Contracts 1e

G.R. No. 116665. March 20, 1996.*

MELQUIADES D. AZCUNA, JR., petitioner, vs. COURT OF APPEALS, ET AL., respondents.

Actions; Ejectment; Contracts; The rule that “the only damages that can be recovered in an ejectment suit are the fair rental value or the reasonable compensation for the use and occupation of the real property” does not apply where the additional award consists of stipulated liquidated damages.—It is petitioner’s claim that such

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* THIRD DIVISION.

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SUPREME COURT REPORTS ANNOTATED

Azcuna, Jr. vs. Court of Appeals

award, in addition to the fair rental value or reasonable compensation for the use and occupation of the premises (sub-paragraph 1), is improper in the light of the doctrine enunciated in the cases of “Felesilda v. Villanueva,” “Shoemart, Inc. v. CA” and “Hualam Construction and Development Corp. v. CA” cited by petitioner, that “the only damages that can be recovered in an ejectment suit are the fair rental value or the reasonable compensation for the use and occupation of the real property. Other damages must be claimed in an ordinary action.” Petitioner’s reliance on such doctrine is misplaced, inasmuch as the “Felesilda,” “Shoemart” and “Hualam” cases dealt with additional damages and charges other than liquidated damages, defined as “x x x those agreed upon by the parties to a contract, to be paid in case of breach thereof.” Here, the municipal trial court, in making the “P3,000.00 per day” award, was merely

enforcing what was stipulated upon in black and white by private respondent-lessor and petitioner-lessee appearing in paragraph 10 of the lease contract.

Same; Same; Same; The freedom of the contracting parties to make stipulations in their contract provided they are not contrary to law, morals, good customs, public order or public policy is settled.— This is clearly an agreement for liquidated damages—entitling private respondent to claim a stipulated amount by way of damages (correctly totalling P3,000.00 per day as there were three (3) units being leased by petitioner) over and above other damages still legally due him, i.e., the fair rental value for the use and occupation of the property as provided for in Section 8, Rule 70 of the Rules of Court. The freedom of the contracting parties to make stipulations in their contract provided they are not contrary to law, morals, good customs, public order or public policy is so settled, and the Court finds nothing immoral or illegal with the indemnity/penalty clause of the lease contract (paragraph 10) which does not appear to have been forced upon or fraudulently foisted on petitioner. Petitioner cannot now evade further liability for liquidated damages, for “after entering into such an agreement, petitioner cannot thereafter turn his back on his word with a plea that on him was inflicted a penalty shocking to the conscience and impressed with inequity as to call for the relief sought on the part of a judicial tribunal.”

PETITION for review of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

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Famador, Campos & Boquia for petitioner.

Adrian H. Villasis for private respondent.

FRANCISCO, J.:

Under a one (1) year lease contract commencing on July 1, 1992 and ending on June 30, 1993 but renewable upon agreement, herein petitioner Azcuna, Jr., as lessee, occupied three (3) units (C, E and F) of the building owned by private respondent Barcelona’s family. Came expiration date of the lease without an agreed renewal thereof and coupled by petitioner’s failure to surrender the leased units despite private respondent’s demands, private respondent filed before the Municipal Trial Court an ejectment case against petitioner. Judgment of that inferior court, affirmed in its entirety by the Regional Trial Court and herein public respondent Court of Appeals on subsequent appeals taken by petitioner, favored private respondent, the decretal portion of which reads:

“PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiff, Ernesto E. Barcelona, ordering the defendant Melquiades D. Azcuna, Jr., and all persons claiming rights under him to vacate the premises known as Units C, E and F, in the building owned by plaintiff’s family located along Congressional Avenue, Quezon City. Defendant is likewise ordered to pay the following:

“1. The sum of P25,000.00 monthly as rental for continued use by defendant of the three (3) units of leased premises in question starting July 1, 1993 less the amount that have been deposited or given by the defendant to the plaintiff up to such time the defendant and all persons claiming rights under him finally vacate the aforesaid premises;

“2. The further sum of P3,000.00 per day, by way of damages for his failure to turn over peacefully the three (3) commercial spaces to the plaintiff from July 1, 1993 until such time the defendant and all persons claiming rights under him vacate the premises;

“3. The further sum of P5,000.00 by way of attorney’s fees; and,

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“4. The cost of this suit.

“The counter-claim of the defendant is hereby Dismissed, for lack of merit.

“SO ORDERED.”

Petitioner now comes to the Court via the instant petition not to contest his ouster from the leased premises nor the amount of monthly rental he was adjudged to pay until he vacates the same, but only to take particular exception to respondent CA’s decision insofar as it affirmed the municipal trial court’s award of P3,000.00 per day as damages (subparagraph 2 of the dispositive portion just quoted). It is petitioner’s claim that such award, in addition to the fair rental value or reasonable compensation for the use and occupation of the premises (sub-paragraph 1), is improper in the light of the doctrine enunciated in the cases of “Felesilda v. Villanueva,”1 “Shoemart, Inc. v. CA”2 and “Hualam Construction and Development Corp. v. CA”3 cited by petitioner, that “the only damages that can be recovered in an ejectment suit are the fair rental value or the reasonable compensation for the use and occupation of the real property. Other damages must be claimed in an ordinary action.”

Petitioner’s reliance on such doctrine is misplaced, inasmuch as the “Felesilda,” “Shoemart” and “Hualam” cases dealt with additional damages and charges other than liquidated damages, defined as “x x x those agreed upon by the parties to a contract, to be paid in case of breach thereof.”4 Here, the municipal trial court, in making the “P3,000.00 per day” award, was merely enforcing what was stipulated upon in black and white by private respondent-lessor and petitioner-lessee appearing in paragraph 10 of the lease contract which reads:

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1 139 SCRA 431.

2 190 SCRA 189.

3 214 SCRA 612.

4 Article 2226, New Civil Code.

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“That after the termination of the lease, the LESSEE shall peaceably deliver to the LESSOR the leased premises vacant and unencumbered and in good tenantable conditions minus the ordinary wear and tear. In case the LESSEE’s failure or inability to do so, LESSOR has the right to charge the LESSEE P1,000.00 per day as damages without prejudice to other remedies which LESSOR is entitled in the premise.” (Italics supplied)

This is clearly an agreement for liquidated damages—entitling private respondent to claim a stipulated amount by way of damages (correctly totalling P3,000.00 per day as there were three (3) units being leased by petitioner) over and above other damages still legally due him, i.e., the fair rental value for the use and occupation of the property as provided for in Section 8, Rule 70 of the Rules of Court. The freedom of the contracting parties to make stipulations in their contract provided they are not contrary to law, morals, good customs, public order or public policy is so settled, and the Court finds nothing immoral or illegal with the indemnity/penalty clause of the lease contract (paragraph 10) which does not appear to have been forced upon or fraudulently foisted on petitioner. Petitioner cannot now evade further liability for liquidated damages, for “after entering into such an agreement, petitioner cannot thereafter turn his back on his word with a plea that on him was inflicted a penalty shocking to the conscience and impressed with inequity as to call for the relief sought on the part of a judicial tribunal.”5

The controlling case here is, as correctly invoked by private respondent, “Gozon v. Vda. de Barrameda”6 which involved similar facts and the same issue raised

by herein petitioner. There, the then Court of First Instance of Rizal affirmed the judgment of the then justice of the peace court of Caloocan in a detainer case ordering defendant-appellant Barrameda to pay complainant Gozon the sum of P1,622.43 as rentals due up to July 3, 1958 plus P5,000.00 as liquidated damages, and costs. Appellant Barrameda likewise assailed the propriety of the P5,000.00 award in addition to the rentals. The Court

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5 Limjoco v. CA and Robert Tan, 37 SCRA 663, 671.

6 11 SCRA 376.

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upheld the then CFI’s affirmatory decision by disposing of appellant Barrameda’s protestation in this wise:

“This Court has often stated that inferior courts have exclusive jurisdiction over cases of forcible entry and detainer regardless of the value of damages demanded. It has also ruled that the damages that may be recovered in actions for ejectment are those equivalent to a reasonable compensation for the use and occupation of the premises by defendant. Nonetheless, this latter legal proposition is not pertinent to the issue raised in the instant case because here, the damage sought to be recovered had previously been agreed to by lessee (in the contract of lease) and imposed by lessor by way of damages. Besides, nobody can affirm that the liquidated amount of damages stipulated in the lease contract was not due to occupation or loss of possession of the premises and non-compliance with the contract.” (Italics supplied)

WHEREFORE, the instant petition for review by way of certiorari is hereby DENIED.

SO ORDERED.

Narvasa (C.J., Chairman), Davide, Jr., Melo and Panganiban, JJ., concur.

Petition denied.

Notes.—The price “not greater than TWO HUNDRED PESOS” in the Contract of Lease with Option to Buy is, under the circumstances of the case, certain and definite. (Serra vs. Court of Appeals, 229 SCRA 60 [1994])

Where the lease contract entered into by an agent is for more than one year, the agent must be armed with a special power of attorney. (Vda. de Chua vs. Intermediate Appellate Court, 229 SCRA 99 [1994])

Courts authorized to fix the term of lease depending on how the rentals are paid and on the length of the lessee’s occupancy of the leased premises. (Chan vs. Court of Appeals, 230 SCRA 685 [1994]) [Azcuna, Jr. vs. Court of Appeals, 255 SCRA 215(1996)]

G.R. No. 61594. September 28, 1990.*

PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner, vs. HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO, JR., in his capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA MOONYEEN MAMASIG, respondents.

Labor Relations; Due Process; Petitioner's right to procedural due process was not violated even if no formal or oral hearing was conducted, considering that it had ample opportunity to explain its side.—The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction, still his order was null and void because it had been issued in violation of petitioner's right to procedural due process. This claim, however, cannot be given serious consideration. Petitioner was ordered by the Regional Director to submit not only its position paper but also such evidence in its favor as it might have. Petitioner opted to rely solely upon its position paper; we must assume it had no evidence to sustain its assertions. Thus, even if no formal or oral hearing was conducted, petitioner had ample oppor-

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* THIRD DIVISION.

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Pakistan International Airlines Corporation vs. Ople

tunity to explain its side. Moreover, petitioner PIA was able to appeal his case to the Ministry of Labor and Employment.

Contracts; Parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The principle of party autonomy in contracts is not absolute.—A

contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law between the parties. The principle of party autonomy in contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil Code is that the contracting parties may establish such stipulations as they may deem convenient, "provided they are not contrary to law, morals, good customs, public order or public policy." Thus, counterbalancing the principle of autonomy of contracting parties is the equally general rule that provisions of applicable law, especially provisions relating to matters affected with public policy, are deemed written into the contract. Put a little differently, the governing principle is that parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The law relating to labor and employment is clearly such an area and parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other. It is thus necessary to appraise the contractual provisions invoked by petitioner PIA in terms of their consistency with applicable Philippine law and regulations.

Labor Law; A contract providing for employment with a fixed period was not necessarily unlawful.—In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., the Court had occasion to examine in detail the question of whether employment for a fixed term has been outlawed under the above quoted provisions of the Labor Code. After an extensive examination of the history and development of Articles 280 and 281, the Court reached the conclusion that a contract providing for employment with a fixed period was not necessarily unlawful: "There can of course be no quarrel with the proposition that where from the circumstances it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to public policy, morals, etc. But where no such intent to circumvent the law is shown, or stated otherwise, where the reason for the law does not exist, e.g., where it is indeed the employee himself who insists upon a period or where the nature of the engagement is such that, without being seasonal or for a specific project, a definite date of termination is a sine qua non, would

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an agreement fixing a period be essentially evil or illicit, therefore anathema? Would such an agreement come within the scope of Article 280 which admittedly was enacted 'to prevent the circumvention of the right of the employee to be secured in x x (his) employment?' As it is evident from even only the three examples already given that Article 280 of the Labor Code, under a narrow and literal interpretation, not only fails to exhaust the gamut of employment contracts to which the lack of a fixed period would be an anomaly, but would also appear to restrict, without reasonable distinctions, the right of an employee to freely stipulate with his employer the duration of his engagement, it logically follows that such a literal interpretation should be eschewed or avoided. The law must be given reasonable interpretation, to preclude absurdity in its application. Outlawing the whole concept of term employment and subverting to boot the principle of freedom of contract to remedy the evil of employers' using it as a means to prevent their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more relevantly, curing a headache by lopping off the head. xxx xxx xxx Accordingly, and since the entire purpose behind the development of legislation culminating in the present Article 280 of the Labor Code clearly appears to have been, as already observed, to prevent circumvention of the employee's right to be secure in his tenure, the clause in said article indiscriminately and completely ruling out all written or oral agreements conflicting with the concept of regular employment as defined therein should be construed to refer to the substantive evil that the Code itself has singled out: agreements entered into precisely to circumvent security of tenure. It should have no application to instances where a fixed period of employment was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent, or

where it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former over the latter. Unless thus limited in its purview, the law would be made to apply to purposes other than those explicitly stated by its framers; it thus becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended consequences." (Italics supplied)

Same; Contracts; Conflicts of Law; When the relationship between the parties is much affected by public interest, the otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing upon some other law to govern their relationship.—Petitioner PIA cannot take refuge in paragraph 10 of

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its employment agreement which specifies, firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of any dispute arising out of or in connection with the agreement "only [in] courts of Karachi, Pakistan". The first clause of paragraph 10 cannot be invoked to prevent the application of Philippine labor laws and regulations to the subject matter of this case, i.e., the employer-employee relationship between petitioner PIA and private respondents. We have already pointed out that that relationship is much affected with public interest and that the otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing upon some other law to govern their relationship. Neither may petitioner invoke the second clause of paragraph 10, specifying the Karachi courts as the sole venue for the settlement of disputes between the contracting parties. Even a cursory scrutiny of the relevant circumstances of this case will show the multiple and substantive contacts between Philippine law and Philippine courts, on the one hand, and the relationship between the parties,

upon the other: the contract was not only executed in the Philippines, it was also performed here, at least partially; private respondents are Philippine citizens and residents, while petitioner, although a foreign corporation, is licensed to do business (and actually doing business) and hence resident in the Philippines; lastly, private respondents were based in the Philippines in between their assigned flights to the Middle East and Europe. All the above contacts point to the Philippine courts and administrative agencies as a proper forum for the resolution of contractual disputes between the parties. Under these circumstances, paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did not undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be presumed that the applicable provisions of the law of Pakistan are the same as the applicable provisions of Philippine law.

