paid thus it wassu!rogated to their rights

Iaisano Cagayan, $ncD not !e held lia!le !ecause it was destroyed due to fortuities event or force

majeure

RTCD $5C and H*"$ retained ownership of the delivered goods until fully paid, it must !ear the loss (res perit

domino+

CAD Reversed 7 sales invoices is an e8ception under Article ->0@ (-+ of the Civil Code to res perit domino

$**)D &E1 $nsurance Company of 1orth America can claim against Iaisano Cagayan for the de!t that was isnured

6)H=D J)*. petition is partly IRA1T)=. order to pay ">>,?- is =)H)T)=

insurance policy is clear that the su!ject of the insurance is the !oo2 de!ts and 1<T goods sold and delivered to

the customers and dealers of the insured

ART. ->0@. nless otherwise agreed, the goods remain at the seller%s ris2 until the ownership therein is

transferred to the !uyer, !ut when the ownership therein is transferred to the !uyer the goods are at the !uyer%s ris2

whether actual delivery has !een made or not, e8cept thatD



(-+ &here delivery of the goods has !een made to the !uyer or to a !ailee for the !uyer, in pursuance of the contract

and the ownership in the goods has !een retained !y the seller merely to secure performance !y the !uyer of his

o!ligations under the contract, the goods are at the !uyer%s ris2 from the time of such deliveryG

$5C and H*"$ did not lose complete interest over the goods. They have an insura!le interest until full payment of

the value of the delivered goods. nli2e the civil law concept of res perit domino, where ownership is the !asis for

consideration of who !ears the ris2 of loss, in property insurance, one%s interest is not determined !y concept of title,

!ut whether insured has su!stantial economic interest in the property *ection - of our $nsurance Code defines insura!le interest as #every interest in property, whether real or

personal, or any relation thereto, or lia!ility in respect thereof, of such nature that a contemplated peril might directly

damnify the insured.# "arenthetically, under *ection -@ of the same Code, an insura!le interest in property may

consist inD (a+ an e8isting interestG (!+ an inchoate interest founded on e8isting interestG or (c+ an e8pectancy, coupled

with an e8isting interest in that out of which the e8pectancy arises.

Anyone has an insura!le interest in property who derives a !enefit from its e8istence or would suffer loss from its

destruction.

it is sufficient that the insured is so situated with reference to the property that he would !e lia!le to loss

should it !e injured or destroyed !y the peril against which it is insured

an insura!le interest in property does not necessarily imply a property interest in, or a lien upon, or

possession of, the su!ject

matter of the insurance, and neither the title nor a !eneficial interest is re9uisite to the e8istence of such

an interest

insurance in this case is not for loss of goods !y fire !ut for petitioner%s accounts with $5C and H*"$ that remained

unpaid @> days after the fire 7 o!ligation is pecuniary in nature

o!ligor should !e held e8empt from lia!ility when the loss occurs thru a fortuitous event only holds true

when the o!ligation consists in the delivery of a determinate thing and there is no stipulation holding him lia!le even in

case of fortuitous event

Article -:? of the Civil Code in an o!ligation to deliver a generic thing, the loss or destruction of anything of the

same 2ind does not e8tinguish the o!ligation (Ienus nun9uan perit+

The su!rogation receipt, !y itself, is sufficient to esta!lish not only the relationship of respondent as insurer and

$5C as the insured, !ut also the amount paid to settle the insurance claim

Art. ::0;. $f the plaintiff%s property has !een insured, and he has received indemnity from the insurance company

for the injury or loss arising out of the wrong or !reach of contract complained of, the insurance company shall !e

su!rogated to the rights of the insured against the wrongdoer or the person who has violated the contract.

As to H*"$, no su!rogation receipt was offered in evidence.

'ailure to su!stantiate the claim of su!rogation is fatal to petitioner%s case for recovery of the amount of

">>,?-

ARR$)TA V*. 1AT$<1AH R$C) A1= C<R1

C<R"<RAT$<1

IR H7->?@> 3anuary -, -?@

'ACT*D

<n 5ay -, ->:, plaintiff7appellee 5rs. "a

Arrieta participated in a pu!lic !idding called !y 1AR$C

for the supply of :0,000 metric tons of Burmese rice. As



her !id of 4:0, 000 per metric ton was the lowest, she

was awarded he contract for the same. <n 3uly -, ->:,

Arrieta and 1AR$C entered into Contract of *ale of Rice

under the term of which the former o!ligated herself to

deliver to the latter :0, 000 metric tons of Burmese rice at

4:0, 000 per metric ton. $n turn, 1AR$C committed itself

to pay for the imported rice N!y means of an irrevoca!le,

confirmed and assigna!le letter of credit in * currency in

favor of Arrieta andEor supplier in Burma, immediately.O6owever, it was only on 3uly 0, ->: that 1AR$C

too2 the first step to open a letter of credit !y forwarding to

the "1B its application for Commercial Hetter of Credit.

<n the same day, Arrieta, thru counsel, advised 1AR$C of

the e8treme necessity for the opening of the letter of credit

since she had !y then made a tender to her supplier in

Rangoon, Burma e9uivalent to >F of the '.<.B. price of

:0, 000 tons at 4-/0.;0 and in compliance with the

regulations in Rangoon, this >F will !e confiscated if the

re9uired letter of credit is not received !y them !efore

August @, ->:.

<n August @, "1B informed 1AR$C that itsapplication for a letter of credit has !een approved !y the

Board of =irectors with the condition that >0F marginal

cash deposit !e paid and that drafts a>e to !e paid upon

presentment. $t turned out that 1AR$C was not in financial

position to meet the condition. As a result of the delay, the

allocation of ArrietaMs supplier in Rangoon was cancelled

and the >F deposit amounting to >:@ 2yats or

appro8imately ":00, 000 was forfeited.

$**)D

&as 1AR$C lia!le for damagesP

RH$1ID

Jes. <ne who assumes a contractual o!ligation

and fails to perform the same on account of his ina!ility to

meet certain !an2 which ina!ility he 2new and was aware

of when he entered into contract, should !e held lia!le in

damages for !reach of contract.

nder Article --;0 of the Civil Code, not only

de!tors guilty of fraud, negligence or default !ut also

de!tor of every, in general, who fails in the performance of

his o!ligations is !ound to indemnify for the losses anddamages caused there!y.

Te(e&$t 4. /&$tro D"e$t G.R. No. 7867Te(e&$t 4. /&$troG.R. No. 7867 ebr#&r' 29, 1988

'actsD-. The petitioner is a company engaged in transmitting telegrams. The plaintiffs are the children and spouse of

Consolacion Castro who died in the "hilippines. <ne of the plaintiffs, *ofia sent a telegram thru Telefast to herfather and other si!lings in the *A to inform a!out the death of their mother. nfortunately, the deceased hadalready !een interred !ut not one from the relatives a!road was a!le to pay their last respects. *ofia found out



upon her return in the * that the telegram was never received. 6ence the suit for damages on the ground of!reach of contract. The defendant7petitioner argues that it should only pay the actual amount paid to it.

:. The lower court ruled in favor of the plaintiffs and awarded compensatory, moral, e8emplary, damages to each ofthe plaintiffs with ?F interest p.a. plus attorneyMs fees. The Court of Appeals affirmed this ruling !ut modified andeliminated the compensatory damages to *ofia and e8emplary damages to each plaintiff, it also reduced themoral damages for each. The petitioner appealed contending that, it can only !e held lia!le for " -.:, the fee orcharges paid !y *ofia C. Crouch for the telegram that was never sent to the addressee, and that the moraldamages should !e removed since defendant%s negligent act was not motivated !y #fraud, malice or rec2lessness

I$$#e +%et%er or !ot t%e &&rd o t%e mor&(, ompe!$&tor' &!d e:emp(&r' d&m&"e$ $ proper.

RH$1ID Jes, there was a contract !etween the petitioner and private respondent *ofia C. Crouch where!y, for a fee,petitioner undertoo2 to send said private respondent%s message overseas !y telegram. "etitioner failed to do this despiteperformance !y said private respondent of her o!ligation !y paying the re9uired charges. "etitioner was therefore guilty ofcontravening its and is thus lia!le for damages. This lia!ility is not limited to actual or 9uantified damages. To sustainpetitioner%s contrary position in this regard would result in an ine9uitous situation where petitioner will only !e held lia!lefor the actual cost of a telegram fi8ed thirty (0+ years ago.

Art. --;0 of the Civil Code provides that #those who in the performance of their o!ligations are guilty of fraud, negligenceor delay, and those who in any manner contravene the tenor thereof, are lia!le for damages.# Art. :-;? also provides that#whoever !y act or omission causes damage to another, there !eing fault or negligence, is o!liged to pay for the damagedone.#

Award of 5oral, compensatory and e8emplary damages is proper.

The petitioner%s act or omission, which amounted to gross negligence, was precisely the cause of the suffering privaterespondents had to undergo. Art. ::-; of the Civil Code statesD #5oral damages include physical suffering, mentalanguish, fright, serious an8iety, !esmirched reputation, wounded feelings, moral shoc2, social humiliation, and similarinjury. T)oug) incapable of pecuniary computation, moral damages may be recovered if t)ey are t)e pro*imate results oft)e defendant+s rongful act or omission.#

Then, the award of "-?,000.00 as compensatory damages to *ofia C. Crouch representing the e8penses she incurredwhen she came to the "hilippines from the nited *tates to testify !efore the trial court. 6ad petitioner not !een remiss inperforming its o!ligation, there would have !een no need for this suit or for 5rs. Crouch%s testimony.