PETITION for certiorari to review the order of the Minister of Labor.


Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

Ledesma, Saludo & Associates for private respondents.

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FELICIANO, J.:

On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign corporation licensed to do business in the Philippines, executed in Manila two (2) separate contracts of employment, one with private respondent Ethelynne B. Farrales and the other with private respondent Ma.

M.C. Mamasig.1 The contracts, which became effective on 9 January 1979, provided in pertinent portion as follows:

"5. DURATION OF EMPLOYMENT AND PENALTY

This agreement is for a period of three (3) years, but can be extended by the mutual consent of the parties.

xxx xxx xxx

6. TERMINATION

xxx xxx xxx

Notwithstanding anything to contrary as herein provided, PIA reserves the right to terminate this agreement at any time by giving the EMPLOYEE notice in writing in advance one month before the intended termination or in lieu thereof, by paying the EMPLOYEE wages equivalent to one month's salary.

xxx xxx xxx

10. APPLICABLE LAW:

This agreement shall be construed and governed under and by the laws of Pakistan, and only the Courts of Karachi, Pakistan shall have the jurisdiction to consider any matter arising out of or under this agreement."

Respondents then commenced training in Pakistan. After their training period, they began discharging their job functions as flight attendants, with base station in Manila and flying assignments to different parts of the Middle East and Europe.

On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of the contracts of employment, PIA through Mr. Oscar Benares, counsel for and official of the local branch of PIA, sent separate letters both dated 1 August 1980 to private respondents Farrales and Mamasig advising both that

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1 Rollo, pp.12 and 17.

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their services as flight stewardesses would be terminated "effective 1 September 1980, conformably to clause 6 (b) of the employment agreement [they had] executed with [PIA]."2

On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint, docketed as NCR-STF-95151-80, for illegal dismissal and non-payment of company benefits and bonuses, against PIA with the then Ministry of Labor and Employment ("MOLE"). After several unfruitful attempts at conciliation, the MOLE hearing officer Atty. Jose M. Pascual ordered the parties to submit their position papers and evidence supporting their respective positions. The PIA submitted its position paper,3 but no evidence, and there claimed that both private respondents were habitual absentees; that both were in the habit of bringing in from abroad sizeable quantities of "personal effects"; and that PIA personnel at the Manila International Airport had been discreetly warned by customs officials to advise private respondents to discontinue that practice. PIA further claimed that the services of both private respondents were terminated pursuant to the provisions of the employment contract.

In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the reinstatement of private respondents with full backwages or, in the alternative, the payment to them of the amounts equivalent to their salaries for the remain-der of the fixed three-year period of their employment contracts; the payment to private respondent Mamasig of an amount equivalent to the value of a round trip ticket Manila-USAManila; and payment of a bonus to each of the private respondents equivalent to their one-month salary.4 The Order stated that private respondents had attained the status of regular employees

after they had rendered more than a year of continued service; that the stipulation limiting the period of the employment contract to three (3) years was null and void as violative of the provisions of the Labor Code and its implementing rules and regulations on regular and casual employment;

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2 Id., p. 22.

3 Id., pp. 36-41.

4 Id., p. 43.

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and that the dismissal, having been carried out without the requisite clearance from the MOLE, was illegal and entitled private respondents to reinstatement with full backwages.

On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Minister, MOLE, adopted the findings of fact and conclusions of the Regional Director and affirmed the latter's award save for the portion thereof giving PIA the option, in lieu of reinstatement, 'to pay each of the complainants [private respondents] their salaries corresponding to the unexpired portion of the contract[s] [of employment] x x x".5

In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional Director and the Order of the Deputy Minister as having been rendered without jurisdiction; for having been rendered without support in the evidence .of record since, allegedly, no hearing was conducted by the hearing officer, Atty. Jose M. Pascual; and for having been issued in disregard and in

violation of petitioner's rights under the employment contracts with private respondents.

1. Petitioner's first contention is that the Regional Director, MOLE, had no jurisdiction over the subject matter of the complaint initiated by private respondents for illegal dismissal, jurisdiction over the same being lodged in the Arbitration Branch of the National Labor Relations Commission ("NLRC"). It appears to us beyond dispute, however, that both at the time the complaint was initiated in September 1980 and at the time the Orders assailed were rendered on January 1981 (by Regional Director Francisco L. Estrella) and August 1982 (by Deputy Minister Vicente Leogardo, Jr.), the Regional Director had jurisdiction over termination cases.

Article 278 of the Labor Code, as it then existed, forbade the termination of the services of employees with at least one (1) year of service without prior clearance from the Department of Labor and Employment:

"Art. 278. Miscellaneous Provisions—xxx

(b) With or without a collective agreement, no employer may shut down his establishment or dismiss or terminate the employment of employees with at least one year of service during the last two (2)

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5 Id., p. 64.

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years, whether such service is continuous or broken, without prior written authority issued in accordance with such rules and regulations as the Secretary may promulgate x x x" (Italics supplied)

Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made clear that in case of a termination without the necessary clearance, the Regional Director was authorized to order the reinstatement of the employee concerned and the payment of backwages; necessarily, therefore, the Regional Director must have been given jurisdiction over such termination cases:

"Section 2. Shutdown or dismissal without clearance.—Any shutdown or dismissal without prior clearance shall be conclusively presumed to be termination of employment without a just cause. The Regional Director shall, in such case order the immediate reinstatement of the employee and the payment of his wages from the time of the shutdown or dismissal until the time of reinstatement." (Italics supplied)

Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was similarly very explicit about the jurisdiction of the Regional Director over termination of employment cases:

"Under PD 850, termination cases—with or without CBA—are now placed under the original jurisdiction of the Regional Director. Preventive suspension cases, now made cognizable for the first time, are also placed under the Regional Director. Before PD 850, termination cases where there was a CBA were under the jurisdiction of the grievance machinery and voluntary arbitration, while termination cases where there was no CBA were under the jurisdiction of the Conciliation Section.

In more details, the major innovations introduced by PD 850 and its implementing rules and regulations with respect to termination and preventive suspension cases are:

1. The Regional Director is now required to rule on every application for clearance, whether there is opposition or not, within ten days from receipt thereof.

xxx xxx xx x"

(Italics supplied)

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2. The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction, still his order was null and void because it had been issued in violation of petitioner's right to procedural due process.6 This claim, however, cannot be given serious consideration. Petitioner was ordered by the Regional Director to submit not only its position paper but also such evidence in its favor as it might have. Petitioner opted to rely solely upon its position paper; we must assume it had no evidence to sustain its assertions. Thus, even if no formal or oral hearing was conducted, petitioner had ample opportunity to explain its side. Moreover, petitioner PIA was able to appeal his case to the Ministry of Labor and Employment.7

There is another reason why petitioner's claim of denial of due process must be rejected. At the time the complaint was filed by private respondents on 21 September 1980 and at the time the Regional Director issued his questioned order on 22 January 1981, applicable regulation, as noted above, specified that a "dismissal without prior clearance shall be conclusively presumed to be termination of employment without a just cause", and the Regional Director was required in such case to "order the immediate reinstatement of the employee and the payment of his wages from the time of the shutdown or dismissal until xxx reinstatement." In other words, under the then applicable rule, the Regional Director did not even have to require submission of position papers by the parties in view of the conclusive (juris et de jure) character of the presumption created by such applicable law and regulation. In Cebu Institute of Technology v. Minister of Labor and Employment,8 the Court pointed out that "under Rule 14, Section 2, of the Implementing Rules and Regulations, the termination of [an employee] which was without previous clearance from the

Ministry of Labor is conclusively presumed to be without [just] cause x x x [a presumption which] cannot be overturned by any contrary proof however strong."

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6 Rollo, p. 6.

7 See Llora Motors, Inc., et al. v. Hon. Franklin Drilon, et al., G.R. No. 82895, 7 November 1989.

8 113 SCRA 257 (1982).

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3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of employment with private respondents Farrales and Mamasig, arguing that its relationship with them was governed by the provisions of its contract rather than by the general provisions of the Labor Code.9

Paragraph 5 of that contract set a term of three (3) years for that relationship, extendible by agreement between the parties; while paragraph 6 provided that, notwithstanding any other provision in the contract, PIA had the right to terminate the employment agreement at any time by giving one-month's notice to the employee or, in lieu of such notice, one-month's salary.

A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law between the parties.10 The principle of party autonomy in contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil Code is that the contracting parties may establish such stipulations as they may deem convenient, "provided they are not contrary to

law, morals, good customs, public order or public policy." Thus, counter-balancing the principle of autonomy of contracting parties is the equally general rule that provisions of applicable law, especially provisions relating to matters affected with public policy, are deemed written into the contract.11 Put a little differently, the governing principle is that parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The law relating to labor and employment is clearly such an area and parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other. It is thus necessary to appraise the contractual provisions invoked by petitioner PIA in terms of their consistency with applicable Philippine law and regulations.

As noted earlier, both the Labor Arbiter and the Deputy Min-

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9 Rollo, p. 8.

10 Henson v. Intermediate Appellate Court, 148 SCRA 11 (1987).

11 Commissioner of Internal Revenue v. United Lines Co., 5 SCRA 175 (1962).

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ister, MOLE, in effect held that paragraph 5 of that employment contract was inconsistent with Articles 280 and 281 of the Labor Code as they existed at the time the contract of employment was entered into, and hence refused to give effect to said paragraph 5. These Articles read as follows:

"Art. 280. Security of Tenure.—In cases of regular employment, the employer shall not terminate the services of an employee. except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and to his backwages computed from the time his compensation was withheld from him up to the time his reinstatement.

Article 281. Regular and Casual Employment.—The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreements of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee or where the work or services to be performed is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: provided, that, any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered as regular employee with respect to the activity in which be is employed and his employment shall continue while such actually exists." (Italics supplied)

In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al.,12 the Court had occasion to examine in detail the question of whether employment for a fixed term has been outlawed under the above quoted provisions of the Labor Code. After an extensive examination of the history and development of Articles 280 and 281, the Court reached the conclusion that a contract providing for employment with a fixed period was not necessarily unlawful:

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12 G.R. No. L-48494, promulgated 5 February 1990.

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"There can of course be no quarrel with the proposition that where from the circumstances it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to public policy, morals, etc. But where no such intent to circumvent the law is shown, or stated otherwise, where the reason for the law does not exist, e.g. where it is indeed the employee himself who insists upon a period or where the nature of the engagement is such that, without being seasonal or for a specific project, a definite date of termination is a sine qua non, would an agreement fixing a period be essentially evil or illicit, therefore anathema? Would such an agreement come within the scope of Article 280 which admittedly was enacted to prevent the circumvention of the right of the employee to be secured in x x (his) employment?'

As it is evident from even only the three examples already given that Article 280 of the Labor Code, under a narrow and literal interpretation, not only fails to exhaust the gamut of employment contracts to which the lack of a fixed period would be an anomaly, but would also appear to restrict, without reasonable distinctions, the right of an employee to freely stipulate with his employer the duration of his engagement, it logically follows that such a literal interpretation should be eschewed or avoided. The law must be given reasonable interpretation, to preclude absurdity in its application. Outlawing the whole concept of term employment and subverting to boot the principle of freedom of contract to remedy the evil of employers' using it as a means to prevent their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more relevantly, curing a headache by lopping off the head.

xxx xxx xxx

Accordingly, and since the entire purpose behind the development of legislation culminating in the present Article 280 of the Labor Code clearly appears to have

been, as already observed, to prevent circumvention of the employee's right to be secure in his tenure, the clause in said article indiscriminately and completely ruling out all written or oral agreements conflicting with the concept of regular employment as defined therein should be construed to refer to the substantive evil that the Code itself has singled out: agreements entered into precisely to circumvent security of tenure. It should have no application to instances where a fixed period of employment was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent, or where it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever

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being exercised by the former over the latter. Unless thus limited in its purview, the law would be made to apply to purposes other than those explicitly stated by its framers; it thus becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended consequences."

(Italics supplied)

It is apparent from Brent School that the critical consideration is the presence or absence of a substantial indication that the period specified in an employment agreement was designed to circumvent the security of tenure of regular employees which is provided for in Articles 280 and 281 of the Labor Code. This indication must ordinarily rest upon some aspect of the agreement other than the mere specification of a fixed term of the employment agreement, or upon evidence aliunde of the intent to evade.

Examining the provisions of paragraphs 5 and 6 of the employment agreement between petitioner PIA and private respondents, we consider that those

provisions must be read together and when so read, the fixed period of three (3) years specified in paragraph 5 will be seen to have been effectively neutralized by the provisions of paragraph 6 of that agreement. Paragraph 6 in effect took back from the employee the fixed three (3)-year period ostensibly granted by paragraph 5 by rendering such period in effect a facultative one at the option of the employer PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and for any cause satisfactory to itself, to a one-month period, or even less by simply paying the employee a month's salary. Because the net effect of paragraphs 5 and 6 of the agreement here involved is to render the employment of private respondents Farrales and Mamasig basically employment at the pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended to prevent any security of tenure from accruing in favor of private respondents even during the limited period of three (3) years,13 and thus to escape completely the thrust of Articles 280 and 281 of the Labor Code.

________________

13 See Biboso v. Victorias Milling Co., Inc., 76 SCRA 250 (1977).

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Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies, firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of any dispute arising out of or in connection with the agreement "only [in] courts of Karachi, Pakistan". The first clause of paragraph 10 cannot be invoked to prevent the application of Philippine labor laws and regulations to the subject matter of this case, i.e., the employer-employee relationship between petitioner PIA and

private respondents. We have already pointed out that that relationship is much affected with public interest and that the otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing upon some other law to govern their relationship. Neither may petitioner invoke the second clause of paragraph 10, specifying the Karachi courts as the sole venue for the settlement of disputes between the contracting parties. Even a cursory scrutiny of the relevant circumstances of this case will show the multiple and substantive contacts between Philippine law and Philippine courts, on the one hand, and the relationship between the parties, upon the other: the contract was not only executed in the Philippines, it was also performed here, at least partially; private respondents are Philippine citizens and residents, while petitioner, although a foreign corporation, is licensed to do business (and actually doing business) and hence resident in the Philippines; lastly, private respondents were based in the Philippines in between their assigned flights to the Middle East and Europe. All the above contacts point to the Philippine courts and administrative agencies as a proper forum for the resolution of contractual disputes between the parties. Under these circumstances, paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did not undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be presumed that the applicable provisions of the law of Pakistan are the same as the applicable provisions of Philippine law.14

______________

14 Miciano v. Brimo, 50 Phil. 867 (1924); Collector of Internal Revenue v. Fisher, 110 Phil. 686 (1961).

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We conclude that private respondents Farrales and Mamasig were illegally dismissed and that public respondent Deputy Minister, MOLE, had not committed any grave abuse of discretion nor any act without or in excess of jurisdiction in ordering their reinstatement with backwages. Private respondents are entitled to three (3) years backwages without qualification or deduction. Should their reinstatement to their former or other substantially equivalent positions not be feasible in view of the length of time which has gone by since their services were unlawfully terminated, petitioner should be required to pay separation pay to private respondents amounting to one (1) month's salary for every year of service rendered by them, including the three (3) years service putatively rendered.

ACCORDINGLY, the Petition for Certiorari is hereby DISMISSED for lack of merit, and the Order dated 12 August 1982 of public respondent is hereby AFFIRMED, except that (1) private respondents are entitled to three (3) years backwages, without deduction or qualification; and (2) should reinstatement of private respondents to their former positions or to substantially equivalent positions not be feasible, then petitioner shall, in lieu thereof, pay to private respondents separation pay amounting to one (1)-month's salary for every year of service actually rendered by them and for the three (3) years putative service by private respondents. The Temporary Restraining Order issued on 13 September 1982 is hereby LIFTED. Costs against petitioner.

SO ORDERED.

Fernan (C.J., Chairman), Gutierrez, Jr., Bidin and Cortés, JJ., concur.

Petition dismissed. Order affirmed.

Note.—No violation by Labor Arbiter of rules of administrative due process where company was duly represented by counsel and given sufficient opportunity to be heard and present evidence. (Pantranco North Express, Inc. vs. National Labor Relations Commission, 126 SCRA 526.) [Pakistan International Airlines Corporation us. Ople, 190 SCRA 90(1990)]E

G.R. No. 61594. September 28, 1990.*

PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner, vs. HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO, JR., in his capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA MOONYEEN MAMASIG, respondents.

Labor Relations; Due Process; Petitioner's right to procedural due process was not violated even if no formal or oral hearing was conducted, considering that it had ample opportunity to explain its side.—The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction, still his order was null and void because it had been issued in violation of petitioner's right to procedural due process. This claim, however, cannot be given serious consideration. Petitioner was ordered by the Regional Director to submit not only its position paper but also such evidence in its favor as it might have. Petitioner opted to rely solely upon its position paper; we must assume it had no evidence to sustain its assertions. Thus, even if no formal or oral hearing was conducted, petitioner had ample oppor-

_______________

* THIRD DIVISION.

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tunity to explain its side. Moreover, petitioner PIA was able to appeal his case to the Ministry of Labor and Employment.

Contracts; Parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The principle of party autonomy in contracts is not absolute.—A

contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law between the parties. The principle of party autonomy in contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil Code is that the contracting parties may establish such stipulations as they may deem convenient, "provided they are not contrary to law, morals, good customs, public order or public policy." Thus, counterbalancing the principle of autonomy of contracting parties is the equally general rule that provisions of applicable law, especially provisions relating to matters affected with public policy, are deemed written into the contract. Put a little differently, the governing principle is that parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The law relating to labor and employment is clearly such an area and parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other. It is thus necessary to appraise the contractual provisions invoked by petitioner PIA in terms of their consistency with applicable Philippine law and regulations.

Labor Law; A contract providing for employment with a fixed period was not necessarily unlawful.—In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., the Court had occasion to examine in detail the question of whether employment for a fixed term has been outlawed under the above quoted provisions of the Labor Code. After an extensive examination of the history and development of Articles 280 and 281, the Court reached the conclusion that a contract providing for employment with a fixed period was not necessarily unlawful: "There can of course be no quarrel with the proposition that where from the circumstances it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to public policy, morals, etc. But where no such intent to circumvent the law is shown, or stated otherwise, where the reason for the law does not exist, e.g., where it is indeed the employee himself who insists upon a period or where the nature of the engagement is such that, without being seasonal or for a specific project, a definite date of termination is a sine qua non, would

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an agreement fixing a period be essentially evil or illicit, therefore anathema? Would such an agreement come within the scope of Article 280 which admittedly was enacted 'to prevent the circumvention of the right of the employee to be secured in x x (his) employment?' As it is evident from even only the three examples already given that Article 280 of the Labor Code, under a narrow and literal interpretation, not only fails to exhaust the gamut of employment contracts to which the lack of a fixed period would be an anomaly, but would also appear to restrict, without reasonable distinctions, the right of an employee to freely stipulate with his employer the duration of his engagement, it logically follows that such a literal interpretation should be eschewed or avoided. The law must be given reasonable interpretation, to preclude absurdity in its application. Outlawing the whole concept of term employment and subverting to boot the principle of freedom of contract to remedy the evil of employers' using it as a means to prevent their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more relevantly, curing a headache by lopping off the head. xxx xxx xxx Accordingly, and since the entire purpose behind the development of legislation culminating in the present Article 280 of the Labor Code clearly appears to have been, as already observed, to prevent circumvention of the employee's right to be secure in his tenure, the clause in said article indiscriminately and completely ruling out all written or oral agreements conflicting with the concept of regular employment as defined therein should be construed to refer to the substantive evil that the Code itself has singled out: agreements entered into precisely to circumvent security of tenure. It should have no application to instances where a fixed period of employment was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent, or

where it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former over the latter. Unless thus limited in its purview, the law would be made to apply to purposes other than those explicitly stated by its framers; it thus becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended consequences." (Italics supplied)

Same; Contracts; Conflicts of Law; When the relationship between the parties is much affected by public interest, the otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing upon some other law to govern their relationship.—Petitioner PIA cannot take refuge in paragraph 10 of

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its employment agreement which specifies, firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of any dispute arising out of or in connection with the agreement "only [in] courts of Karachi, Pakistan". The first clause of paragraph 10 cannot be invoked to prevent the application of Philippine labor laws and regulations to the subject matter of this case, i.e., the employer-employee relationship between petitioner PIA and private respondents. We have already pointed out that that relationship is much affected with public interest and that the otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing upon some other law to govern their relationship. Neither may petitioner invoke the second clause of paragraph 10, specifying the Karachi courts as the sole venue for the settlement of disputes between the contracting parties. Even a cursory scrutiny of the relevant circumstances of this case will show the multiple and substantive contacts between Philippine law and Philippine courts, on the one hand, and the relationship between the parties,

upon the other: the contract was not only executed in the Philippines, it was also performed here, at least partially; private respondents are Philippine citizens and residents, while petitioner, although a foreign corporation, is licensed to do business (and actually doing business) and hence resident in the Philippines; lastly, private respondents were based in the Philippines in between their assigned flights to the Middle East and Europe. All the above contacts point to the Philippine courts and administrative agencies as a proper forum for the resolution of contractual disputes between the parties. Under these circumstances, paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did not undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be presumed that the applicable provisions of the law of Pakistan are the same as the applicable provisions of Philippine law.

PETITION for certiorari to review the order of the Minister of Labor.


Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

Ledesma, Saludo & Associates for private respondents.

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FELICIANO, J.:

On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign corporation licensed to do business in the Philippines, executed in Manila two (2) separate contracts of employment, one with private respondent Ethelynne B. Farrales and the other with private respondent Ma.

M.C. Mamasig.1 The contracts, which became effective on 9 January 1979, provided in pertinent portion as follows:

"5. DURATION OF EMPLOYMENT AND PENALTY

This agreement is for a period of three (3) years, but can be extended by the mutual consent of the parties.

xxx xxx xxx

6. TERMINATION

xxx xxx xxx

Notwithstanding anything to contrary as herein provided, PIA reserves the right to terminate this agreement at any time by giving the EMPLOYEE notice in writing in advance one month before the intended termination or in lieu thereof, by paying the EMPLOYEE wages equivalent to one month's salary.

xxx xxx xxx

10. APPLICABLE LAW:

This agreement shall be construed and governed under and by the laws of Pakistan, and only the Courts of Karachi, Pakistan shall have the jurisdiction to consider any matter arising out of or under this agreement."

Respondents then commenced training in Pakistan. After their training period, they began discharging their job functions as flight attendants, with base station in Manila and flying assignments to different parts of the Middle East and Europe.

On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of the contracts of employment, PIA through Mr. Oscar Benares, counsel for and official of the local branch of PIA, sent separate letters both dated 1 August 1980 to private respondents Farrales and Mamasig advising both that

________________

1 Rollo, pp.12 and 17.

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their services as flight stewardesses would be terminated "effective 1 September 1980, conformably to clause 6 (b) of the employment agreement [they had] executed with [PIA]."2

On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint, docketed as NCR-STF-95151-80, for illegal dismissal and non-payment of company benefits and bonuses, against PIA with the then Ministry of Labor and Employment ("MOLE"). After several unfruitful attempts at conciliation, the MOLE hearing officer Atty. Jose M. Pascual ordered the parties to submit their position papers and evidence supporting their respective positions. The PIA submitted its position paper,3 but no evidence, and there claimed that both private respondents were habitual absentees; that both were in the habit of bringing in from abroad sizeable quantities of "personal effects"; and that PIA personnel at the Manila International Airport had been discreetly warned by customs officials to advise private respondents to discontinue that practice. PIA further claimed that the services of both private respondents were terminated pursuant to the provisions of the employment contract.

In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the reinstatement of private respondents with full backwages or, in the alternative, the payment to them of the amounts equivalent to their salaries for the remain-der of the fixed three-year period of their employment contracts; the payment to private respondent Mamasig of an amount equivalent to the value of a round trip ticket Manila-USAManila; and payment of a bonus to each of the private respondents equivalent to their one-month salary.4 The Order stated that private respondents had attained the status of regular employees

after they had rendered more than a year of continued service; that the stipulation limiting the period of the employment contract to three (3) years was null and void as violative of the provisions of the Labor Code and its implementing rules and regulations on regular and casual employment;

______________

2 Id., p. 22.

3 Id., pp. 36-41.

4 Id., p. 43.

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and that the dismissal, having been carried out without the requisite clearance from the MOLE, was illegal and entitled private respondents to reinstatement with full backwages.

On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Minister, MOLE, adopted the findings of fact and conclusions of the Regional Director and affirmed the latter's award save for the portion thereof giving PIA the option, in lieu of reinstatement, 'to pay each of the complainants [private respondents] their salaries corresponding to the unexpired portion of the contract[s] [of employment] x x x".5

In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional Director and the Order of the Deputy Minister as having been rendered without jurisdiction; for having been rendered without support in the evidence .of record since, allegedly, no hearing was conducted by the hearing officer, Atty. Jose M. Pascual; and for having been issued in disregard and in

violation of petitioner's rights under the employment contracts with private respondents.

1. Petitioner's first contention is that the Regional Director, MOLE, had no jurisdiction over the subject matter of the complaint initiated by private respondents for illegal dismissal, jurisdiction over the same being lodged in the Arbitration Branch of the National Labor Relations Commission ("NLRC"). It appears to us beyond dispute, however, that both at the time the complaint was initiated in September 1980 and at the time the Orders assailed were rendered on January 1981 (by Regional Director Francisco L. Estrella) and August 1982 (by Deputy Minister Vicente Leogardo, Jr.), the Regional Director had jurisdiction over termination cases.

Article 278 of the Labor Code, as it then existed, forbade the termination of the services of employees with at least one (1) year of service without prior clearance from the Department of Labor and Employment:

"Art. 278. Miscellaneous Provisions—xxx

(b) With or without a collective agreement, no employer may shut down his establishment or dismiss or terminate the employment of employees with at least one year of service during the last two (2)

_________________

5 Id., p. 64.

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years, whether such service is continuous or broken, without prior written authority issued in accordance with such rules and regulations as the Secretary may promulgate x x x" (Italics supplied)

Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made clear that in case of a termination without the necessary clearance, the Regional Director was authorized to order the reinstatement of the employee concerned and the payment of backwages; necessarily, therefore, the Regional Director must have been given jurisdiction over such termination cases:

"Section 2. Shutdown or dismissal without clearance.—Any shutdown or dismissal without prior clearance shall be conclusively presumed to be termination of employment without a just cause. The Regional Director shall, in such case order the immediate reinstatement of the employee and the payment of his wages from the time of the shutdown or dismissal until the time of reinstatement." (Italics supplied)

Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was similarly very explicit about the jurisdiction of the Regional Director over termination of employment cases:

"Under PD 850, termination cases—with or without CBA—are now placed under the original jurisdiction of the Regional Director. Preventive suspension cases, now made cognizable for the first time, are also placed under the Regional Director. Before PD 850, termination cases where there was a CBA were under the jurisdiction of the grievance machinery and voluntary arbitration, while termination cases where there was no CBA were under the jurisdiction of the Conciliation Section.

In more details, the major innovations introduced by PD 850 and its implementing rules and regulations with respect to termination and preventive suspension cases are:

1. The Regional Director is now required to rule on every application for clearance, whether there is opposition or not, within ten days from receipt thereof.

xxx xxx xx x"

(Italics supplied)

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2. The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction, still his order was null and void because it had been issued in violation of petitioner's right to procedural due process.6 This claim, however, cannot be given serious consideration. Petitioner was ordered by the Regional Director to submit not only its position paper but also such evidence in its favor as it might have. Petitioner opted to rely solely upon its position paper; we must assume it had no evidence to sustain its assertions. Thus, even if no formal or oral hearing was conducted, petitioner had ample opportunity to explain its side. Moreover, petitioner PIA was able to appeal his case to the Ministry of Labor and Employment.7

There is another reason why petitioner's claim of denial of due process must be rejected. At the time the complaint was filed by private respondents on 21 September 1980 and at the time the Regional Director issued his questioned order on 22 January 1981, applicable regulation, as noted above, specified that a "dismissal without prior clearance shall be conclusively presumed to be termination of employment without a just cause", and the Regional Director was required in such case to "order the immediate reinstatement of the employee and the payment of his wages from the time of the shutdown or dismissal until xxx reinstatement." In other words, under the then applicable rule, the Regional Director did not even have to require submission of position papers by the parties in view of the conclusive (juris et de jure) character of the presumption created by such applicable law and regulation. In Cebu Institute of Technology v. Minister of Labor and Employment,8 the Court pointed out that "under Rule 14, Section 2, of the Implementing Rules and Regulations, the termination of [an employee] which was without previous clearance from the

Ministry of Labor is conclusively presumed to be without [just] cause x x x [a presumption which] cannot be overturned by any contrary proof however strong."