The award of e8emplary damages !y the trial court is li2ewise justified for each of the private respondents, as a warning

to all telegram companies to o!serve due diligence in transmitting the messages of their customers.

*antos Ventura 6ocorma 'oundation, $nc. vs )rnesto *antos K Riverland, $nc.

Chester Ca!ala recommends his visitors to please read the original K full te8t of the case cited. ie 8ie

*antos Ventura 6ocorma 'oundation, $nc. vs )rnesto *antos K Riverland, $nc.

I.R. 1o. ->000@

1ovem!er >, :00@

'actsD

*u!ject of the present petition for review on certiorari is the =ecision, dated 3anuary 0, :00:, as well as the April -:,

:00:, Resolution of the Court of Appeals, The appellate court reversed the =ecision, dated <cto!er @, -?, of the

Regional Trial Court of 5a2ati City, and li2ewise denied petitioner%s 5otion for Reconsideration.



<n <cto!er :?, -0, the parties e8ecuted a Compromise Agreement which amica!ly ended all their pending litigations.

The pertinent portions of the Agreement, include the followingD (-+ =efendant 'oundation shall pay "laintiff *antos "-@.>

5illion on (a+ "-.> 5illion immediately upon the e8ecution of this agreement and (!+ The !alance of "- 5illion shall !e

paid, whether in one lump sum or in installments, at the discretion of the 'oundation, within a period of not more than two

years from the e8ecution of this agreementG (:+ $mmediately upon the e8ecution of this agreement (and the receipt of the

"-.> 5illion+, plaintiff *antos shall cause the dismissal with prejudice of Civil CasesG (+ 'ailure of compliance of any of

the foregoing terms and conditions !y either or !oth parties to this agreement shall ipso facto and ipso jure automatically

entitle the aggrieved party to a writ of e8ecution for the enforcement of this agreement.

$n compliance with the Compromise Agreement, respondent *antos moved for the dismissal of the aforesaid civil cases.

6e also caused the lifting of the notices of lis pendens on the real properties involved. 'or its part, petitioner *V6'$, paid

"-.> million to respondent *antos, leaving a !alance of "- million.

<n <cto!er :/, -:, respondent *antos sent another letter to petitioner in9uiring when it would pay the !alance of "-

million. There was no response from petitioner. Conse9uently, respondent *antos applied with the Regional Trial Court of

5a2ati City, for the issuance of a writ of e8ecution of its compromise judgment dated *eptem!er 0, --. The RTCgranted the writ.

"etitioner, however, filed numerous motions to !loc2 the enforcement of the said writ. The challenge of the e8ecution of

the aforesaid compromise judgment even reached the *upreme Court. All these efforts, however, were futile.

<n 1ovem!er ::, -@, petitioner%s real properties located in 5a!alacat, "ampanga were auctioned. $n the said auction,

Riverland, $nc. was the highest !idder for "-: million and it was issued a Certificate of *ale covering the real properties

su!ject of the auction sale. *u!se9uently, another auction sale was held on 'e!ruary /, ->, for the sale of real

properties of petitioner in Bacolod City. Again, Riverland, $nc. was the highest !idder. The Certificates of *ale issued for!oth properties provided for the right of redemption within one year from the date of registration of the said properties.

<n 3une :, ->, *antos and Riverland $nc. filed a Complaint for =eclaratory Relief and =amages alleging that there was

delay on the part of petitioner in paying the !alance of "- million.

$ssuesD

a+&E1 the CA committed reversi!le error when it awarded legal interest in favor of the respondents notwithstanding the

fact that neither in the compromise agreement nor in the compromise of judgment !y the judge provides for payment of

interest to the respondentP

!+&E1 the CA erred in awarding legal interest to the respondents although the o!ligation of the petitioner to the

respondent is to pay a sum of money that had !een converted into an o!ligation to pay in 2indP



c+&E1 respondents are !arred from demanding payment of interest !y reason of the waiver provision in the compromise

agreement, which !ecame the law among the parties.

6eldD

<n <cto!er @, -?, the trial court rendered a =ecision dismissing the respondents% complaint and ordering them to payattorney%s fees and e8emplary damages to petitioner. Respondents then appealed to the Court of Appeals.

The only issue to !e resolved is whether the respondents are entitled to legal interest.

The appellate court reversed the ruling of the trial courtD &6)R)'<R), finding merit in the appeal, the appealed =ecision

is here!y R)V)R*)= and judgment is here!y rendered ordering appellee *V6'$ to pay appellants *antos and Riverland

$nc.D (-+ legal interest on the principal amount of "- million at the rate of -:F per annum from the date of demand on

<cto!er :/, -: up to the date of actual payment of the whole o!ligationG and (:+ ":0,000 as attorney%s fees and costs of

suit. *< <R=)R)=.

=elay

=elay as used in this article is synonymous to default or mora which means delay in the fulfillment of o!ligations. $t is the

non7fulfillment of the o!ligation with respect to time. $n the case at !ar, the o!ligation was already due and demanda!le

after the lapse of the two7year period from the e8ecution of the contract. The two7year period ended on <cto!er :?, -:.

&hen the respondents gave a demand letter on <cto!er :/, -:, to the petitioner, the o!ligation was already due and

demanda!le. 'urthermore, the o!ligation is li9uidated !ecause the de!tor 2nows precisely how much he is to pay and

when he is to pay it.

The petition lac2s merit

$n the case at !ar, the Compromise Agreement was entered into !y the parties on <cto!er :?, -0. $t was judicially

approved on *eptem!er 0, --. Applying e8isting jurisprudence, the compromise agreement as a consensual contract

!ecame !inding !etween the parties upon its e8ecution and not upon its court approval. 'rom the time a compromise is

validly entered into, it !ecomes the source of the rights and o!ligations of the parties thereto. The purpose of the

compromise is precisely to replace and terminate controverted claims.

As to the remaining "- million, the terms and conditions of the compromise agreement are clear and unam!iguous. $t

provides that the !alance of "- 5illion shall !e paid, whether in one lump sum or in installments, at the discretion of the

'oundation, within a period of not more than two (:+ years from the e8ecution of this agreement.

&6)R)'<R), the petition is =)1$)= for lac2 of merit. The =ecision dated 3anuary 0, :00: of the Court of Appeals and

its April -:, :00: Resolution in CA7I.R. CV 1o. >>-:: are A''$R5)=. Costs against petitioner. *< <R=)R)=



G.R. No. 95;69 <#(' 25, 1991

AGAITO MAN-EL, petitioner,vs.ON. /O-RT O AEALS, ON. RAMON MA=ASIAR &!d SO-SES <ES-S DE <ES-S &!d /ARMEN DE<ES-S, respondents.

Miguel (. Badando for petitioner.

R.'. -i!ardo -a ffice for private respondents.

REGALADO, J.:p

This case had its inception in a complaint for ejectment filed !y herein private respondents against herein petitioner !eforethe 5etropolitan Trial Court of 5anila, doc2eted as Civil Case 1o. -::-?7CV, for non7payment of rentals on an apartmentunit owned !y private respondents and rented !y petitioner.

The antecedent facts which led to the filing of said case are !est 9uoted from the succinct presentation thereof in thechallenged decision of respondent courtD

$t appears that the private respondents are the owners of an apartment unit which was rented !y thepetitioner on a month to month !asis for a monthly rental of "@??.00 paya!le in advanceG that thepetitioner failed to pay the corresponding rentals for the month of 5ay -/; up to the filing of thecomplaint on August -, -/;G that on 3uly , -/;, private respondents, through their counsel, sent ademand letter to the petitioner ()8hi!it #R#+ re9uiring him to pay his rentals in arrears and to vacate theleased premises within five (>+ days from receipt thereof, otherwise private respondents will !econstrained to file the appropriate legal action against himG that the demand letter of private respondents%counsel was received !y the petitioner on 3uly -@, -/;G that in response thereto, the petitioneraddressed a letter dated 3uly ->, -/; to private respondent Carmen de 3esus, furnishing a copy thereofto her counsel, stating that the amount of rentals, which the private respondents allegedly refused toreceive, had !een deposited at nited Coconut "lanters Ban2, Taft Avenue Branch, with Account 1o.// in the name of the petitioner%s son, 5ario 5anuel, and could !e withdrawn upon notice of paymentG

that in order to collect the said rentals allegedly deposited with the !an2, the private respondents% counselsent a letter dated August -@, -/; to the petitioner, re9uesting the payment of the unpaid rentals to his(private respondents% counsel+ officeG that the said letter was received !y the petitioner on August -/,-/;, and, instead of complying with private respondents% counsel%s re9uest, the petitioner addressed aletter dated August :@, -/; to the private respondents% counsel re9uesting that the rentals in arrears !epaid to the private respondents at petitioner%s house. The private respondents did not heed the petitioner%sre9uest. 1

<n April ?, -/, after the parties had su!mitted their respective affidavits and position papers, the said metropolitan trialcourt rendered judgment in favor of private respondents, as plaintiffs therein, the dispositive part whereof declaresD

&6)R)'<R), judgment is here!y rendered in favor of the plaintiffs, ordering defendant andEor any other person claiming rights under him to vacate and surrender possession of the premises descri!ed as door

1o. :@@@G defendant Agapito 5anuel to pay the plaintiffs the amount of "@??.00 a month from 5ay -/;and up to the date defendant andEor any other person claiming rights under him actually vacates thepremises, to pay the plaintiffs the amount of ">00.00 as attorney%s fees, plus cost of the *uit. 2

<n appeal in Civil Case 1o. /7@/-@, the Regional Trial Court of 5anila, Branch >, affirmed the aforesaid judgment intoto in its decision dated *eptem!er :0, -/.

1ot satisfied therewith, petitioner appealed to respondent Court of Appeals which, in its decision ; dated 3anuary :, -0in CA7I.R. *" 1o. -/?-, denied due course to the petition for review and dismissed the same for lac2 ofmerit. 5"etitioner%s motion for motion for reconsideration was li2ewise denied !y said respondent court in its resolution of5arch >, -0. 6



Before us, petitioner raises two grounds, the first supposedly in the nature of a supervenience, for the allowance of hispetition, vi! .D

-. A new situation developed andEor came a!out which ma2es ejectment unjust and impossi!le, that is,the 16A finally awarded the lot over which the su!ject structure stands to the petitioner and other tenantsand dis9ualified the private respondent. $t said ruling or awards, the private respondent are only given theoption to either sell the structure to the petitioner and the other awardees or to dismantle the same.

:. 5oreover, under the circumstances prevailing in this instant case, the private respondent were really

in mora accipiendi that even if no deposit or consignation had !een made, said mora cannot !e cured."etitioner had in fact continuously made availa!le and deposited his rentals had !een made moot andacademic !y virtue of the 16A award in favor of the petitioner and the governmental e8pression of pu!licpolicy to protect the actual occupants, specifically the petitioner. 7

&e find the petition !ereft of merit.

The putative award on April ?, -0 !y the 1ational 6ousing Authority (16A+ to the petitioner of the lot where the rentedapartment stands, 8 while this ejectment case was pending in the Court of Appeals, is of no moment. The juridical relation!etween petitioner and private respondent as lessee and lessors is well esta!lished and the non7payment of rentals !ypetitioner for at least three (+ months is su!stantial !y the evidence on record.

The award of the lot to petitioner !y 16A does not automatically vest in him ownership over the leased structure thereon.

"etitioner cannot invo2e the provisions of the Civil Code on accession there !eing an e8isting lessor and lessee relation!etween him and private respondents. 9 A tenant cannot, in an action involving the possession of the leased premises,controvert the title of his landlord or assert any rights adverse to that title or set up any inconsistent right to change therelation e8isting !etween himself and his landlord, without first delivering up to the landlord the premises ac9uired !yvirtue of the agreement !etween themselves. The rule estopping a tenant while he retains possession applies whether thetenant is defendant or plaintiff and applies even though the landlord had no title at the time the relationship was created. 10

"roceedings in forci!le entry and detainer are wholly summary in nature. The fact of lease and the e8piration of its termsare the only elements of this 2ind of action. 11 The 9uestion of ownership is unessential and should !e raised !y thedefendant in an appropriate action. 12 Any controversy over ownership right could and should !e settled after the partywho had the prior, peaceful and actual possession is returned to the property. 1

$n the present case and assuming the new factual milieu posited !y petitioner, he should file a separate action wherein hisalleged rights as owner of the land vis/a/vis the rights of private respondents as !uilders or owners of the structurestanding thereon can !e properly ventilated. There can !e no such adjudication here for when the relationship of lessorand lessee is esta!lished in an unlawful detainer case, any attempt of the defendant to inject the 9uestion of ownershipinto the case is inutile e8cept in so far as it might throw light on the right of possession.1;

$n an appeal from an inferior court in an ejectment case the issue of ownership should not !e delved into, for an ejectmentaction lies even against the owner of the property. 15 The fact of possession in itself has a positive value and is endowedwith a distinct standing of its own in the law of property. True, !y this principle of respect for the possessory status, awrongful possessor may at times !e upheld !y the courts, !ut this is only temporary and for one sole and special purpose,namely, the maintenance of pu!lic order. The protection is only temporary !ecause it is intended that as soon as thelawless act of dispossession has !een suppressed, the 9uestion of ownership or of possession de $ure is to !e settled inthe proper court and in a proper action. The larger and permanent interests of property re9uire that such rare ande8ceptional instance of preference in the courts of the actual !ut wrongful possessor !e permitted. 16

The contention of petitioner that private respondents are in mora accipiendi cannot !e upheld either. The failure of theowners to collect or their refusal to accept the rentals are not valid defenses. Consignation, under such circumstances, isnecessary, 17 and !y this we mean one that is effected in full compliance with the specific re9uirements of the law therefor.

*ection >(!+ of Batas "am!ansa Blg. :>, as amended, provides that in case of refusal !y the lessor to accept payment ofthe rental agreed upon, the lessee shall either deposit, !y way of consignation, the amount in court or in a !an2 in thename of and with notice to the lessor. The failure of herein petitioner to comply with said re9uirement ma2es theconsignation defective and gives rise to a cause of action for ejectment. 18 Compliance with the re9uisites of a validconsignation is mandatory. $t must !e complied with frilly and strictly in accordance with the law. *u!stantial compliance isnot enough. 19



'rom the earlier discussion, petitioner evidently did not comply with the re9uirements for consignation prescri!ed !y thegoverning law. Conse9uently, as e8pounded !y the Court of Appeals S

The failure of the petitioner to fully and strictly comply with the re9uirements of consignation asaforementioned, renders nil his contention that the private respondents have no cause of action againsthim, As there was no valid consignation, payment of the more than three months rental arrearages wasnot effected. nder *ection >(!+ of B.". Blg. :>, as amended, arrears in payment of rent for three (+months at any one time, is a ground for judicial ejectment. 'or such non7payment of the petitioner to theprivate respondents of the monthly rentals from 5ay, -/; until the case was filed on August -, -/;, or

for more than three (+ months, there therefore e8isted a cause of action in favor of the privaterespondent lessors against the petitioner lessee. 20

ACC<R=$1IHJ, the petition is =)1$)= and the assailed judgment of respondent Court of Appeals is A''$R5)=.

*< <R=)R)=.

G.R. No. 12608 <#(' 12, 2006

ANTONIO R. /ORTES >! %$ &p&t' &$ Adm!$tr&tor o t%e e$t&te o /(&ro S. /orte$?, petitioner,vs.ON. /O-RT O AEALS &!d ILLA ESERAN3A DEELOMENT /ORORATION, respondents.

= ) C $ * $ < 1

@NARESSANTIAGO, J .

The instant petition for review see2s the reversal of the 3une -, -? =ecision- of the Court of Appeals in CA7I.R. CV1o. @;/>?, setting aside the 3une :@, - =ecision: of the Regional Trial Court of 5a2ati, Branch -/, which rescindedthe contract of sale entered into !y petitioner Antonio Cortes (Cortes+ and private respondent Villa )sperana=evelopment Corporation (Corporation+.

The antecedents show that for the purchase price of ",;00,000.00, the Corporation as !uyer, and Cortes as seller,entered into a contract of sale over the lots covered !y Transfer Certificate of Title (TCT+ 1o. ---7A, TCT 1o. --7Aand TCT 1o. :0-7A, located at Baclaran, "araa9ue, 5etro 5anila. <n various dates in -/, the Corporation

advanced to Cortes the total sum of "-,:-,000.00. *ometime in *eptem!er -/, the parties e8ecuted a deed ofa!solute sale containing the following termsD

-. pon e8ecution of this instrument, the Vendee shall pay unto the Vendor sum of T&< 5$HH$<1 A1= T&<61=R)= T6<*A1= (":,:00,000.00+ ")*<*, "hilippine Currency, less all advances paid !y the Vendee tothe Vendor in connection with the saleG

:. The !alance of <1) 5$HH$<1 A1= '$V) 61=R)= T6<*A1= "-,>00,000.00 ")*<*, "hil. Currencyshall !e paya!le within <1) (-+ J)AR from date of e8ecution of this instrument, payment of which shall !esecured !y an irrevoca!le stand!y letter of credit to !e issued !y any reputa!le local !an2ing institutionaccepta!le to the Vendor.

8 8 8 8

@. All e8pense for the registration of this document with the Register of =eeds concerned, including the transferta8, shall !e divided e9ually !etween the Vendor and the Vendee. "ayment of the capital gains shall !ee8clusively for the account of the VendorG >F commission of 5arcosa *anche to !e deducted upon signing ofsale.@

*aid =eed was retained !y Cortes for notariation.

<n 3anuary -@, -/>, the Corporation filed the instant case> for specific performance see2ing to compel Cortes to deliverthe TCTs and the original copy of the =eed of A!solute *ale. According to the Corporation, despite its readiness anda!ility to pay the purchase price, Cortes refused delivery of the sought documents. $t thus prayed for the award ofdamages, attorney%s fees and litigation e8penses arising from Cortes% refusal to deliver the same documents.

http://www.lawphil.net/judjuris/juri2006/jul2006/gr_126083_2006.html#fnt1












$n his Answer with counterclaim,? Cortes claimed that the owner%s duplicate copy of the three TCTs were surrendered tothe Corporation and it is the latter which refused to pay in full the agreed down payment. 6e added that portion of thesu!ject property is occupied !y his lessee who agreed to vacate the premises upon payment of distur!ance fee. 6owever,due to the Corporation%s failure to pay in full the sum of ":,:00,000.00, he in turn failed to fully pay the distur!ance fee ofthe lessee who now refused to pay monthly rentals. 6e thus prayed that the Corporation !e ordered to pay theoutstanding !alance plus interest and in the alternative, to cancel the sale and forfeit the "-,:-,000.00 partial downpayment, with damages in either case.