______________

6 Rollo, p. 6.

7 See Llora Motors, Inc., et al. v. Hon. Franklin Drilon, et al., G.R. No. 82895, 7 November 1989.

8 113 SCRA 257 (1982).

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3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of employment with private respondents Farrales and Mamasig, arguing that its relationship with them was governed by the provisions of its contract rather than by the general provisions of the Labor Code.9

Paragraph 5 of that contract set a term of three (3) years for that relationship, extendible by agreement between the parties; while paragraph 6 provided that, notwithstanding any other provision in the contract, PIA had the right to terminate the employment agreement at any time by giving one-month's notice to the employee or, in lieu of such notice, one-month's salary.

A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law between the parties.10 The principle of party autonomy in contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil Code is that the contracting parties may establish such stipulations as they may deem convenient, "provided they are not contrary to

law, morals, good customs, public order or public policy." Thus, counter-balancing the principle of autonomy of contracting parties is the equally general rule that provisions of applicable law, especially provisions relating to matters affected with public policy, are deemed written into the contract.11 Put a little differently, the governing principle is that parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The law relating to labor and employment is clearly such an area and parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other. It is thus necessary to appraise the contractual provisions invoked by petitioner PIA in terms of their consistency with applicable Philippine law and regulations.

As noted earlier, both the Labor Arbiter and the Deputy Min-

______________

9 Rollo, p. 8.

10 Henson v. Intermediate Appellate Court, 148 SCRA 11 (1987).

11 Commissioner of Internal Revenue v. United Lines Co., 5 SCRA 175 (1962).

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ister, MOLE, in effect held that paragraph 5 of that employment contract was inconsistent with Articles 280 and 281 of the Labor Code as they existed at the time the contract of employment was entered into, and hence refused to give effect to said paragraph 5. These Articles read as follows:

"Art. 280. Security of Tenure.—In cases of regular employment, the employer shall not terminate the services of an employee. except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and to his backwages computed from the time his compensation was withheld from him up to the time his reinstatement.

Article 281. Regular and Casual Employment.—The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreements of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee or where the work or services to be performed is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: provided, that, any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered as regular employee with respect to the activity in which be is employed and his employment shall continue while such actually exists." (Italics supplied)

In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al.,12 the Court had occasion to examine in detail the question of whether employment for a fixed term has been outlawed under the above quoted provisions of the Labor Code. After an extensive examination of the history and development of Articles 280 and 281, the Court reached the conclusion that a contract providing for employment with a fixed period was not necessarily unlawful:

______________

12 G.R. No. L-48494, promulgated 5 February 1990.

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"There can of course be no quarrel with the proposition that where from the circumstances it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to public policy, morals, etc. But where no such intent to circumvent the law is shown, or stated otherwise, where the reason for the law does not exist, e.g. where it is indeed the employee himself who insists upon a period or where the nature of the engagement is such that, without being seasonal or for a specific project, a definite date of termination is a sine qua non, would an agreement fixing a period be essentially evil or illicit, therefore anathema? Would such an agreement come within the scope of Article 280 which admittedly was enacted to prevent the circumvention of the right of the employee to be secured in x x (his) employment?'

As it is evident from even only the three examples already given that Article 280 of the Labor Code, under a narrow and literal interpretation, not only fails to exhaust the gamut of employment contracts to which the lack of a fixed period would be an anomaly, but would also appear to restrict, without reasonable distinctions, the right of an employee to freely stipulate with his employer the duration of his engagement, it logically follows that such a literal interpretation should be eschewed or avoided. The law must be given reasonable interpretation, to preclude absurdity in its application. Outlawing the whole concept of term employment and subverting to boot the principle of freedom of contract to remedy the evil of employers' using it as a means to prevent their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more relevantly, curing a headache by lopping off the head.

xxx xxx xxx

Accordingly, and since the entire purpose behind the development of legislation culminating in the present Article 280 of the Labor Code clearly appears to have

been, as already observed, to prevent circumvention of the employee's right to be secure in his tenure, the clause in said article indiscriminately and completely ruling out all written or oral agreements conflicting with the concept of regular employment as defined therein should be construed to refer to the substantive evil that the Code itself has singled out: agreements entered into precisely to circumvent security of tenure. It should have no application to instances where a fixed period of employment was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent, or where it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever

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being exercised by the former over the latter. Unless thus limited in its purview, the law would be made to apply to purposes other than those explicitly stated by its framers; it thus becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended consequences."

(Italics supplied)

It is apparent from Brent School that the critical consideration is the presence or absence of a substantial indication that the period specified in an employment agreement was designed to circumvent the security of tenure of regular employees which is provided for in Articles 280 and 281 of the Labor Code. This indication must ordinarily rest upon some aspect of the agreement other than the mere specification of a fixed term of the employment agreement, or upon evidence aliunde of the intent to evade.

Examining the provisions of paragraphs 5 and 6 of the employment agreement between petitioner PIA and private respondents, we consider that those

provisions must be read together and when so read, the fixed period of three (3) years specified in paragraph 5 will be seen to have been effectively neutralized by the provisions of paragraph 6 of that agreement. Paragraph 6 in effect took back from the employee the fixed three (3)-year period ostensibly granted by paragraph 5 by rendering such period in effect a facultative one at the option of the employer PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and for any cause satisfactory to itself, to a one-month period, or even less by simply paying the employee a month's salary. Because the net effect of paragraphs 5 and 6 of the agreement here involved is to render the employment of private respondents Farrales and Mamasig basically employment at the pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended to prevent any security of tenure from accruing in favor of private respondents even during the limited period of three (3) years,13 and thus to escape completely the thrust of Articles 280 and 281 of the Labor Code.

________________

13 See Biboso v. Victorias Milling Co., Inc., 76 SCRA 250 (1977).

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Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies, firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of any dispute arising out of or in connection with the agreement "only [in] courts of Karachi, Pakistan". The first clause of paragraph 10 cannot be invoked to prevent the application of Philippine labor laws and regulations to the subject matter of this case, i.e., the employer-employee relationship between petitioner PIA and

private respondents. We have already pointed out that that relationship is much affected with public interest and that the otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing upon some other law to govern their relationship. Neither may petitioner invoke the second clause of paragraph 10, specifying the Karachi courts as the sole venue for the settlement of disputes between the contracting parties. Even a cursory scrutiny of the relevant circumstances of this case will show the multiple and substantive contacts between Philippine law and Philippine courts, on the one hand, and the relationship between the parties, upon the other: the contract was not only executed in the Philippines, it was also performed here, at least partially; private respondents are Philippine citizens and residents, while petitioner, although a foreign corporation, is licensed to do business (and actually doing business) and hence resident in the Philippines; lastly, private respondents were based in the Philippines in between their assigned flights to the Middle East and Europe. All the above contacts point to the Philippine courts and administrative agencies as a proper forum for the resolution of contractual disputes between the parties. Under these circumstances, paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did not undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be presumed that the applicable provisions of the law of Pakistan are the same as the applicable provisions of Philippine law.14

______________

14 Miciano v. Brimo, 50 Phil. 867 (1924); Collector of Internal Revenue v. Fisher, 110 Phil. 686 (1961).

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We conclude that private respondents Farrales and Mamasig were illegally dismissed and that public respondent Deputy Minister, MOLE, had not committed any grave abuse of discretion nor any act without or in excess of jurisdiction in ordering their reinstatement with backwages. Private respondents are entitled to three (3) years backwages without qualification or deduction. Should their reinstatement to their former or other substantially equivalent positions not be feasible in view of the length of time which has gone by since their services were unlawfully terminated, petitioner should be required to pay separation pay to private respondents amounting to one (1) month's salary for every year of service rendered by them, including the three (3) years service putatively rendered.

ACCORDINGLY, the Petition for Certiorari is hereby DISMISSED for lack of merit, and the Order dated 12 August 1982 of public respondent is hereby AFFIRMED, except that (1) private respondents are entitled to three (3) years backwages, without deduction or qualification; and (2) should reinstatement of private respondents to their former positions or to substantially equivalent positions not be feasible, then petitioner shall, in lieu thereof, pay to private respondents separation pay amounting to one (1)-month's salary for every year of service actually rendered by them and for the three (3) years putative service by private respondents. The Temporary Restraining Order issued on 13 September 1982 is hereby LIFTED. Costs against petitioner.

SO ORDERED.

Fernan (C.J., Chairman), Gutierrez, Jr., Bidin and Cortés, JJ., concur.

Petition dismissed. Order affirmed.

Note.—No violation by Labor Arbiter of rules of administrative due process where company was duly represented by counsel and given sufficient opportunity to be heard and present evidence. (Pantranco North Express, Inc. vs. National Labor Relations Commission, 126 SCRA 526.) [Pakistan International Airlines Corporation us. Ople, 190 SCRA 90(1990)]

G.R. No. 80965. June 6, 1990. *

SYLVIA LICHAUCO DE LEON, petitioner, vs. THE HON. COURT OF APPEALS, MACARIA DE LEON AND JOSE VICENTE DE LEON, respondents.

Contracts; Statutory Construction; Ambiguous contract is construed against the party who caused the ambiguity.—Besides, the Letter-Agreement shows on its face that it was prepared by Sylvia, and in this regard, the ambiguity in a contract is to be taken contra proferentem, i.e., construed against the party who caused the ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides: “The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity”.

Same; Same; Consent; Intimidation to vitiate consent, requisites.—In order that intimidation may vitiate consent and render the contract invalid, the following requisites must concur: (1) that the intimidation must be the determining cause of the contract, or must have caused the consent to be given; (2) that the threatened act be unjust or unlawful; (3) that the threat be real and serious, there being an evident disproportion between the evil and the resistance which all men can offer, leading to the choice of the contract as the lesser evil; and (4) that it produces a reasonable and well-grounded fear from the fact that the person from whom it comes has the necessary means or ability to inflict the threatened injury. Applying the foregoing to the present case, the claim of Macaria that Sylvia threatened her to bring Jose Vicente to court for support, to scandalize their family by baseless suits and that Sylvia would pardon Jose Vicente for possible crimes of adultery and/or concubinage subject to the transfer of certain properties to her, is obviously not the intimidation referred to by law. With respect to mistake as a vice of consent, neither is Macaria’s alleged mistake in having signed the Letter-Agreement because of her belief that Sylvia will thereby eliminate inheritance rights from her and Jose Vicente, the mistake referred to in Article 1331 of the Civil Code, supra. It does not appear that the condition that Sylvia “will eliminate her inheritance rights” principally moved Macaria to enter into the contract. Rather, such condition was but an incident of the consideration thereof which, as discussed earlier, is the termination of

_______________

* FIRST DIVISION.

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De Leon vs. Court of Appeals

marital relations.

Same; Same; Same; Pari delicto; Article 1414 of the New Civil Code, exception to the pari delicto rule.—In the ultimate analysis, therefore, both parties acted in violation of the laws. However, the pari delicto rule, expressed in the maxims “Ex dolo malo non oritur actio” and “In pari delicto potior est conditio defendentis,” which refuses remedy to either party to an illegal agreement and leaves them where they are, does not apply in this case. Contrary to the ruling of the respondent Court that “x x x. [C]onsequently, intervenor appellees’ obligation under the said agreement having been annulled, the contracting parties shall restore to each other that things which have been subject matter of the contract, their fruits and the price or its interest, except as provided by law (Art. 1398, Civil Code).” Article 1414 of the Civil Code, which is an exception to the pari delicto rule, is the proper law to be applied.

PETITION for certiorari to review the decision of the Court of Appeals.


Angara, Abello, Concepcion, Regala & Cruz for petitioner.

De Jesus & Associates for Macaria de Leon.

Quisumbing, Torres & Evangelista for Jose Vicente de Leon.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. CV No. 06649 dated June 30, 1987 affirming the decision of the Regional Trial Court of Pasig in SP Proc. No. 8492 dated December 29, 1983; and its resolution dated November 24, 1987 denying the motion for reconsideration.

The antecedent facts are as follows:

On October 18, 1969, private respondent Jose Vicente De Leon and petitioner Sylvia Lichauco De Leon were united in wedlock before the Municipal Mayor of Binangonan, Rizal. On August 28, 1971, a child named Susana L. De Leon was born from this union.

Sometime in October, 1972, a de facto separation between the spouses occured due to irreconcilable marital differences, with Sylvia leaving the conjugal home. Sometime in March, 1973,

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Sylvia went to the United States where she obtained American citizenship.

On November 23, 1973, Sylvia filed with the Superior Court of California, County of San Francisco, a petition for dissolution of marriage against Jose Vicente. In the said divorce proceedings, Sylvia also filed claims for support and distribution of properties. It appears, however, that since Jose Vicente was then a Philippine resident and did not have any assets in the United States, Sylvia chose to hold in abeyance the divorce proceedings, and in the meantime, concentrated her efforts to obtain some sort of property settlements with Jose Vicente in the Philippines.

Thus, on March 16, 1977, Sylvia succeeded in entering into a Letter-Agreement with her mother-in-law, private respondent Macaria De Leon, which We quote in full, as follows (pp. 40-42, Rollo):

“March 16, 1977

“Mrs. Macaria Madrigal de Leon

12 Jacaranda, North Forbes Park

Makati, Metro Manila

Dear Doña Macaria:

This letter represents a contractual undertaking among (A) the undersigned (B) your son, Mr. Jose Vicente de Leon, represented by you, and (C) yourself in your personal capacity.

You hereby bind yourself jointly and severally to answer for the undertakings of Joe Vincent under this contract.

In consideration for a peaceful and amicable termination of relations between the undersigned and her lawfully wedded husband, Jose Vicente de Leon, your son, the following are agreed upon:

Obligations of Jose Vicente de Leon and/or yourself in a joint and several capacity:

1. To deliver with clear title free from all liens and encumbrances and subject to no claims in any form whatsoever the following properties to Sylvia Lichauco-de Leon hereinafter referred to as the wife:

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A. Suite 11-C, Avalon Condominium, Ortigas Ave., corner Xavier St., Mandaluyong, Rizal, Philippines.