<n 3une :@, -, the trial court rendered a decision rescinding the sale and directed Cortes to return to the Corporation

the amount of "-,:-,000.00, plus interest. $t ruled that pursuant to the contract of the parties, the Corporation shouldhave fully paid the amount of ":,:00,000.00 upon the e8ecution of the contract. $t stressed that such is the law !etweenthe parties !ecause the Corporation failed to present evidence that there was another agreement that modified the termsof payment as stated in the contract. And, having failed to pay in full the amount of ":,:00,000.00 despite Cortes% deliveryof the =eed of A!solute *ale and the TCTs, rescission of the contract is proper.

$n its motion for reconsideration, the Corporation contended that the trial court failed to consider their agreement that itwould pay the !alance of the down payment when Cortes delivers the TCTs. The motion was, however, denied !y the trialcourt holding that the rescission should stand !ecause the Corporation did not act on the offer of Cortes% counsel todeliver the TCTs upon payment of the !alance of the down payment. ThusD

The Court finds no merit in the Corporation%s 5otion for Reconsideration. As stated in the decision sought to !ereconsidered, Cortes% counsel at the pre7trial of this case, proposed that if the Corporation completes the down

payment agreed upon and ma2e arrangement for the payment of the !alances of the purchase price, Corteswould sign the =eed of *ale and turn over the certificate of title to the Corporation. The Corporation did nothingto comply with its underta2ing under the agreement !etween the parties.

&6)R)'<R), in view of the foregoing considerations, the 5otion for Reconsideration is here!y =)1$)=.

*< <R=)R)=.;

<n appeal, the Court of Appeals reversed the decision of the trial court and directed Cortes to e8ecute a =eed of A!solute*ale conveying the properties and to deliver the same to the Corporation together with the TCTs, simultaneous with theCorporation%s payment of the !alance of the purchase price of ":,@/;,000.00. $t found that the parties agreed that theCorporation will fully pay the !alance of the down payment upon Cortes% delivery of the three TCTs to the Corporation. Therecords show that no such delivery was made, hence, the Corporation was not remiss in the performance of its o!ligation

and therefore justified in not paying the !alance. The decretal portion thereof, providesD

&6)R)'<R), premises considered, the Corporation%s appeal is IRA1T)=. The decision appealed from ishere!y R)V)R*)= and *)T A*$=) and a new judgment rendered ordering Cortes to e8ecute a deed ofa!solute sale conveying to the Corporation the parcels of land su!ject of and descri!ed in the deed of a!solutesale, )8hi!it =. *imultaneously with the e8ecution of the deed of a!solute sale and the delivery of thecorresponding owner%s duplicate copies of TCT 1os. ---7A, --7A and :0-7A of the Registry of =eeds forthe "rovince of Rial, 5etro 5anila, =istrict $V, the Corporation shall pay Cortes the !alance of the purchaseprice of ":,@/;,000.00. As agreed upon in paragraph @ of the =eed of A!solute *ale, )8hi!it =, under terms andconditions, #All e8penses for the registration of this document (the deed of sale+ with the Register of =eedsconcerned, including the transfer ta8, shall !e divided e9ually !etween Cortes and the Corporation. "ayment ofthe capital gains shall !e e8clusively for the account of the VendorG >F commission of 5arcosa *anche to !ededucted upon signing of sale.# There is no pronouncement as to costs.

*< <R=)R)=./

Cortes filed the instant petition praying that the decision of the trial court rescinding the sale !e reinstated.

There is no dou!t that the contract of sale in 9uestion gave rise to a reciprocal o!ligation of the parties. Reciprocalo!ligations are those which arise from the same cause, and which each party is a de!tor and a creditor of the other, suchthat the o!ligation of one is dependent upon the o!ligation of the other. They are to !e performed simultaneously, so thatthe performance of one is conditioned upon the simultaneous fulfillment of the other.

Article --- of the Civil Code, statesD












ART. ---. The power to rescind o!ligations is implied in reciprocal ones, in case one of the o!ligors should notcomply with what is incum!ent upon him.

8 8 8 8

As to when said failure or delay in performance arise, Article --? of the same Code provides that U

ART. --?

8 8 8 8

$n reciprocal o!ligations, neither party incurs in delay if the other does not comply or is not ready to comply in aproper manner with what is incum!ent upon him. rom t%e mome!t o!e o t%e p&rte$ #((($ %$ ob("&to!,de(&' b' t%e ot%er be"!$. ()mphasis supplied+

The issue therefore is whether there is delay in the performance of the parties% o!ligation that would justify the rescissionof the contract of sale. To resolve this issue, we must first determine the true agreement of the parties.

The settled rule is that the decisive factor in evaluating an agreement is the intention of the parties, as shown notnecessarily !y the terminology used in the contract !ut !y their conduct, words, actions and deeds prior to, during andimmediately after e8ecuting the agreement. As such, therefore, documentary and parol evidence may !e su!mitted and

admitted to prove such intention.

-0

$n the case at !ar, the stipulation in the =eed of A!solute *ale was that the Corporation shall pay in full the ":,:00,000.00down payment upon e8ecution of the contract. 6owever, as correctly noted !y the Court of Appeals, the transcript ofstenographic notes reveal Cortes% admission that he agreed that the Corporation%s full payment of the sum of":,:00,000.00 would depend upon his delivery of the TCTs of the three lots. $n fact, his main defense in the Answer isthat, he performed what is incum!ent upon him !y delivering to the Corporation the TCTs and the car!on duplicate of the=eed of A!solute *ale, !ut the latter refused to pay in full the down payment.-- "ertinent portion of the transcript, readsD

Q 1ow, why did you deliver these three titles to the plaintiff despite the fact that it has not !een paid in full theagreed down paymentP

A &ell, the !ro2er told me that the down payment will !e given if $ surrender the titles.

Q =o you mean to say that the plaintiff agreed to pay in full the down payment of ":,:00,000.00 provided yousurrender or entrust to the plaintiff the titlesP

A Jes, sir .-:

&hat further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title of the lots will !etransferred in the name of the Corporation upon full payment of the ":,:00,000.00 down payment. Thus U

ATTJ. A1TARA1

Q <f course, you have it transferred in the name of the plaintiff, the titleP

A pon full payment.

8 8 8 8

ATTJ. *ART)

Q &hen you said upon full payment, are you referring to the agreed down payment of ":,:00,000.00P

A Jes, sir .-















By agreeing to transfer title upon full payment of ":,:00,000.00, Cortes% impliedly agreed to deliver the TCTs to theCorporation in order to effect said transfer. 6ence, the phrase #e8ecution of this instrument# -@ as appearing in the =eed of

A!solute *ale, and which event would give rise to the Corporation%s o!ligation to pay in full the amount of ":,:00,000.00,can not !e construed as referring solely to the signing of the deed. The meaning of #e8ecution# in the instant case is notlimited to the signing of a contract !ut includes as well the performance or implementation or accomplishment of theparties% agreement.-> &ith the transfer of titles as the corresponding reciprocal o!ligation of payment, Cortes% o!ligation isnot only to affi8 his signature in the =eed, !ut to set into motion the process that would facilitate the transfer of title of thelots, i.e., to have the =eed notaried and to surrender the original copy thereof to the Corporation together with the TCTs.

6aving esta!lished the true agreement of the parties, the Court must now determine whether Cortes delivered the TCTsand the original =eed to the Corporation. The Court of Appeals found that Cortes never surrendered said documents tothe Corporation. Cortes testified that he delivered the same to 5anny *anche, the son of the !ro2er, and that 5anny toldhim that her mother, 5arcosa *anche, delivered the same to the Corporation.

Q =o you have any proof to show that you have indeed surrendered these titles to the plaintiffP

A Jes, sir.

Q $ am showing to you a receipt dated <cto!er :, -/, what relation has this receipt with that receipt that youhave mentionedP

A That is the receipt of the real estate !ro2er when she received the titles.

Q <n top of the printed name is 5anny *anche, there is a signature, do you 2now who is that 5anny *ancheP

A That is the son of the !ro2er.

8 8 8 8

Q 5ay we 2now the full name of the real estate !ro2erP

A 5arcosa *anche

8 8 8 8

Q =o you 2now if the !ro2er or 5arcosa *anche indeed delivered the titles to the plaintiffP

A That is what she told me. *he gave them to the plaintiff.

8 8 8 8.-?

ATTJ. A1TARA1

Q Are you really sure that the title is in the hands of the plaintiffP

8 8 8 8

Q $t is in the hands of the !ro2er !ut there is no showing that it is in the hands of the plaintiffP

A Jes, sir.

C<RT

Q 6ow do you 2now that it was delivered to the plaintiff !y the son of the !ro2erP

A The !ro2er told me that she delivered the title to the plaintiff.










ATTJ. A1TARA1

Q =id she not show you any receipt that she delivered to 5r. =ragon-; the title without any receiptP

A $ have not seen any receipt.

Q *o, therefore, you are not sure whether the title has !een delivered to the plaintiff or not. $t is only upon theallegation of the !ro2erP

A Jes, sir .-/

6owever, 5arcosa *anche%s unre!utted testimony is that, she did not receive the TCTs. *he also denied 2nowledge ofdelivery thereof to her son, 5anny, thusD

Q The defendant, Antonio Cortes testified during the hearing on 5arch --, -/? that he allegedly gave you thetitle to the property in 9uestion, is it trueP

A $ did not receive the title.