B. Apartment 702, Wack Wack Condominium, Mandaluyong, Rizal, Philippines.

C. The rights to assignment of 2 Ayala lots in Alabang, Rizal (Corner lots, 801 sq. meters each). (Fully paid).

D. 2470 Wexford Ave., South San Francisco, California, U.S.A. (Lot 18 Block 22 Westborough Unit No. 2). (Fully paid).

E. 1) The sum of One Hundred Thousand Pesos (P100,000)

2) $30,000

3) $5,000

2. To give monthly support payable six (6) months in advance every year to any designated assignee of the wife for the care and upbringing of Susana Lichauco de Leon which is hereby pegged at the exchange rate of 7.50 to the dollar subject to adjustments in the event of monetary exchange fluctuations. Subsequent increase on actual need upon negotiation.

3. To respect the custody of said minor daughter as pertaining exclusively to the wife except as herein provided.

Obligations of the wife:

1. To agree to a judicial separation of property in accordance with Philippine law and in this connection to do all that may be necessary to secure said separation of property including her approval in writing of a joint petition or consent decree.

2. To amend her complaint in the United States before the Federal Court of California, U.S.A. entitled “Sylvia Lichauco de Leon vs. Jose V. de Leon” in a manner compatible with the objectives of this herein agreement. It is the stated objective of this agreement that said divorce proceedings will continue.

3. All the properties herein described for assignment to the wife must be assigned to Sylvia Lichauco de Leon upon the decree of the Court of First Instance in the Joint Petition for Separation of Property; except for the P100,000, $30,000 and $5,000 which will be paid immediately.

4. This contract is intended to be applicable both in the Republic of the Philippines and in the United States of America. It is agreed that this will constitute an actionable document in both jurisdictions and the parties herein waive their right to object to the use of this document in the event a legal issue should arise relating to the validity of this document. In the event of a dispute, this letter is subject to interpretation under the laws of California, U.S.A.

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5. To allow her daughter to spend two to three months each year with the father upon mutual convenience.

Very truly yours,

(Sgd.) Sylvia de Leon

t/ SYLVIA L. DE LEON

CONFORME:

s/t/MACARIA M. DE LEON

with my marital consent:

s/t/JUAN L. DE LEON”

On the same date, Macaria made cash payments to Sylvia in the amount of P100,000 and US $35,000.00 or P280,000.00, in compliance with her obligations as stipulated in the aforestated Letter-Agreement.

On March 30, 1977, Sylvia and Jose Vicente filed before the then Court of First Instance of Rizal a joint petition for judicial approval of dissolution of their conjugal partnership, the main part of which reads as follows (pp. 37-38, Rollo):

“5. For the best interest of each of them and of their minor child, petitioners have agreed to dissolve their conjugal partnership and to partition the assets thereof, under the following terms and conditions—this document, a pleading being intended by them to embody and evidence their agreement:

x x x

“(c) The following properties shall be adjudicated to petitioner Sylvia Lichauco De Leon. These properties will be free of any and all liens and encumbrances, with clear title and subject to no claims by third parties. Petitioner Jose Vicente De Leon fully assumes all responsibility and liability in the event these properties shall not be as described in the previous sentence:

Sedan (1972 model)

Suite 11-C, Avalon Condominium,

Ortigas Ave., corner Xavier St.,

Mandaluyong, Rizal, Philippines

Apt. 702, Wack-Wack Condominium,

Mandaluyong, Rizal, Philippines

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The rights to assignment of 2 Ayala lots in Alabang Rizal (corner lots, 801 sq. meters each) (Fully paid)

2470 Wexford Ave., South San Francisco, California, U.S.A. (Lot 18, Block 22 Westborough Unit 2) (Fully paid)

The sum of One Hundred Thousand Pesos (100,000.00)

$30,000.00 at current exchange rate

$5,000.00 at current exchange rate”

After ex-parte hearings, the trial court issued an Order dated February 19, 1980 approving the petition, the dispositive portion of which reads (p. 143, Rollo):

“WHEREFORE, it is hereby declared that the conjugal partnership of the Spouses is DISSOLVED henceforth, without prejudice to the terms of their agreement that each spouse shall own, dispose of, possess, administer and enjoy his or her separate estate, without the consent of the other, and all earnings from any profession, business or industries shall likewise belong to each spouse.”

On March 17, 1980, Sylvia moved for the execution of the above-mentioned order. However, Jose Vicente moved for a reconsideration of the order alleging that Sylvia made a verbal reformation of the petition as there was no such agreement for the payment of P4,500.00 monthly support to commence from the alleged date of separation in April, 1973 and that there was no notice given to him that Sylvia would attempt verbal reformation of the agreement contained in the joint petition.

While the said motion for reconsideration was pending resolution, on April 20, 1980, Macaria filed with the trial court a motion for leave to intervene alleging that she is the owner of the properties involved in the case. The motion was granted. On October 29, 1980, Macaria, assisted by her husband Juan De Leon, filed her complaint in intervention. She assailed the validity and legality of the Letter-Agreement which had for its purpose, according to her, the termination of marital relationship between Sylvia and Jose Vicente. However, before any hearing could be had, the judicial reorganization took place and the case was transferred to the Regional Trial Court of Pasig.

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On December 29, 1983, the trial court rendered judgment, the dispositive portion of which reads (pp. 35-36, Rollo):

“WHEREFORE, judgment is hereby rendered on the complaint in intervention in favor of the intervenor, declaring null and void the letter agreement dated March 16, 1977 (Exhibits ‘E’ to ‘E-2’), and ordering petitioner Sylvia Lichauco De Leon to restore to intervenor the amount of P380,000.00 plus legal interest from date of complaint, and to pay intervenor the amount of P100,000.00 as and for attorney’s fees, and to pay the costs of suit.

“Judgment is likewise rendered affirming the order of the Court dated February 19, 1980 declaring the conjugal partnership of the spouses Jose Vicente De Leon and Sylvia Lichauco De Leon DISSOLVED; and adjudicating to each of them his or her share of the properties and assets of said conjugal partnership in accordance with the agreement embodied in paragraph 5 of the petition, except insofar as the adjudication to petitioner Sylvia L. De Leon of the properties belonging to and owned by Intervenor Macaria De Leon is concerned.

“Henceforth, (a) each spouse shall own, dispose of, possess, administer and enjoy his or her separate estate, present and future without the consent of the other; (b) all earnings from any profession, business or industry shall likewise belong to each of them separately; (c) the minor child Susana De Leon shall stay with petitioner Sylvia Lichauco De Leon for two to three months every year—the transportation both ways of the child for the trip to the Philippines to be at the expense of the petitioner Jose Vicente De Leon; and (d) petitioner Jose Vicente De Leon shall give petitioner Sylvia Lichauco De Leon the sum of P4,500.00 as monthly support for the minor child Susana to commence from February 19, 1980.

Sylvia appealed to the respondent Court of Appeals raising the following errors:

1) The trial court erred in finding that the cause or consideration of the Letter-Agreement is the termination of marital relations;

2) The trial court failed to appreciate testimonial and documentary evidence proving that Macaria de Leon’s claims of threat, intimidation and mistake are baseless; and

3) The trial court erred in finding that Sylvia Lichauco de Leon committed breach of the Letter-Agreement; and further, failed to appreciate evidence proving Macaria de Leon’s mate

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rial breach thereof.

The respondent court affirmed the decision in toto. The motion for reconsideration was denied. Hence, the present petition.

The only basis by which Sylvia may lay claim to the properties which are the subject matter of the Letter-Agreement, is the Letter-Agreement itself. The main issue, therefore, is whether or not the Letter-Agreement is valid.

The third paragraph of the Letter-Agreement, supra, reads:

“In consideration for a peaceful and amicable termination of relations between the undersigned and her lawfully wedded husband, Jose Vicente De Leon, your son, the following are agreed upon:” (italics supplied)

It is readily apparent that the use of the word “relations” is ambiguous, perforce, it is subject to interpretation. There being a doubt as to the meaning of this word taken by itself, a consideration of the general scope and purpose of the instrument in which it occurs (see Germann and Co. v. Donaldson, Sim and Co., 1 Phil. 63) and Article 1374 of the Civil Code which provides that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly, is necessary.

Sylvia insists that the consideration for her execution of the Letter-Agreement was the termination of property relations with her husband. Indeed, Sylvia and Jose Vicente subsequently filed a joint petition for judicial approval of the dissolution of their conjugal partnership, sanctioned by Article 191 of the Civil Code. On the other hand, Macaria and Jose Vicente assert that the consideration was the termination of marital relationship.

We sustain the observations and conclusion made by the trial court, to wit (pp. 44-46, Rollo):

“On page two of the letter agreement (Exhibit ‘E’), the parties contemplated not only to agree to a judicial separation of property of the spouses but likewise to continue with divorce proceedings (paragraphs 1 and 2, Obligations of the Wife, Exhibit ‘E-1’). If taken with the apparently ambiguous provisions in Exhibit ‘E’ regarding termination of ‘relations’, the parties clearly contemplated not only the termination

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of property relationship but likewise of marital relationship in its entirety. Furthermore, it would be safe to assume that the parties in Exhibit ‘E’ not having specified the particular relationship which they wanted to peacefully and amicably terminate had intended to terminate all kinds of relations, both marital and property. While there could be inherent benefits to a termination of conjugal property relationship between the spouses, the court could not clearly perceive the underlying benefit for the intervenor insofar as termination of property relationship between petitioners is concerned, unless the underlying consideration for intervenor is the termination of marital relationship by divorce proceedings between her son Jose Vicente and his wife petitioner Sylvia. The last sentence of paragraph 2 under “Obligations of the Wife” unequivocally states: “It is the stated objective of this agreement that said divorce proceedings (in the United States) will continue.”There is merit in concluding that the consideration by which Intervenor executed Exhibit ‘E’ to ‘E-2’ was to secure freedom for her son petitioner Jose Vicente De Leon, especially if Exhibit ‘R’—Intervenor, which is (sic) agreement signed by petitioner Sylvia to consent to and pardon Jose Vicente De Leon for adultery and concubinage (among others) would be considered. In the light, therefore, of the foregoing circumstances, this Court finds credible the testimony of intervenor as follows:

“Q

Will you please go over the Exhibit ‘E’ to ‘E-2’—intervenor consisting of three pages and inform us whether or not this is the letter of March 16, 1977 which you just referred to?

“A

Yes, this is the letter.

“Q

Why did you affix your signature to this Exh. ‘E’—intervenor (sic)?

“A

Because at that time when I signed it I want to buy peace for myself and for the whole family.

“Q

From whom did you want to buy peace and/or what kind of peace?

“A

I wanted to buy peace from Sylvia Lichauco whom I knew was kind of ‘matapang;’ so I want peace for me and primarily for the peaceful and amicable termination of maritalrelationship between my son, Joe Vincent and Sylvia.” (Deposition dated September 6, 1983—Macaria de Leon, p. 6-7)

“This Court, therefore, finds and holds that the cause or consideration for the intervenor Macaria De Leon in having executed Exhibits ‘E’ to ‘E-2’ was the termination of the marital relationship between her son Jose Vicente De Leon and Sylvia Lichauco de Leon.

“Article 1306 of the New Civil Code provides:

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‘Art. 1306. The contracting parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.’

‘If the stipulation is contrary to law, morals or public policy, the contract is void and inexistent from the beginning.

“Art. 1409. The following contracts are inexistent and void from the beginning:

‘(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

x x x

‘(7) Those expressly prohibited or declared void by law.

‘These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.’

“But marriage is not a mere contract but a sacred social institution. Thus, Art. 52 of the Civil Code provides:

‘Art. 52. Marriage is not a mere contract but an inviolable social institution. Its nature, consequences and incidents are governed by law and not subject to stipulations . . .’

“From the foregoing provisions of the New Civil Code, this court is of the considered opinion and so holds that intervenor’s undertaking under Exhibit ‘E’ premised on the termination of marital relationship is not only contrary to law but contrary to Filipino morals and public policy. As such, any agreement or obligations based on such unlawful consideration and which is contrary to public policy should be deemed null and void.” (italics supplied)

Additionally, Article 191 of the Civil Case contemplates properties belonging to the spouses and not those belonging to a third party, who, in the case at bar, is Macaria. In the petition for the dissolution of the conjugal partnership, it was made to appear that the said properties are conjugal in nature. However, Macaria was able to prove that the questioned properties are owned by her. Neither Sylvia nor Jose Vicente adduced any contrary evidence.

Granting, in gratia argumenti, that the consideration of the Letter-Agreement was the termination of property relations, We agree with the respondent court that (pp. 46-47, Rollo):

“x x x the agreement nevertheless is void because it contravenes the following provisions of the Civil Code:

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‘Art. 221. The following shall be void and of no effect:

‘(1) Any contract for personal separation between husband and wife;

‘(2) Every extra-judicial agreement, during marriage, for the dissolution of the conjugal partnership of gains or of the absolute community of property between husband and wife;”

Besides, the Letter-Agreement shows on its face that it was prepared by Sylvia, and in this regard, the ambiguity in a contract is to be taken contra proferentem, i.e., construed against the party who caused the ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides: “The interpretation of obscure words of stipulations in a contract shall not favor the party who caused the obscurity” (see Equitable Banking Corp. vs. IAC, G.R. No. 74451, May 25, 1988, 161 SCRA 518).

Sylvia alleges further that since the nullity of the Letter-Agreement proceeds from the unlawful consideration solely of Macaria, applying the pari delicto rule, it is clear that she cannot recover what she has given by reason of the Letter-Agreement nor ask for the fulfillment of what has been promised her. On her part, Macaria raises the defenses of intimidation and mistake which led her to execute the Letter-Agreement. In resolving this issue, the trial court said (pp. 148-151, Rollo):

“In her second cause of action, intervenor claims that her signing of Exhibits ‘E’ to ‘E-2’ was due to a fear of an unpeaceful and troublesome separation of her son with petitioner Sylvia Lichauco de Leon. In support of her claim, intervenor testified as follows:

‘Q

Will you please inform us how did Sylvia Lichauco disturb or threaten your son or yourself?