Q 6e li2ewise said that the title was delivered to your son, do you 2now a!out thatP

A $ do not 2now anything a!out that.-

&hat further strengthened the findings of the Court of Appeals that Cortes did not surrender the su!ject documents wasthe offer of Cortes% counsel at the pre7trial to deliver the TCTs and the =eed of A!solute *ale if the Corporation will pay the!alance of the down payment. $ndeed, if the said documents were already in the hands of the Corporation, there was noneed for Cortes% counsel to ma2e such offer.

*ince Cortes did not perform his o!ligation to have the =eed notaried and to surrender the same together with the TCTs,the trial court erred in concluding that he performed his part in the contract of sale and that it is the Corporation alone thatwas remiss in the performance of its o!ligation. Actually, !oth parties were in delay. Considering that their o!ligation wasreciprocal, performance thereof must !e simultaneous. The mutual inaction of Cortes and the Corporation therefore gaverise to a compensation morae or default on the part of !oth parties !ecause neither has completed their part in theirreciprocal o!ligation.:0 Cortes is yet to deliver the original copy of the notaried =eed and the TCTs, while the Corporation

is yet to pay in full the agreed down payment of ":,:00,000.00. This mutual delay of the parties cancels out the effects ofdefault,:- such that it is as if no one is guilty of delay.::

&e find no merit in Cortes% contention that the failure of the Corporation to act on the proposed settlement at the pre7trialmust !e construed against the latter. Cortes argued that with his counsel%s offer to surrender the original =eed and theTCTs, the Corporation should have consigned the !alance of the down payment. This argument would have !een correctif Cortes actually surrendered the =eed and the TCTs to the Corporation. &ith such delivery, the Corporation would have!een placed in default if it chose not to pay in full the re9uired down payment. nder Article --? of the Civil Code, fromthe moment one of the parties fulfills his o!ligation, delay !y the other !egins. *ince Cortes did not perform his part, theprovision of the contract re9uiring the Corporation to pay in full the down payment never ac9uired o!ligatory force.5oreover, the Corporation could not !e faulted for not automatically heeding to the offer of Cortes. 'or one, its complainthas a prayer for damages which it may not want to waive !y agreeing to the offer of Cortes% counsel. 'or another, theprevious representation of Cortes that the TCTs were already delivered to the Corporation when no such delivery was in

fact made, is enough reason for the Corporation to !e more cautious in dealing with him.

The Court of Appeals therefore correctly ordered the parties to perform their respective o!ligation in the contract ofsale, i.e., for Cortes to, among others, deliver the necessary documents to the Corporation and for the latter to pay in full,not only the down payment, !ut the entire purchase price. And since the Corporation did not 9uestion the Court of

Appeal%s decision and even prayed for its affirmance, its payment should rightfully consist not only of the amount of"/;,000.00, representing the !alance of the ":,:00,000.00 down payment, !ut the total amount of ":,@/;,000.00, theremaining !alance in the ",;00,000.00 purchase price.

+EREORE, the petition is DENIED and the 3une -, -? =ecision of the Court of Appeals in CA7I.R. CV 1o. @;/>?,is AIRMED.

















SO ORDERED

-NLAD RESO-R/ES DEELOMENT

/ORORATION, -NLAD R-RAL BAN= O

NOELETA, IN/., -NLAD /OMMODITIES, IN/.,

ELENA 3. BENITE3, &!d /ONRADO L. BENITE3 II,

"etitioners,

7 versus 7

RENATO . DRAGON, TAR/ISI-S R. RODRIG-E3,

I/ENTE D. /ASAS, ROM-LO M. IRATA, LAIANO

ERDITO, TEOTIMO BENITE3, ELENA BENITE3, &!d

ROLANDO S-ARE3,

Respondents.

G.R. No. 1;98

"resentD

J1AR)*7*A1T$AI<, #.,

')airperson,

A*TR$A75ART$1)L,

C6$C<71ALAR$<,

1AC6RA, and

R)J)*, ##.

"romulgatedD

3uly :/, :00/

87777777777777777777777777777777777777777777777777777777777777777777777777777777777778

DE/ISION

NA/-RA, J .

Before this Court is a "etition for Review on 'ertiorari under Rule @> of the Rules of Civil "rocedure see2ing the

reversal of the 1ovem!er :, :000 =ecision- and August :, :00- Resolution: of the Court of Appeals (CA+ in CA7I.R.

CV 1o. >@::?.

http://sc.judiciary.gov.ph/jurisprudence/2008/july2008/149338.htm#_ftn1







The facts, as found !y the CA, are as followsD

<n =ecem!er :, -/-, the "laintiffs (herein respondents+ and defendant (herein petitioner+

nlad Resources, through its Chairman, 6elena L. Benite, entered into a 5emorandum of Agreement

wherein it is provided that respondents, as controlling stoc2holders of the Rural Ban2 of 1oveleta shall

allow nlad Resources to invest four million eight hundred thousand pesos ("@,/00,000.00+ in the Rural

Ban2 in the form of additional e9uity. <n the other hand, petitioner nlad Resources !ound itself toinvest the said amount of @./ million pesos in the Rural Ban2G upon signing, it was, li2ewise, agreed that

petitioner nlad Resources shall su!scri!e to a minimum of four hundred eighty thousand pesos

("@/0,000.00+ (sic+ common or preferred non7voting shares of stoc2 with a total par value of four million

eight hundred thousand pesos ("@,/00,000.00+ and pay up immediately one million two hundred

thousand pesos ("-,:00,000.00+ for said su!scriptionG that the respondents, upon the signing of the said

agreement shall transfer control and management over the Rural Ban2 to nlad Resources. According to

the respondents, immediately after the signing of the agreement, they complied with their o!ligation and

transferred control of the Rural Ban2 to nlad Resources and its nominees and the Ban2 was renamed

the nlad Rural Ban2 of 1oveleta, $nc. 6owever, respondents claim that despite repeated demands,

nlad Resources has failed and refused to comply with their o!ligation under the said 5emorandum of

Agreement when it did not invest four million eight hundred thousand pesos ("@,/00,000.00+ in the Rural

Ban2 in the form of additional e9uity and, li2ewise, it failed to immediately infuse one million two hundred

thousand pesos ("-,:00,000.00+ as paid in capital upon signing of the 5emorandum of Agreement.

<n August -0, -/@, the Board of =irectors of petitioner nlad Resources passed Resolution

1o. /@70@- authoriing the "resident and the Ieneral 5anager to lease a mango plantation situated in

1aic, Cavite. "ursuant to this Resolution, the Ban2 as lessee entered into a Contract of Hease with the

petitioner 6elena L. Benite as lessor. The management of the mango plantation was underta2en !y

nlad Commodities, $nc., a su!sidiary of nlad Resources, under a 5anagement Contract Agreement.

The 5anagement Contract provides that nlad Commodities, $nc. would receive eighty percent (/0F+ of

the net profits generated !y the operation of the mango plantation while the Ban2s share is twenty

percent (:0F+. $t was further agreed that at the end of the lease period, the Rural Ban2 shall turn over tothe lessor all permanent improvements introduced !y it on the plantation.

8 8 8 8

<n 5ay :0, -/;, petitioner nlad Rural Ban2 wrote respondents regarding the Central

Ban2s approval to retire its =evelopment Ban2 of the "hilippines preferred shares in the amount

of ":-,000.00 and giving notice for su!scription to proportionate shares. The respondents o!jected on

the grounds that there is already a sin2ing fund for the retirement of the said =B"7held preferred sharesprovided for annually and that it could deprive the Rural Ban2 of a cheap source of fund. (sic+

Respondents alleged compliance with all of their o!ligations under the 5emorandum of

Agreement in that they have transferred control and management over the Rural !an2 to the petitioners

and are ready, willing and a!le to allow petitioners to su!scri!e to a minimum of four hundred eighty

thousand ("@/0,000.00+ (sic+ common or preferred non7voting shares of stoc2s with a total par value of

four million eight hundred thousand pesos ("@,/00,000.00+ in the Rural Ban2. 6owever, petitioners have

failed and refused to su!scri!e to the said shares of stoc2 and to pay the initial amount of one million two

hundred thousand pesos ("-,:00,000.00+ for said su!scription.





<n 3uly , -/;, herein respondents filed !efore the Regional Trial Court (RTC+ of 5a2ati City, Branch ?- a

Complaint@f or rescission of the agreement and the return of control and management of the Rural Ban2 from petitioners

to respondents, plus damages. After trial, the RTC rendered a =ecision,> the dispositive portion of which providesD

&6)R)'<R), "remises Considered, judgment is here!y rendered, as followsD

-. The 5emorandum of Agreement dated : =ecem!er -- (sic+ is here!y declared

rescinded andD

(a+ =efendant nlad Resources =evelopment Corporation is here!y ordered to

immediately return control and management over the Rural Ban2 of 1oveleta, $nc. to"laintiffsG and

(!+ nlad Rural Ban2 of 1oveleta, $nc. is here!y ordered to return to =efendants

the sum of <ne 5illion Three Thousand *eventy "esos ("-,00,0;0.00+

:. The =irector for Rural Ban2s of the Bang2o *entral ng "ilipinas is here!y appointed

as Receiver of the Rural Ban2G

. nlad Rural Ban2 of 1oveleta, $nc. is here!y enjoined from placing the retired =B"7

held preferred shares availa!le for su!scription and the same is here!y ordered to !e placed under a

sin2ing fundG

@. =efendant nlad Resources =evelopment Corporation is here!y ordered to pay

plaintiffs the followingD

(a+ actual compensatory damages amounting to 'our 5illion *i8 6undred <neThousand *even 6undred *i8ty7 'ive and /E-00 "esos ("@,?0-,;?>./+G

(!+ moral damages in the amount of 'ive 6undred Thousand "esos

(">00,000.00+G

(c+ e8emplary and corrective damages in the amount of <ne 6undred

Thousand "esos ("-00,000.00+G and








(d+ attorneys fees in the sum of ("-00,000.00+, plus cost of suit.

*< <R=)R)=.?

6erein petitioners appealed the ruling to the CA. Respondents filed a 5otion to =ismiss and, su!se9uently, a

*upplemental 5otion to =ismiss, which were !oth denied. Hater, however, the CA, in a =ecision dated 1ovem!er :,

:000, dismissed the appeal for lac2 of merit and affirmed the RTC =ecision in all respects. "etitioners motion for

reconsideration was denied in CA Resolution dated August :, :00-.

"etitioners are now !efore this Court alleging that the CA committed a grave and serious reversi!le error in

issuing the assailed =ecision. "etitioners 9uestion the jurisdiction of the trial court, something they have done from the

!eginning of the controversy, contending that the issues that respondents raised !efore the trial court are intra7corporate

in nature and are, therefore, !eyond the jurisdiction of the trial court. They point out that respondents complaint charged

them with mismanagement and alleged dissipation of the assets of the Rural Ban2. *ince the complaint challenges

corporate actions and decisions of the Board of =irectors and prays for the recovery of the control and management of the

Rural Ban2, these matters fall outside the jurisdiction of the trial court. Thus, they posit that the judgment of the trial court,

as affirmed !y the CA, is null and void and may !e impugned at any time.

"etitioners further argue that the action instituted !y respondents had already prescri!ed, !ecause Article -/ of

the Civil Code provides that an action for rescission must !e commenced within four years. They claim that the trial court

and the CA mista2enly applied Article --@@ of the Civil Code which treats of prescription of actions in general. They su!mit

that Article -/, which deals specifically with actions for rescission, is the applica!le law.

5oreover, petitioners assert that they have fully complied with their underta2ing under the su!ject 5emorandum

of Agreement, !ut that the underta2ing has !ecome a legal and factual impossi!ility !ecause the authoried capital stoc2

of the Rural Ban2 was increased from "-.; million to only "> million, and could not accommodate the su!scription !y

petitioners of "@./ million worth of shares. *uch deficiency, petitioners contend, is with the 2nowledge and approval of

respondent Renato ". =ragon and his nominees to the Board of =irectors.

"etitioners, without conceding the propriety of the judgment of rescission, also argue that the su!ject

5emorandum of Agreement could not just !e ordered rescinded without the corresponding order for the restitution of the





parties total contri!utions andEor investments in the Rural Ban2. 'inally, they assail the award for moral and e8emplary

damages, as well as the award for attorneys fees, as !ereft of factual and legal !ases given that, in the !ody of the

=ecision, it was merely stated that respondents suffered moral damages without any discussion or e8planation of, nor any

justification for such award. Hi2ewise, the matter of attorneys fees was not at all discussed in the !ody of the

=ecision. "etitioners claim that pursuant to the prevailing rule, attorneys fees cannot !e recovered in the a!sence of

stipulation.

<n the other hand, respondents declare that immediately after the signing of the 5emorandum of Agreement,

they complied with their o!ligation and transferred control of the Rural Ban2 to petitioner nlad Resources and its

nominees, !ut that, despite repeated demands, petitioners have failed and refused to comply with their concomitant

o!ligations under the Agreement.

Respondents narrate that shortly after ta2ing over the Rural Ban2, petitioners Conrado H. Benite $$ and 3orge C.

Cer!o, as "resident and Ieneral 5anager, respectively, entered into a Contract of Hease over the 1aic, Cavite mango

plantation, and that, as a conse9uence of this venture, the !an2 incurred e8penses amounting to "@;>,;-.>;, e9uivalent

to :>.;?F of its capital and surplus.The respondents further assert that the Central Ban2 found this underta2ing not

inherently connected with !ona fide rural !an2ing operations, nor does it fall within the allied underta2ings permitted under

*ection :? of Central Ban2 Circular 1o. ;@- and *ection ; of the 5anual of Regulations of the Central Ban2. Thus,

respondents contend that this circumstance, coupled with the fact that petitioners 6elena L. Benite and Conrado H.

Benite $$ were also stoc2holders and mem!ers of the Board of =irectors of nlad Resources, nlad Rural Ban2, and

nlad Commodities at that time, is ade9uate proof that the Rural Ban2s management had every intention of diverting,dissipating, andEor wasting the !an2s assets for petitioners own gain.

They li2ewise allege that !ecause of the failure of petitioners to comply with their o!ligations under the

5emorandum of Agreement, respondents, with the e8ception of Tarcisius Rodrigue, lodged a complaint with the

*ecurities and )8change Commission (*)C+, see2ing rescission of the Agreement, damages, and the appointment of a

management committee, !ut the *)C dismissed the complaint for lac2 of jurisdiction.

'urthermore, when the Rural Ban2 informed respondents of the Central Ban2s approval of its plan to retire its

=B"7held preferred shares, giving notices for su!scription to proportionate shares, respondents o!jected on the ground

that there was already a sin2ing fund for the retirement of said shares provided for annually, and that the retirement would

deprive the petitioner Rural Ban2 of a cheap source of fund. $t was at that point, respondents claim, that they instituted the

aforementioned Complaint against petitioners !efore the RTC of 5a2ati.



The respondents also see2 the outright dismissal of this "etition for lac2 of verification as to petitioners 6elena L.

Benite and Conrado H. Benite $$G lac2 of proper verification as to petitioners nlad Resources =evelopment Corporation,

nlad Rural Ban2 of 1oveleta, $nc., and nlad Commodities, $nc.G lac2 of proper verified statement of material datesG and

lac2 of proper sworn certification of non7forum shopping.

They support the proposition that Ti$am v. Sibong)anoy ; applies, and that petitioners are indeed estopped from

9uestioning the jurisdiction of the trial court. They also share the lower courts view that it is Article --@@ of the Civil Code,

and not Article -/, that is applica!le to this case. 'inally, respondents allege that the failure of petitioner nlad

Resources to comply with its underta2ing under the Agreement, as uniformly found !y the trial court and the CA, may no

longer !e assailed in the instant "etition, and that the award of moral and e8emplary damages and attorneys fees is

justified.

The "etition is !ereft of merit. &e uphold the =ecision of the CA affirming that of the RTC.

0irst, the su!ject of jurisdiction. The main issue in this case is the rescission of the 5emorandum of

Agreement. This is to !e distinguished from respondents allegation of the alleged mismanagement and dissipation of

corporate assets !y the petitioners which is !ased on the prayer for receivership over the !an2. The two issues, al!eit

related, are o!viously separate, as they pertain to different acts of the parties involved. The issue of receivership does not

arise from the parties o!ligations under the 5emorandum of Agreement, !ut rather from specific acts attri!uted to

petitioners as mem!ers of the Board of =irectors of the Ban2. Clearly, the rescission of the 5emorandum of Agreement is

a cause of action within the jurisdiction of the trial courts, notwithstanding the fact that the parties involved are all directors

of the same corporation.

*till, the petitioners insist that the trial court had no jurisdiction over the complaint !ecause the issues involved are

intra7corporate in nature.

This argument misera!ly fails to persuade. The law in force at the time of the filing of the case was "residential

=ecree (".=.+ 0:7A, *ection >(!+ of which vested the *ecurities and )8change Commission with original and e8clusive

jurisdiction to hear and decide cases involving controversies arising out of intra7corporate relations./ $nterpreting this

statutorily conferred jurisdiction on the *)C, this Court had occasion to stateD

1owhere in said decree do we find even so much as an intimation that a!solute jurisdiction and control

is vested in the *ecurities and )8change Commission in all matters affecting corporations. To uphold the








respondents arguments would remove without legal imprimatur from the regular courts all conflicts over

matters involving or affecting corporations, regardless of the nature of the transactions which give rise to

such disputes. The courts would then !e divested of jurisdiction not !y reason of the nature of the dispute

su!mitted to them for adjudication, !ut solely for the reason that the dispute involves a corporation. This

cannot !e done.

$t is well to remem!er that the respondents had actually filed with the *)C a case against the petitioners which,

however, was dismissed for lac2 of jurisdiction due to the pendency of the case !efore the RTC.-0 The *)Cs <rder

dismissing the respondents complaint is instructiveD

'rom the foregoing allegations, it is apparent that the present action involves two separate

causes of action which are interrelated, and the resolution of which hinges on the very document sought

to !e rescinded. The assertion that the defendants failed to comply with their contractual underta2ing and

the claim for rescission of the contract !y the plaintiffs has, in effect, put in issue the very status of the

herein defendants as stoc2holders of the Rural Ban2. The issue as to whether or not the defendants are

stoc2holders of the Rural Ban2 is a pivotal issue to !e determined on the !asis of the 5emorandum of

Agreement. $t is a prejudicial 9uestion and a logical antecedent to confer jurisdiction to this Commission.

$t is to !e noted, however, that determination of the contractual underta2ing of the parties under a

contract lies with the Regional Trial Courts and not with this Commission. 8 8 8--

Be that as it may, this point has !een rendered moot !y Repu!lic Act (R.A.+ 1o. /;, also 2nown as

the Securities Regulation 'ode. This law, which too2 effect in :000, has transferred jurisdiction over such disputes to the

RTC. *pecifically, R.A. /; providesD

*ec. >. "owers and 'unctions of the Commission

8 8 8 8

>.:. The Commissions jurisdiction over all cases enumerated under *ection > of "residential =ecree 1o.