‘A

Despite the fact that Sylvia Lichauco voluntarily left my son Joe Vincent and abandoned him, she unashamedly nagged Joe and me to get money and when her demands were not met she resorted to threats like, she threatened to bring Joe to court for support. Sylvia threatened to scandalize our family by these baseless suits; in fact she caused the service of summons to Joe when he went to the United States.’ (Intervenor’s deposition dated Sept. 6, 1983, p. 8).

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“On the other hand, petitioner Sylvia claims that it was intervenor and petitioner Jose Vicente who initiated the move to convince her to agree to a dissolution of their conjugal partnership due to the alleged extra-marital activities of petitioner Jose Vicente de Leon. She testified as follows:

‘Q

Now in her testimony, Macaria Madrigal de Leon also said that you threatened her by demanding money and nagged her until she agreed to the letter agreement of March 1977, what can you say about that?

‘A

I think with all the people sitting around with Atty. Quisumbing, Atty. Chuidian, my father-in-law, my sister-in-law and I, you know, it can be shown that this was a friendly amicable settlement that they were much really interested in settling down as I was. I think there were certain reasons that they wanted to get done or planned, being at that time Jose was already remarried and had a child. That since she then found out that since she was worried about what might be, you

know, involved in any future matters. She just wanted to do what she could. She just want me out of the picture. So in no way, it cannot be said that I nagged and threatened her.’ (TSN dated December 8, 1983, p. 137-138)

“In resolving this issue, this Court leans heavily on Exhibit ‘R’—intervenor, which was not controverted by petitioner Sylvia. A reading of Exhibit ‘R’ would show that petitioner Sylvia would consent to and pardon petitioner Jose Vicente, son of intervenor, for possible crimes of adultery and/or concubinage, with a string attached; that is, the transfer of the properties subject herein to her. There appears some truth to the apprehensions of intervenor for in petitioner Sylvia’s testimony she confirms the worry of intervenor as follows:” . . . being at that time Jose (De Leon) was already remarried and had a child. That since she (intervenor) found out that, she was worried about what might be, you know, involved in any future matters. She just want me out of the picture.” The aforesaid fear of intervenor was further corroborated by her witness Concepcion Tagudin who testified as follows:

‘Q

Now, you mentioned that you were present when Mrs. Macaria De Leon signed this Exhibit ‘E-2,’ will you inform us whether there was anything unusual which you noticed when Mrs. Macaria M. De Leon signed this Exhibit ‘E-2’?

‘A

Mrs. Macaria M. De Leon was in a state of tension and anger. She was so mad that she remarked: ‘Puñetang Sylvia ito bakit ba niya ako ginugulo. Ipakukulong daw

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niya si Joe Vincent kung hindi ko pipirmahan ito. Sana matapos na itong problemang ito pagkapirmang ito,’ sabi niya.’ (Deposition—Concepcion Tagudin, Oct. 21, 1983, pp.10-11)

“In her third cause of action, intervenor claims mistake or error in having signed Exhibits ‘1’ to ‘E-2’ alleging in her testimony as follows:

‘Q

Before you were told such by your lawyers what if any were your basis to believe that Sylvia would no longer have inheritance rights from your son, Joe Vincent?

‘A

Well, that was what Sylvia told me. That she will eliminate any inheritance rights from me or my son Joe Vincent’s properties if I sign the document amicably. x x x’ (Intervenor’s deposition—Sept. 6, 1983, pp. 9-10).

“On the other hand, petitioner Sylvia claims that intervenor could not have been mistaken in her having signed the document as she was under advice of counsel during the time that Exhibits ‘E’ to ‘E-2’ was negotiated. To support such claims by Sylvia Lichauco De Leon, the deposition testimony of Atty. Vicente Chuidian was presented before this Court:

‘Atty. Herbosa: Now you mentioned Atty. Norberto Quisum-

bing, would you be able to tell us in what capacity he was

present in that negotiation?

‘Atty. Chuidian: He was counsel for Doña Macaria and for Joe

Vincent, the spouse of Sylvia.’ (Deposition of V. Chuidian,

December 16, 1983, p. 8)

“The New Civil Code provides:

‘Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence or fraud is void-able.’

‘Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into a contract. x x x’

“The preponderance of evidence leans in favor of intervenor who even utilized the statement of the divorce lawyer of petitioner Sylvia (Mr. Penrod) in support of the fact that intervenor was mistaken in having signed Exhibits ‘E’ to ‘E-2’ because when she signed said Exhibits she believed that fact that petitioner Sylvia would eliminate her inheritance rights and there is no showing that said intervenor was properly advised by any American lawyer on the fact whether petitioner Sylvia, being an American citizen, could rightfully do the same. Transcend-

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ing, however, the issue of whether there was mistake of fact on the part of intervenor or not, this Court could not see a valid cause or consideration in favor of intervenor Macaria De Leon having signed Exhibits ‘E’ to ‘E-2.’ For even if petitioner Sylvia had confirmed Mr. Penrod’s statement during the divorce proceedings in the United States that she would undertake to eliminate her hereditary rights in the event of the property settlement, under Philippine laws, such contract would likewise be voidable, for under Art. 1347 of the New Civil Code ‘no contract may be entered into upon future inheritance.’ ”

We do not subscribe to the aforestated view of the trial court. Article 1335 of the Civil Code provides:

“x x x.

“There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his

person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.

“To determine the degree of the intimidation, the age, sex and condition of the person shall be borne in mind.

“A threat to enforce one’s claim through competent authority, if the claim is just or legal, does not vitiate consent.”

In order that intimidation may vitiate consent and render the contract invalid, the following requisites must concur: (1) that the intimidation must be the determining cause of the contract, or must have caused the consent to be given; (2) that the threatened act be unjust or unlawful; (3) that the threat be real and serious, there being an evident disproportion between the evil and the resistance which all men can offer, leading to the choice of the contract as the lesser evil; and (4) that it produces a reasonable and well-grounded fear from the fact that the person from whom it comes has the necessary means or ability to inflict the threatened injury. Applying the foregoing to the present case, the claim of Macaria that Sylvia threatened her to bring Jose Vicente to court for support, to scandalize their family by baseless suits and that Sylvia would pardon Jose Vicente for possible crimes of adultery and/or concubinage subject to the transfer of certain properties to her, is obviously not the intimidation referred to by law. With respect to mistake as a vice of consent, neither is Macaria’s alleged mistake in having signed the Letter-Agreement because of her belief that Sylvia

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will thereby eliminate inheritance rights from her and Jose Vicente, the mistake referred to in Article 1331 of the Civil Code, supra. It does not appear that the condition that Sylvia “will eliminate her inheritance rights” principally moved

Macaria to enter into the contract. Rather, such condition was but an incident of the consideration thereof which, as discussed earlier, is the termination of marital relations.

In the ultimate analysis, therefore, both parties acted in violation of the laws. However, the pari delicto rule, expressed in the maxims “Ex dolo malo non oritur actio” and “In pari delicto potior est conditio defendentis,” which refuses remedy to either party to an illegal agreement and leaves them where they are, does not apply in this case. Contrary to the ruling of the respondent Court that (pp. 47-48, Rollo):

“x x x. [C]onsequently, intervenor appellees’ obligation under the said agreement having been annulled, the contracting parties shall restore to each other that things which have been subject matter of the contract, their fruits and the price or its interest, except as provided by law (Art. 1398, Civil Code).”

Article 1414 of the Civil Code, which is an exception to the pari delicto rule, is the proper law to be applied. It provides:

“When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property.”

Since the Letter-Agreement was repudiated before the purpose has been accomplished and to adhere to the pari delicto rule in this case is to put a premium to the circumvention of the laws, positive relief should be granted to Macaria. Justice would be served by allowing her to be placed in the position in which she was before the transaction was entered into.

With the conclusions thus reached, We find it unnecessary to discuss the other issues raised.

ACCORDINGLY, the petition is hereby DENIED. The decision of the respondent Court of Appeals dated June 30, 1987

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De Ocampo, Jr. vs. National Labor Relations Commission

and its resolution dated November 24, 1987 are AFFIRMED.

SO ORDERED.

Narvasa (Chairman), Cruz and Gancayco, JJ., concur.

Griño-Aquino, J., On leave.

Petition denied. Decision and resolution affirmed.

Note.—Rules of Court mandates a liberal construction of the rules and the pleadings to effect substantial justice (Del Rosario vs. Hamoy, 151 SCRA 719.) [De Leon vs. Court of Appeals, 186 SCRA 345(1990)]

No. L-20175. October 30, 1967.

MARIA A. GARCIA, ET AL., petitioners, vs. RITA LEGARDA, INC., respondent.

Civil law; Obligations and contracts; Art. 1308 New Civil Code construed.—Art. 1309 is a virtual reproduction of Art. 1256 of the old Civil Code, so phrased as to emphasize that the contract must bind both parties, based on the principles (1) that obligations arising from contracts have the force of law between the contracting parties; and (2) that there must be mutuality between the parties based on their essential equality, to which is repugnant to have one party bound by the contract leaving the other free therefrom. Its ultimate purpose is to render void a contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties.

Same; Valid contracts to sell of residential lots with resolutory condition.—Where in a contract to sell subdivided lots in monthly installments there has been a stipulation that in case of vendee's default in the payment of installments he should have a month of grace and an additional period of ninety days to pay all the amounts due, otherwise the vendor should have the right to declare the contract cancelled and of no effect, such stipulation is valid and not violative of Art. 1308 of the new Civil Code, considering that the validity or compliance thereof is not entirely left to the will of one of the contracting parties, but it merely gives the vendor the right to declare such contract cancelled and of no effect. Indeed, the power thus granted cannot be said to be immoral, much less unlawful, for it could not be arbitrarily exercised without the other party committing the breach of contract for nonpayment of the installments agreed upon. Obviously, all that said party had to do to prevent the other from exercising the power to cancel was for him to comply with his part of the contract.

Same; Payment; Acceptance of payment in arrears creates no presumption.—Where prior to the cancellation of the contract to sell the vendor had accepted payment of installments in arrears as an act of forbearance so as to give the vendee an additional opportunity to keep the contract alive, such acceptance did not give rise to the presumption that by such act of humanity the vendor

had waived his right to cancel the contract; on the contrary, it strengthened his right to do so, considering that even after such beneficial act of accommodation still the vendee subsequently defaulted again and again in the payment of the installments.

APPEAL by certiorari from a decision of the Court of Appeals.


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556


Garcia vs. Rita Legarda, Inc.

Picazo & Agcaoili for petitioners.

Gregorio Fajarda for respondent.

DIZON, J.:

Appeal taken by the spouses Maria A. Garcia and Marcelino A. Timbang—hereinafter referred to as petitioners—from the decision of the Court of Appeals in CA-G.R. No. 27194-R reversing the one rendered on January 9, 1960 by the Court of First Instance of Manila in Civil Case No. 1962 entitled "Maria A. Garcia, et al. vs. Rita Legarda, Inc." The latter is a corporation organized under Philippine laws, and is engaged in the sale and resale of residential lots in Manila and suburbs. We shall refer to it hereinafter as the respondent.

On May 20, 1953 the petitioners instituted the civil case mentioned above against the respondent to have certain contracts numbered 322, 324, and 965 declared as existing and subsisting; to compel the respondent to accept payments tendered by them; and to recover moral and exemplary damages and attorney's fees in the amounts of P6,000.00 and Pl,500.00, respectively.

The three causes of action alleged in their complaint involved the three parcels of land subject matter of the contracts aforesaid. Each had an area of about 150 square meters, and formed part of the Rita Legarda Estate situated in Manila, and subdivided into lots sold on installment basis.

(1) Contract to Sell No. 322 (Exhs. A and A-1) covering Lot 40, Block 8-CC, was executed by the respondent in favor of Emiliano Orellana on March 1, 1947. On June 26, 1947, the latter transferred all his rights and interest thereunder to Encarnacion Vito who, in turn, on November 3 of the same year, made a similar transfer of rights in favor of Delfin Bacho. Finally, on May 29, 1948, Bacho also transferred all his rights and interest to the petitioners.

(2) On March 1, 1947, Contract to Sell No. 324 (Exh. 2) covering Lot No, 20, Block 5-CC was executed by respondent in favor of Jesusa Felix. Two months later, Felix, with the written consent of the respondent, sold her rights and interest to petitioners.

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(3) Contract to Sell No. 965 (Exh. 3) covering Lot No. 27, Block 5-CC was executed by the respondent in favor of Angela Alvarez Solomon on January 8, 1948. With the written consent of the former, Solomon also sold her rights and interest to the petitioners on May 11, 1948.

In its answer to the complaint, the respondent averred that in relation to the Contracts to Sell Nos. 322, 965 and 324, petitioners paid on November 7, 1951 the 53rd, 43rd and 53rd installments, respectively, corresponding to the installments for the month of July, 1951; that the petitioners, as of June 11, 1952, had failed to pay the stipulated monthly installments for Contracts Nos. 322 and 324 corresponding to the period from August, 1951 through June, 1952, and in the case of Contract No. 965, from August, 1951 through May,

1952; that despite several demands for payment of arrears made between December, 1951 and June, 1952 by the respondent, the petitioners had failed to pay the amounts due; and that upon the expiration of the 90-day grace period on June 11, 1952 stipulated in the sixth paragraph of the contracts, the respondent had cancelled them. The answer also prayed for an award of damages and attorney's fees in the sum of P2.000.00.

On April 20, 1954 the petitioners filed a reply denying that they were in arrears as to their obligations under the three contracts and, further averred as affirmative defense that the cancellation thereof was unlawful and arbitrary.

After trial the Court rendered judgment declaring Contracts Nos. 322, 324 and 965 as existing and subsisting; ordering the respondent to accept the payments tendered by the petitioners and to pay attorney's fees in the sum of Pl,500.00. but denied the award of moral and exemplary damages. From this decision the respondent appealed to the Court of Appeals from whose decision—reversing that of the lower court—the instant appeal was taken.

Petitioners now urge Us, in turn, to reverse the decision of the Court of Appeals, claiming that the latter had committed the following errors:

"I. The Honorable Court of Appeals erred in declaring that the respondent Rita Legarda, Inc. had not waived its rights

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to cancel its contracts with the petitioners on the ground that it had previously accepted late payments of the installments due on such contracts.

"II. The Honorable Court of Appeals erred in declaring that par. 9 of the contracts in question is not in violation of Art. 130g of the New Civil Code.