0:7A is here!y transferred to the Courts of general jurisdiction or the appropriate Regional Trial CourtD

"rovided, That the *upreme Court in the e8ercise of its authority may designate the Regional Trial Court

!ranches that shall e8ercise jurisdiction over these cases. The Commission shall retain jurisdiction over

pending cases involving intra7corporate disputes su!mitted for final resolution which should !e resolved

within one (-+ year from the enactment of this Code. The Commission shall retain jurisdiction over

pending suspension of paymentsEreha!ilitation cases filed as of 0 3une :000 until finally disposed.










*ection > of ".=. 1o. 0:7A reads, thusD

*ec. >. $n addition to the regulatory and adjudicative functions of the *ecurities and )8change

Commission over corporations, partnerships and other forms of associations registered with it as

e8pressly granted under e8isting laws and decrees, it shall have original and e8clusive jurisdiction to hear

and decide cases involvingD

a+ =evices and schemes employed !y or any acts of the !oard of directors, !usiness

associates, its officers or partnership, amounting to fraud and misrepresentation which may !e

detrimental to the interest of the pu!lic andEor of the stoc2holder, partners, mem!ers of associations or

organiations registered with the CommissionG

!+ Controversies arising out of intra7corporate or partnership relations, !etween and

among stoc2holders, mem!ers, or associatesG !etween any or all of them and the corporation,

partnership or association of which they are stoc2holders, mem!ers or associates, respectivelyG and

!etween such corporation, partnership or association and the state insofar as it concerns their individual

franchise or right to e8ist as such entityG

c+ Controversies in the election or appointment of directors, trustees, officers or

managers of such corporations, partnerships or associations.

Conse9uently, whether the cause of action stems from a contractual dispute or one that involves intra7corporate

matters, the RTC already has jurisdiction over this case. $n this light, the 9uestion of whether the doctrine of estoppel !y

laches applies, as enunciated !y this Court in Ti$am v. Sibong)anoy , no longer finds relevance.

Second, the issue of prescription. "etitioners further contend that the action for rescission has prescri!ed under

Article -/ of the Civil Code, which providesD

Article -/. The action to claim rescission must !e commenced within four years 8 8 8.



This is an erroneous proposition. Article -/ specifically refers to rescissi!le contracts as, clearly, this provision

is under the chapter entitled Rescissi!le Contracts.

$n a previous case,-: this Court has held that Article -/D

applies to rescissi!le contracts, as enumerated and defined in Articles -/0 and -/-. &e must stress

however, that the rescission in Article -/- is not a2in to the term rescission in Article --- and Article

->:. $n Articles --- and ->:, the rescission is a principal action which see2s the resolution or

cancellation of the contract while in Article -/-, the action is a su!sidiary one limited to cases

of rescission for lesion as enumerated in said article.

The prescriptive period applica!le to rescission under Articles --- and ->:, is found in Article

--@@, which provides that the action upon a written contract should !e !rought within ten years from the

time the right of action accrues.

Article -/- sets out what are rescissi!le contracts, to witD

Article -/-. The following contracts are rescissi!leD

(-+ Those which are entered into !y guardians whenever the wards whom they represent suffer

lesion !y more than one7fourth of the value of the things which are the o!ject thereofG

(:+ Those agreed upon in representation of a!sentees, if the latter suffer the lesion stated in thepreceding num!erG

(+ Those underta2en in fraud of creditors when the latter cannot in any other manner collect theclaims due themG

(@+ Those which refer to things under litigation if they have !een entered into !y the defendantwithout the 2nowledge and approval of the litigants or of competent judicial authorityG

(>+ All other contracts specially declared !y law to !e su!ject to rescission.

The 5emorandum of Agreement su!ject of this controversy does not fall under the a!ove

enumeration. Accordingly, the prescriptive period that should apply to this case is that provided for in Article --@@, to witD

Article --@@. The following actions must !e !rought within ten years from the time the right of action

accruesD

(-+ pon a written contractG





8 8 8 8

Based on the records of this case, the action was commenced on 3uly , -/;, while the 5emorandum of

Agreement was entered into on =ecem!er :, -/-. Article --@@ specifically provides that the -07year period is counted

from the time the right of action accrues. The right of action accrues from the moment the !reach of right or duty occurs.

- Thus, the original Complaint was filed well within the prescriptive period.

&e now proceed to determine if the trial court, as affirmed !y the CA, correctly ruled for the rescission of the

su!ject Agreement.

"etitioners contend that they have fully complied with their o!ligation under the 5emorandum of Agreement. They

allege that due to respondents failure to increase the capital stoc2 of the corporation to an amount that will accommodate

their underta2ing, it had !ecome impossi!le for them to perform their end of the Agreement.

Again, petitioners contention is untena!le. There is no 9uestion that petitioners herein failed to fulfill their

o!ligation under the 5emorandum of Agreement. )ven they admit the same, al!eit laying the !lame on respondents.

$t is true that respondents increased the Rural Ban2s authoried capital stoc2 to only "> million, which was not

enough to accommodate the "@./ million worth of stoc2s that petitioners were to su!scri!e to and pay for. 6owever,

respondents failure to fulfill their underta2ing in the agreement would have given rise to the scenario contemplated !y

Article --- of the Civil Code, which readsD

Article ---. The power to rescind reciprocal o!ligations is implied in reciprocal ones, in case one

of the o!ligors should not comply with what is incum!ent upon him.

The injured party may choose !etween the fulfillment and the rescission of the o!ligation, with the

payment of damages in either case. 6e may also see2 rescission, even after he has chosen fulfillment, if

the latter should !ecome impossi!le.

The court shall decree the rescission claimed, unless there !e just cause authoriing the fi8ing of a

period.





This is understood to !e without prejudice to the rights of third persons who have ac9uired the thing, in

accordance with Articles -/> and -// and the 5ortgage Haw.

Thus, petitioners should have e8acted fulfillment from the respondents or as2ed for the rescission of the contract

instead of simply not performing their part of the Agreement. But in the course of things, it was the respondents who

availed of the remedy under Article ---, opting for the rescission of the Agreement in order to regain control of the Rural

Ban2.

6aving determined that the rescission of the su!ject 5emorandum of Agreement was in order, the trial court

ordered petitioner nlad Resources to return to respondents the management and control of the Rural Ban2 and for the

latter to return the sum of "-,00,0;0.00 to petitioners.

5utual restitution is re9uired in cases involving rescission under Article ---. This means !ringing the parties

!ac2 to their original status prior to the inception of the contract. -@ Article -/> of the Civil Code provides, thusD

ART. -/>. Rescission creates the o!ligation to return the things which were the o!ject of the

contract, together with their fruits, and the price with its interestG conse9uently, it can !e carried out only

when he who demands rescission can return whatever he may !e o!ligated to restore.

1either shall rescission ta2e place when the things which are the o!ject of the contract are legally

in the possession of third persons who did not act in !ad faith.

$n this case, indemnity for damages may !e demanded from the person causing the loss.

This Court has consistently ruled that this provision applies to rescission under Article ---D

*ince Article -/> of the Civil Code e8pressly and clearly states that rescission creates the o!ligation to

return the things which were the o!ject of the contract, together with their fruits, and the price with its

interest, the Court finds no justification to sustain petitioners position that said Article -/> does not apply

to rescission under Article ---.->







Rescission has the effect of unma2ing a contract, or its undoing from t)e beginning, and not merely its

termination.-?6ence, rescission creates the o!ligation to return the o!ject of the contract. $t can !e carried out only when

the one who demands rescission can return whatever he may !e o!liged to restore. To rescind is to declare a contract

void at its inception and to put an end to it as though it never was. $t is not merely to terminate it and release the parties

from further o!ligations to each other, !ut to a!rogate it from the !eginning and restore the parties to their relative

positions as if no contract has !een made.-;

Accordingly, when a decree for rescission is handed down, it is the duty of the court to re9uire !oth parties to

surrender that which they have respectively received and to place each other as far as practica!le in his original

situation. The rescission has the effect of a!rogating the contract in all parts. -/

Clearly, the petitioners failed to fulfill their end of the agreement, and thus, there was just cause for

rescission. &ith the contract thus rescinded, the parties must !e restored to the status quo ante, that is, !efore they

entered into the 5emorandum of Agreement.

'inally, we must resolve the 9uestion of the propriety of the award for damages and attorneys fees.

The trial courts =ecision mentioned that the evidence is clear and convincing that "laintiffs (herein respondents+

suffered actual compensatory damages amounting to 'our 5illion *i8 6undred <ne Thousand *even 6undred *i8ty7'ive

and /E-00 "esos ("@,?0-,;?>./+ moral damages and attorneys fees.

Though not discussed in the !ody of the =ecision, the records show that the amount of "@,?0-,;?>./ pertains to actual

losses incurred !y respondents as a result of petitioners non7compliance with their underta2ing under the 5emorandum of

Agreement. <n this point, respondent =ragon presented testimonial and documentary evidence to prove the actual

amount of damages, thusD

Atty. Cru

QD &as there any conse9uence to you 5r. =ragon due to any !reach of the agreement mar2ed as )8hi!it

AP









AD Jes sir $ could have earned thru the shares of stoc2 that $ have, or we have or we had !y this time

amounting to several millions pesos (sic+. They have only put in the whole amount that we have

agreed upon (sic+.

QD $n this connection did you cause computation of these losses that you incured (sic+P

AD Jes sir.