"III. The Honorable Court of Appeals erred in not declaring that the respondent Rita Legarda, Inc., after having tolerated and accepted previously late payments on the installments due on the contracts, suddenly and without suitable warning and giving of further opportunity to pay the same could not and should not have precipitously decided to forfeit, as it actually forfeited, all the payments which have already been made to it by petitioners.

"IV. The Honorable Court of Appeals erred in reversing and in not affirming the decision of the Court of First Instance of Manila in its entirety."

The second assignment of error is based on petitioners' contention that the questioned stipulations of the contracts are in violation of the provisions of Article 1308 of the New Civil Code, while the first and third are based on the claim that the respondent having previously accepted late payments of installments due on the contracts aforesaid, must be deemed to have waived its right to cancel said contracts on the ground of late payment of installments, and that, at any rate, after having tolerated and accepted said late payments, it was arbitrary on its part to cancel the contracts suddenly and without suitable warning. The fifth and last assignment of error is merely a consequence of the others.

Article 1308 of the New Civil Code reads as follows:

"The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them."

The above legal provision is a virtual reproduction of Article 1256 of the old Civil Code but it was so phrased as to emphasize the principle that the contract must bind both parties. This, of course, is based firstly, on the principle that obligations arising from contracts have the force of law between the contracting parties and secondly, that there must be mutuality between the parties based on their essential equality to which is repugnant to have one party bound by the contract leaving the other free

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therefrom (8 Manresa 556). Its ultimate purpose is to render void a contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties.

Paragraph 6 of the contracts in question—which is the one claimed to be violative of the legal provision above quoted—reads as follows:

"SIXTH—In case the party of the SECOND PART fails to satisfy any monthly installments, or any other payments herein agreed upon, he is granted a month of grace within which to make the retarded payment, together with the one corresponding to the said month of grace; it is understood, however, that should the month of grace herein granted to the party of the SECOND PART expire, without the payments corresponding to both months having been satisfied, an interest of 10% per annum will be charged on the amounts he should have paid; it is understood further, that should a period of 90 days elapse, to begin from the expiration of the month of grace herein mentioned, and the party of the SECOND PART has not paid all the amounts he should have paid with the corresponding interest up to that date, the party of the FIRST PART has the right to declare this contract cancelled and of no effect, and as consequence thereof, the party of the FIRST PART may dispose of the parcel or parcels of land covered by this contract in favor of other persons, as if this contract had never been entered into. In case of such cancellation of this contract, all the amounts paid in accordance with this agreement together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the above mentioned premises, and as payment for the damages suffered by failure of the party of the SECOND PART to fulfill his part of this agreement; and the party of the SECOND PART hereby renounces all his right to demand or reclaim the return of the same and obliges himself to peacefully vacate the premises and deliver the same to the party of the FIRST PART."

The above stipulation, to our mind, merely gives the vendor "the right to declare this contract cancelled and of no effect" upon fulfillment of the conditions therein set forth. It does not leave the validity or compliance of the contract entirely "to the will of one of the contracting parties"; the stipulation or agreement simply says that in case of default in the payment of installments by the vendee, he shall have (1) "a month of grace", and that (2) should said month of grace expire without the vendee paying his arrears, he shall

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have another "period of 90 days" to pay "all the amounts he should have paid", etc., then the vendor "has the right to declare this contract cancelled and of no effect." We have heretofore upheld the validity of similar stipulations. In Taylor vs. Ky Tieng Piao, etc., 43 Phil. 873, 876-878 the ruling was that a contract expressly giving to one party the right to cancel, the same if a resolutory condition therein agreed upon—similar to the one under consideration—is not fulfilled, is valid, the reason being that when the contract is thus cancelled, the agreement of the parties is in reality being fulfilled. Indeed, the power thus granted can not be said to be immoral, much less unlawful, for it could be exercised—not arbitrarily—but only upon the other contracting party committing the breach of contract of non-payment of the installments agreed upon. Obviously, all that said party had to do to prevent the other from exercising the power to cancel the contract was for him to comply with his part of the contract. And in this case, after the maturity of any particular installment and its non-payment, the contract gave him not only a month grace but an additional period of 90 days.

Having arrived at the above conclusions, We now come to the question of whether or not by having previously accepted payments of overdue installments

the respondent had waived its right to declare the contracts cancelled and of no effect.

In this connection the record shows that on June 11, 1952 when the Contracts to Sell Nos. 234 and 965 were cancelled, the vendees were ten months in arrears, .and that in the case of contract to Sell No. 322 the vendees had never resumed payment of a single installment from the date when, upon their petition, said contract was reinstated on September 28, 1952. The contracts under consideration are not of absolute sale but mere contracts to sell—on installment. They give the respondent (vendor) the right to declare the contracts cancelled and of no effect—as in fact it did—upon fulfillment of certain conditions. All said conditions—so the record shows __ have been fulfilled. Consequently, respondent's (vendor) right to cancel the contracts can not be doubted.

561


561

Manalang vs. Artex Development Co., Inc.

That prior to the cancellation it had in fact accepted payment of installments in arrears was but another act of forbearance on its part to give the petitioners an additional opportunity to keep the contracts alive. Rather than give rise to the presumption that by such act of humanity it waived its right to cancel the contracts, it strengthens its right to do so, considering that even after such act of accommodation beneficial to the petitioners, the latter subsequently defaulted again and again in the fulfillment of their obligation.

It is, of course, painful for the petitioners to lose not only the right they had acquired under the contracts but also whatever amounts they had already paid thereunder, but such consequences had been foreseen by the contracting parties. To avoid them, all that petitioners had to do—as already said heretofore—was to comply with their part of the bargain. Having failed to do

so, they really have no valid reason to complain. That one contracting party appears to have made a poor bargain is no reason for setting aside the agreement (Fernandez vs. Manila Railroad, 14 Phil. 274, 287).

WHEREFORE, the appealed judgment being in accordance with law and the facts of the case, the same is hereby affirmed.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

Judgment affirmed [Garcia vs. Rita Legarda, Inc., 21 SCRA 555(1967)]

G.R. No. 124290. January 16, 1998.*

ALLIED BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, HON. JOSE C. DE GUZMAN, OSCAR D. TANQUECO, LUCIA D. TANQUECO-MATIAS, RUBEN D. TANQUECO and NESTOR D. TANQUECO, respondents.

Contracts; Leases; Principle of Mutuality; The binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other free therefrom.—Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality of contracts. It provides that “the contract must bind both the contracting parties; its validity or compliance cannot be left to the will of one of them.” This binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is repugnant to have one

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* FIRST DIVISION.

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Allied Banking Corporation vs. Court of Appeals

party bound by the contract while leaving the other free therefrom. The ultimate purpose is to render void a contract containing a condition which makes its fulfillment dependent solely upon the uncontrolled will of one of the contracting parties.

Same; Same; Same; An express agreement which gives the les-see the sole option to renew the lease is frequent and subject to statutory restrictions, valid and binding on the parties—the right of re-newal constitutes a part of the lessee’s interest in the land and forms a substantial and integral part of the agreement.—An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to statutory restrictions, valid and binding on the parties. This option, which is provided in the same lease agreement, is fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the performance by the lessee. It is a purely executory contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the right is made to depend. The right of renewal constitutes a part of the lessee’s interest in the land and forms a substantial and integral part of the agreement.

Same; Same; Same; The fact that an option to renew is binding only on the lessor and can only be exercised by the lessee does not render it void for lack of mutuality.—The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter escape liability even if he should subsequently decide to abandon the premises. Mutuality obtains in such a contract and equality exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment.

Same; Same; Words and Phrases; The clause “may be renewed for a like term at the option of the lessee,” when exercised by the lessee, results in the automatic extension of the contract of lease under

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the same terms and conditions, the phrase “for a like term” referring to the period.—With respect to the meaning of the clause “may be renewed for a like term at the option of the lessee,” we sustain petitioner’s contention that its exercise of the option resulted in the automatic extension of the contract of lease under the same terms and conditions. The subject contract simply provides that “the term of this lease shall be fourteen (14) years and may be renewed for a like term at the option of the lessee.” As we see it, the only term on which there has been a clear agreement is the period of the new contract, i.e., fourteen (14) years, which is evident from the clause “may be renewed for a like term at the option of the lessee,” the phrase “for a like term” referring to the period. It is silent as to what the specific terms and conditions of the renewed lease shall be. Shall it be the same terms and conditions as in the original contract, or shall it be under the terms and conditions as may be mutually agreed upon by the parties after the expiration of the existing lease?

Same; Same; Statutory Construction; As in a statute no word, clause, sentence, provision or part of a contract shall be considered surplusage or superfluous, meaningless, void, insignificant or nugatory, if that can be reasonably avoided, and to this end, a construction which will render every word operative is to be preferred over that which would make some words idle and nugatory.—Besides, if we were to adopt the contrary theory that the terms and conditions to be embodied in the renewed contract were still subject to mutual agreement by and between the parties, then the option—which is an integral part of the consideration for the contract—would be rendered worthless. For then, the lessor could easily defeat the lessee’s right of renewal by simply imposing unreasonable and onerous conditions to prevent the parties from reaching an agreement, as in the case at bar. As in a statute no word, clause, sentence, provision or part of a contract shall be considered surplusage or superfluous, meaningless, void, insignificant or nugatory, if that can be reasonably avoided.

To this end, a construction which will render every word operative is to be preferred over that which would make some words idle and nugatory.

Same; Same; Where the old lease contract was deemed renewed under the same terms and conditions upon the exercise by the lessee of its option, the basis of the computation of rentals should be the rental rate provided for in the existing contract.—Fortunately for respondent lessors, ALLIED vacated the premises on 20 February 1993

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indicating its abandonment of whatever rights it had under the renewal clause. Consequently, what remains to be done is for ALLIED to pay rentals for the continued use of the premises until it vacated the same, computed from the expiration of the original term of the contract on 31 March 1992 to the time it actually left the premises on 20 February 1993, deducting therefrom the amount of P68,400.00 consigned in court by ALLIED and any other amount which it may have deposited or advanced in connection with the lease. Since the old lease contract was deemed renewed under the same terms and conditions upon the exercise by ALLIED of its option, the basis of the computation of rentals should be the rental rate provided for in the existing contract.

Same; Same; Donations; Words and Phrases; “Interest,” Explained; A person who is not principally or subsidiarily bound has no legal capacity to challenge the validity of a contract of donation—he must first have an interest in it, meaning a material interest, an interest to be affected by the deed, as distinguished from a mere incidental interest.—ALLIED cannot assail the validity of the deed of donation, not being a party thereto. A person who is not principally or subsidiarily bound has no legal capacity to challenge the validity of

the contract. He must first have an interest in it. “Interest” within the meaning of the term means material interest, an interest to be affected by the deed, as distinguished from a mere incidental interest. Hence, a person who is not a party to a contract and for whose benefit it was not expressly made cannot maintain an action on it, even if the contract, if performed by the parties thereto would incidentally affect him, except when he is prejudiced in his rights with respect to one of the contracting parties and can show the detriment which could positively result to him from the contract in which he had no intervention. We find none in the instant case.

PETITION for review on certiorari of a decision of the Court of Appeals.


Ocampo, Quiroz, Pesayco & Associates for petitioner.

H.D. Tumaneng & Associates for private respondents.

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BELLOSILLO, J.:

There are two (2) main issues in this petition for review: namely, (a) whether a stipulation in a contract of lease to the effect that the contract “may be renewed for a like term at the option of the lessee” is void for being potestative or violative of the principle of mutuality of contracts under Art. 1308 of the Civil Code and, corollarily, what is the meaning of the clause “may be renewed for a like term at the option of the lessee”; and, (b) whether a lessee has the legal

personality to assail the validity of a deed of donation executed by the lessor over the leased premises.

Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco owned a 512-square meter lot located at No. 2 Sarmiento Street corner Quirino Highway, Novaliches, Quezon City, covered by TCT No. 136779 in their name. On 30 June 1978 they leased the property to petitioner Allied Banking Corporation (ALLIED) for a monthly rental of P1,000.00 for the first three (3) years, adjustable by 25% every three (3) years thereafter.1 The lease contract specifically states in its Provision No. 1 that “the term of this lease shall be fourteen (14) years commencing from April 1, 1978 and may be renewed for a like term at the option of the lessee.”

Pursuant to their lease agreement, ALLIED introduced an improvement on the property consisting of a concrete building with a floor area of 340-square meters which it used as a branch office. As stipulated, the ownership of the building would be transferred to the lessors upon the expiration of the original term of the lease.

Sometime in February 1988 the Tanqueco spouses executed a deed of donation over the subject property in favor of their four (4) children, namely, private respondents herein Oscar D. Tanqueco, Lucia Tanqueco-Matias, Ruben D. Tanqueco and Nestor D. Tanqueco, who accepted the donation in the same public instrument.

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1 Records, p. 45.

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On 13 February 1991, a year before the expiration of the contract of lease, the Tanquecos notified petitioner ALLIED that they were no longer interested in renewing the lease.2 ALLIED replied that it was exercising its option to renew their lease under the same terms with additional proposals.3 Respondent Ruben D. Tanqueco, acting in behalf of all the donee-lessors, made a counter-proposal.4 ALLIED however rejected the counter-proposal and insisted on Provision No. 1 of their lease contract.

When the lease contract expired in 1992 private respondents demanded that ALLIED vacate the premises. But the latter asserted its sole option to renew the lease and enclosed in its reply letter a cashier’s check in the amount of P68,400.00 representing the advance rental payments for six (6) months taking into account the escalation clause. Private respondents however returned the check to ALLIED, prompting the latter to consign the amount in court.

An action for ejectment was commenced before the Metropolitan Trial Court of Quezon City. After trial, the MeTC-Br. 33 declared Provision No. 1 of the lease contract void for being violative of Art. 1308 of the Civil Code thus—

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2 Records, p. 11; Exh. “C.”

3 ALLIED proposed the following terms for the extension of the lease: (1) Term of Lease: ten (10) years; (2) Escalation Rate: 10% per annum starting on the second year; (3) Monthly Rental: P8,000/month on the first year; and, (4) Advance Rental: Six (6) months to be applied to the first six (6) months of the lease.

4 The counter-proposal: (1) Term: Two (2) years subject to renewal at the sole option of the lessor; (2) Rent: a) at P80,000 a month payable within the first five (5) days of each month commencing from the date the lease contract is executed; b) Twelve (12) months rental payable in advance upon signing of the lease contract; (3) Deposit: P80,000 to answer for any unpaid obligations of the lessee, payable upon signing of the lease contract and refundable upon the

termination of the lease (net of any amount applied to the payment of any such unpaid obligations).