8 8 8 8

QD &ill you please 2indly go through this computation and e8plain the same to the 6onora!le CourtP

AD 1um!er - is an <rgan (sic+ income from the sale of ?0F (sic+ at only Three 6undred 1inety 1ineThousand Two hundred for 1ineteen Thousand 1ine 6undred *i8ty shares which should have

!een sold if it were sold to others for ">0.00 each for a total of 1ine 6undred 1inety )ight

Thousand !ut sold to them for Three 6undred 1inety nine (sic+ Thousand two (sic+ 6undred only

and of which only Three 6undred Twenty 'our Thousand *i8 6undred was paid to me. Therefore,

there was a difference of *i8 6undred *even Three (sic+ Thousand 'our 6undred ("?;,@00.00+.

<n the !asis of the commulative (sic+ lost income every year from 5arch -/: from the amount

of *even *i8 6undred (sic+ *eventy Three Thousand four (sic+ 6undred ("?;,@00.+ (sic+ there

would !e a discommulative (sic+ lost (sic+ of <ne 5illion 1inety Three Thousand 1ine 6undred

'ifty Two "esos and forty two (sic+ centavos ("-,0,>:.@:+. "lease note that the interest

imputed is only at -:F per annum !ut it should had (sic+ !een much higher. $n -/@ to -/? (sic+

alone rates went as higher (sic+ as @0F per annum from the so called (sic+ 3o!o Bills and yet we

only computed the imputed income or lost income at -:F per annum and then there is a @0Fparticipation on the unrealied earnings due to their failure to put in an sta!ilied (sic+ earnings.

Jou will note that if they put in @./ million "esos and it would !e earning money, @0F of that will

go to us !ecause @0F of the !an2 would !e ours and ?0F would !e there (sic+. But !ecause they

did put in the @./ million our @0F did not earn up to that e8tent and computed again on the !asis

of -:F the amount (sic+ on the commulative (sic+ !asis up to *eptem!er -0 is : million three

hundred fifty two thousand si8ty five pesos and four centavos (sic+. (":,>:,0?>.0@+. Jou will note

again that the average return of investment of any Cavite !ased (sic+ Rural Ban2 has !een no

less than :0F or a!out 0F per annum. And we computed only the earnings at -:F.

8 8 8 8

There were loans granted fraudulently to mem!ers of the !oard and some !orrowers which were

not all charged interest for several years and on this !asis we computed a @0F shares (sic+ on

the foregone income interest income (sic+ on all these fraudulently granted loans, without interest

!eing collected and none a project (sic+ among a plantation project (sic+, which was funded !y the

!an2 !ut nothing was given !ac2 to the !an2 for several hundred thousand of pesos (sic+. And we

arrived an (sic+ estimate of the foregone interest income a total of <ne 5illion Two 6undred 'ive

Thousand )ight 6undred *i8ty 1one "esos and eighty one (sic+ centavos and @0 percent share

of this (sic+ would !e 'our 6undred )ighty Two Thousand Three 6undred 'orty *even "esos and



1inety Two Centavos. All in all our estimate of the damages we have suffered is 'our 5illion *i8

6undred one (sic+ Thousand *even 6undred *i8ty 'ive "esos and thirty eight (sic+ centavos

("@,?0-,;?>./+.-

5ore importantly, petitioners never raised in issue !efore the CA this award of actual compensatory damages. They did

not raise the matter of damages in their Appellants Brief, while in their 5otion for Reconsideration, they 9uestioned only

the award of moral and e8emplary damages, not the award of actual damages. )ven in the present "etition for Review,

what petitioners raised was the propriety of the award of moral and e8emplary damages and attorneys fees.

<n the grant of moral and e8emplary damages and attorneys fees, we note that the trial courts =ecision did not

discuss the !asis for the award. 1o mention of these damages awarded or their factual !asis is made in the !ody of the

=ecision, only in the dispositive portion. Be that as it may, we have e8amined the records of the case and found that the

award must !e sustained.

$t should !e remem!ered that there are two separate causes of action in this caseD one for rescission of the

5emorandum of Agreement and the other for receivership !ased on alleged mismanagement of the company !y the

plaintiffs. &hile the award of actual compensatory damages was !ased on the !reach of duty under the 5emorandum of

Agreement, the award of moral damages appears to !e !ased on petitioners mismanagement of the company when they

!ecame mem!ers of the Board of =irectors of the Rural Ban2.

Thus, the trial court saidD

nder the Rural Ban2s management, a systematic diversion of the !an2s assets was conceived

where!yD (a+ The Rural Ban2s funds would !e funneled in the development and improvements of the

Benite 5ango "lantation in the guise of an investment in said plantationG (!+ <f the net profits earned

from the plantations operations, the Rural Ban2s share therein, although it shoulders all of the financial

ris2s, would !e a measly twenty percent (:0F+ thereof while C$, without investing a single centavo,

would earn eighty percent (/0F+ of the said profits. Thus, the !ul2 of the profits of the mango plantation

was also sought to !e diverted to an entity wherein 6elena L. Benite and Conrado H. Benite $$ are not

only principal stoc2holders !ut also the Chairman of the Board of =irectors and "resident, respectively.

5oreover, =efendant 6elena L. Benite would !e entitled to receive, under the lease contract, rentals in

the total amount of Three 6undred Thousand "esos ("00,000.00+ or ten percent (-0F+ of gross profits,

whichever is higher. (c+ 'inally, at the end of the lease period, the Rural Ban2 was o!liged to turn over to

the lessor (6elena L. Benite+ all permanent improvements introduced !y it on the plantation at no cost to

5s. Benite.






'urther, in its report dated 5arch -, -/>, the Central Ban2 after conducting its general

e8amination upon the Rural Ban2 ordered the latter to e8plain satisfactorily why the !an2 engage (sic+ in

an underta2ing not inherently connected with !ona fide rural !an2ing operations nor within the allowed

allied underta2ings, contrary to the provisions of *ection ; of the CB 5anual of Regulations and

*ection :? of CB Circular 1o. ;@-, otherwise 2nown as the Circular on Rural Ban2s.

The aforestated CB report states that total e8posure to this project now amounts to "@;>,;-.>;

or :>.;?F of its capital and surplus. 1otwithstanding a finding !y the CB of the underta2ings illegality,the defendants nevertheless persisted in pursuing the 5ango "lantation "roject and never acceded to the

call of the CB for it to desist from further implementing the said project. $t was only after another letter

from the CB was received when defendant finally shelved the mango plantation project.

The result of the aforestated report, as well as the actuations of the =efendants in not yielding to

the order of the CB, ade9uately esta!lishes not only a violation of CB Rules (specifically *ection :?,

Circular ;@- and *ection ; of the CB 5anual of Regulations, !ut also, that it has caused undue

damage !oth to the Rural !an2 as well as its stoc2holders.

The initial CB report should have sufficiently apprised =efendants of the illegality of the

underta2ing. =efendants, therefore have the duty to terminate the 5ango "lantation "roject. They,

however, chose to continue it, apparently to further their own interest in the scheme for their own

personal !enefit and gain, an act which is clearly contrary to the fiduciary nature of their relationship with

the corporation in which they are officers. *uch persistence proves evident !ad faith, or a !reach of a

2nown duty through some motive or ill7will, which resulted in the further dissipation and wastage of the

Rural Ban2s assets, unjustly depriving "laintiffs of their fair share in the assets of the !an2.

All the foregoing satisfactorily affirms the allegations of "laintiffs to the effect that these contracts

were !ut part of a device employed !y =efendants to siphon off the Rural !an2 for their personal gain. :0

5oral damages include physical suffering, mental anguish, fright, serious an8iety, !esmirched reputation,

wounded feelings, moral shoc2, social humiliation, and similar injury. Though incapa!le of precise pecuniary computation,

moral damages may !e recovered if they are the pro8imate result of the defendants wrongful act or omission.:- Article

:::0 of the Civil Code further provides that moral damages may !e recovered in case of a !reach of contract where the

defendant acted in !ad faith.::

To award moral damages, a court must !e satisfied with proof of the following re9uisitesD (-+ an injury whether

physical, mental, or psychological clearly sustained !y the claimantG (:+ a culpa!le act or omission factually esta!lishedG

(+ a wrongful act or omission of the defendant as the pro8imate cause of the injury sustained !y the claimantG and (@+ the

award of damages predicated on any of the cases stated in Article ::-. :











Accordingly, !ased upon the findings of the trial court, it is clear that respondents are entitled to moral damages.

The acts attri!uted to the petitioners as directors of the Rural Ban2 manifestly prejudiced the respondents causing

detriment to their standing as directors and stoc2holders of the Rural Ban2.

)8emplary damages cannot !e recovered as a matter of right. :@ &hile these need not !e proved, respondents must show

that they are entitled to moral, temperate or compensatory damages !efore the court may consider the 9uestion of

awarding e8emplary damages.:> &e find that respondents are indeed entitled to moral damagesG thus, the award for

e8emplary damages is in order.

Anent the award for attorneys fees, Article ::0/ of the Civil Code statesD

$n the a!sence of stipulation, attorneys fees and e8penses of litigation, other than judicial costs,cannot !e recovered, e8ceptD

(-+ &hen e8emplary damages are awarded.

6ence, the award of e8emplary damages is in itself sufficient justification for the award of attorneys fees. :?

+EREORE, the foregoing premises considered, the petition is here!y DENIED. The assailed =ecision and

Resolution of the Court of Appeals in CA7I.R. CV 1o. >@::? are AIRMED.SO ORDERED.







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