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x x x but such provision [in the lease contract], to the mind of the Court, does not add luster to defendant’s cause nor constitutes as an unbridled or unlimited license or sanctuary of the defendant to perpetuate its occupancy on the subject property. The basic intention of the law in any contract is mutuality and equality. In other words, the validity of a contract cannot be left at (sic) the will of one of the contracting parties. Otherwise, it infringes (upon) Article 1308 of the New Civil Code, which provides: The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them x x x x Using the principle laid down in the case of Garcia v. Legarda as cornerstone, it is evident that the renewal of the lease in this case cannot be left at the sole option or will of the defendant notwithstanding provision no. 1 of their expired contract. For that would amount to a situation where the continuance and effectivity of a contract will depend only upon the sole will or power of the lessee, which is repugnant to the very spirit envisioned under Article 1308 of the New Civil Code x x x x the theory adopted by this Court in the case at bar finds ample affirmation from the principle echoed by the Supreme Court in the case of Lao Lim v. CA, 191 SCRA 150, 154, 155.

On appeal to the Regional Trial Court, and later to the Court of Appeals, the assailed decision was affirmed.5

On 20 February 1993, while the case was pending in the Court of Appeals, ALLIED vacated the leased premises by reason of the controversy.6

ALLIED insists before us that Provision No. 1 of the lease contract was mutually agreed upon hence valid and binding on both parties, and the exercise by

petitioner of its option to renew the contract was part of their agreement and in pursuance thereof.

We agree with petitioner. Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality of contracts. It provides that “the contract must bind both the

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5 Decision penned by Judge Jose C. de Guzman, RTC-Br. 93, Quezon City; Decision of the Court of Appeals penned by Justice Jesus M. Elbinias, concurred in by Justices Ramon U. Mabutas, Jr., and Salvador J. Valdez, Jr., CA-G.R. SP. Case No. 30162.

6 Rollo, p. 12.

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contracting parties; its validity or compliance cannot be left to the will of one of them.” This binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other free therefrom. The ultimate purpose is to render void a contract containing a condition which makes its fulfillment dependent solely upon the uncontrolled will of one of the contracting parties.

An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to statutory restric-tions, valid and binding on the parties. This option, which is provided in the same lease agreement, is

fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the performance by the lessee. It is a purely executory contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the right is made to depend. The right of renewal constitutes a part of the lessee’s interest in the land and forms a substantial and integral part of the agreement.

The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter escape liability even if he should subsequently decide to abandon the premises. Mutuality obtains in such a contract and equality

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exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment.7

The case of Lao Lim v. Court of Appeals8 relied upon by the trial court is not applicable here. In that case, the stipulation in the disputed compromise agreement was to the effect that the lessee would be allowed to stay in the premises “as long as he needs it and can pay the rents.” In the present case, the questioned provision states that the lease “may be renewed for a like term at the option of the lessee.” The lessor is bound by the option he has conceded to

the lessee. The lessee likewise becomes bound only when he exercises his option and the lessor cannot thereafter be excused from performing his part of the agreement.

Likewise, reliance by the trial court on the 1967 case of Garcia v. Rita Legarda, Inc.,9 is misplaced. In that case, what was involved was a contract to sell involving residential lots, which gave the vendor the right to declare the contract cancelled and of no effect upon the failure of the vendee to fulfill any of the conditions therein set forth. In the instant case, we are dealing with a contract of lease which gives the lessee the right to renew the same.

With respect to the meaning of the clause “may be renewed for a like term at the option of the lessee,” we sustain petitioner’s contention that its exercise of the option resulted in the automatic extension of the contract of lease under the same terms and conditions. The subject contract simply provides that “the term of this lease shall be fourteen (14) years and may be renewed for a like term at the option of the lessee.” As we see it, the only term on which there has been a clear agreement is the period of the new contract, i.e., fourteen (14) years, which is evident from the clause “may be renewed for a like term at the option of the lessee,” the phrase “for a like term” referring to the period. It is silent as to what

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7 8 Manresa 627.

8 G.R. No. 87047, 31 October 1990, 191 SCRA 156.

9 No. L-20175, 30 October 1976, 21 SCRA 555.

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the specific terms and conditions of the renewed lease shall be. Shall it be the same terms and conditions as in the original contract, or shall it be under the terms and conditions as may be mutually agreed upon by the parties after the expiration of the existing lease?

In Ledesma v. Javellana10 this Court was confronted with a similar problem. In that case the lessee was given the sole option to renew the lease, but the contract failed to specify the terms and conditions that would govern the new contract. When the lease expired, the lessee demanded an extension under the same terms and conditions. The lessor expressed conformity to the renewal of the contract but refused to accede to the claim of the lessee that the renewal should be under the same terms and conditions as the original contract. In sustaining the lessee, this Court made the following pronouncement:

x x x in the case of Hicks v. Manila Hotel Company, a similar issue was resolved by this Court. It was held that ‘such a clause relates to the very contract in which it is placed, and does not permit the defendant upon the renewal of the contract in which the clause is found, to insist upon different terms than those embraced in the contract to be renewed;’ and that ‘a stipulation to renew always relates to the contract in which it is found and the rights granted thereunder, unless it expressly provides for variations in the terms of the contract to be renewed.’

The same principle is upheld in American Law regarding the renewal of lease contracts. In 50 Am. Jur. 2d, Sec. 1159, at p. 45, we find the following citations: ‘The rule is well-established that a general covenant to renew or extend a lease which makes no provision as to the terms of a renewal or extension implies a renewal or extension upon the same terms as provided in the original lease.’

In the lease contract under consideration, there is no provision to indicate that the renewal will be subject to new terms and conditions that the parties may yet agree upon. It is to renewal provisions of lease contracts of the kind presently considered that the principles stated above squarely apply. We do not agree with the contention of

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10 G.R. No. 55187, 28 April 1983, 121 SCRA 794.

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the appellants that if it was intended by the parties to renew the contract under the same terms and conditions stipulated in the contract of lease, such should have expressly so stated in the contract itself. The same argument could easily be interposed by the appellee who could likewise contend that if the intention was to renew the contract of lease under such new terms and conditions that the parties may agree upon, the contract should have so specified. Between the two assertions, there is more logic in the latter.

The settled rule is that in case of uncertainty as to the meaning of a provision granting extension to a contract of lease, the tenant is the one favored and not the landlord. ‘As a general rule, in construing provisions relating to renewals or extensions, where there is any uncertainty, the tenant is favored, and not the landlord, because the latter, having the power of stipulating in his own favor, has neglected to do so; and also upon the principle that every man’s grant is to be taken most strongly against himself (50 Am. Jur. 2d, Sec. 1162, p. 48; see also 51 C.J.S. 599).’

Besides, if we were to adopt the contrary theory that the terms and conditions to be embodied in the renewed contract were still subject to mutual agreement by and between the parties, then the option—which is an integral part of the consideration for the contract—would be rendered worthless. For then, the lessor could easily defeat the lessee’s right of renewal by simply imposing unreasonable and onerous conditions to prevent the parties from reaching an agreement, as in the case at bar. As in a statute no word, clause, sentence, provision or part of a contract shall be considered surplusage or superfluous,

meaningless, void, insignificant or nugatory, if that can be reasonably avoided. To this end, a construction which will render every word operative is to be preferred over that which would make some words idle and nugatory.11

Fortunately for respondent lessors, ALLIED vacated the premises on 20 February 1993 indicating its abandonment of whatever rights it had under the renewal clause. Consequently, what remains to be done is for ALLIED to pay rentals for the continued use of the premises until it vacated the

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11 Shimonek v. Tillanan, 1 P. 2d., 154.

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same, computed from the expiration of the original term of the contract on 31 March 1992 to the time it actually left the premises on 20 February 1993, deducting therefrom the amount of P68,400.00 consigned in court by ALLIED and any other amount which it may have deposited or advanced in connection with the lease. Since the old lease contract was deemed renewed under the same terms and conditions upon the exercise by ALLIED of its option, the basis of the computation of rentals should be the rental rate provided for in the existing contract.

Finally, ALLIED cannot assail the validity of the deed of donation, not being a party thereto. A person who is not principally or subsidiarily bound has no legal capacity to challenge the validity of the contract.12 He must first have an interest in it. “Interest” within the meaning of the term means material interest, an interest to be affected by the deed, as distinguished from a mere incidental interest. Hence, a person who is not a party to a contract and for whose benefit

it was not expressly made cannot maintain an action on it, even if the contract, if performed by the parties thereto would incidentally affect him,13 except when he is prejudiced in his rights with respect to one of the contracting parties and can show the detriment which could positively result to him from the contract in which he had no intervention.14 We find none in the instant case.

WHEREFORE, the Decision of the Court of Appeals is REVERSED and SET ASIDE. Considering that petitioner ALLIED BANKING CORPORATION already vacated the leased premises as of 20 February 1993, the renewed lease contract is deemed terminated as of that date. However, petitioner is

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12 Astudillo v. The Board of Directors of PHHC, No. L-28066, 22 September 1976, 73 SCRA 15. See also Article 1397, Civil Code.

13 House International Building Tenants Association, Inc. v. Intermediate Appellate Court, G.R. No. 75287, 30 June 1987, 151 SCRA 703.

14 Teves v. The People’s Homesite and Housing Corporation, et al., No. L-21498, 27 June 1968, 23 SCRA 1141.

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People vs. Aquino

required to pay rentals to respondent lessors at the rate provided in their existing contract, subject to computation in view of the consignment in court of P68,400.00 by petitioner, and of such other amounts it may have deposited or advanced in connection with the lease.

SO ORDERED.

Davide, Jr. (Chairman), Vitug and Kapunan, JJ., concur.

Reviewed decision reversed and set aside.

Notes.—In case of ambiguity in contract language, that interpretation which establishes a less onerous transmission of rights or imposition of lesser burdens which permits greater reciprocity between the parties is to be adopted. (Castelo vs. Court of Appeals, 244 SCRA 180 [1995])

Principles governing the binding effect of any agreement between parties to a contract; Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. (Almeda vs. Court of Appeals, 256 SCRA 292 [1996]) [Allied Banking Corporation vs. Court of Appeals, 284 SCRA 357(1998)]

G.R. No. 118248. April 5, 2000.*

DKC HOLDINGS CORPORATION, petitioner, vs. COURT OF APPEALS, VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA, DISTRICT III, respondents.

Succession; Contracts; The general rule, therefore, is that heirs are bound by contracts entered into by their predeccesors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law.—The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law. In the case at bar, there is neither contractual stipulation nor legal provision making the rights and obligations under the contract intransmissible. More importantly, the nature of the rights and obligations therein are, by their nature, transmissible.

Same; Same; Intransmissible Rights; Nature.—The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows: “Among contracts which are intransmissible are those which are purely personal, either by provision of law, such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated that con-

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* FIRST DIVISION.

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DKC Holdings Corporation vs. Court of Appeals

tracts for the payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate. Thus, where the client in a contract for professional services of a lawyer died, leaving minor heirs, and the lawyer, instead of presenting his claim for professional services under the contract to the probate court, substituted the minors as parties for his client, it was held that the contract could not be enforced against the minors; the lawyer was limited to a recovery on the basis of quantum meruit.”In American jurisprudence, “(W)here acts stipulated in a contract require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal qualification of one or both parties, the agreement is of a personal nature, and terminates on the death of the party who is required to render such service.”

Same; Same; There is privity of interest between an heir and his deceased predecessor—he only succeeds to what rights his predecessor had and what is valid and binding against the latter is also valid and binding as against the former.—It is futile for Victor to insist that he is not a party to the contract because of the clear provision of Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and binding as against him.

Same; Same; Lease; The death of a party does not excuse nonperformance of a contract which involves a property right, and the rights and obligations thereunder pass to the personal representatives of the deceased.—In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death of a party does not excuse nonperformance of a contract which involves a property right, and the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract.



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De Borja, Medialdea, Bello, Guevarra, Serapio & Gerodias for petitioner.

Jesus E. Mendoza and Oscar T. Mercado for private respondent.

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari seeking the reversal of the December 5, 1994 Decision of the Court of Appeals in CA-G.R. CV No. 40849 entitled “DKC Holdings Corporation vs. Victor U. Bartolome, et al.,”1 affirming in toto the January 4, 1993 Decision of the Regional Trial Court of Valenzuela, Branch 172,2 which dismissed Civil Case No. 3337-V-90 and ordered petitioner to pay P30,000.00 as attorney’s fees.

The subject of the controversy is a 14,021 square meter parcel of land located in Malinta, Valenzuela, Metro Manila which was originally owned by private respondent Victor U. Bartolome’s deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of one of the textile plants of petitioner and, as such, was seen by the latter as a potential warehouse site.

On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with Encarnacion Bartolome, whereby petitioner was given the option to lease or lease with purchase the subject land, which option must be exercised within a period of two years counted from the signing of the Contract. In turn, petitioner undertook to pay P3,000.00 a month as consideration for the reservation of its option. Within the two-year period, petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome of its desire to

exercise its option. The contract also provided that in case petitioner chose to lease the property, it may take actual

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1 Penned by Associate Justice Corona Ibay-Somera, concurred in by Justices Asaali S. Isnani and Celia Lipana-Reyes.

2 Penned by Judge Teresita Dizon-Capulong.

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possession of the premises. In such an event, the lease shall be for a period of six years, renewable for another six years, and the monthly rental fee shall be P15,000.00 for the first six years and P18,000.00 for the next six years, in case of renewal.

Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion until her death in January 1990. Thereafter, petitioner coursed its payment to private respondent Victor Bartolome, being the sole heir of Encarnacion. Victor, however, refused to accept these payments.

Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the properties of Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds cancelled Transfer Certificate of Title No. B-37615 and issued Transfer Certificate of Title No. V-14249 in the name of Victor Bartolome.

On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising its option to lease the property, tendering the amount of

P15,000.00 as rent for the month of March. Again, Victor refused to accept the tendered rental fee and to surrender possession of the property to petitioner.

Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking Corporation, Cubao Branch, in the name of Victor Bartolome and deposited therein the P15,000.00 rental fee for March as well as P6,000.00 reservation fees for the months of February and March.

Petitioner also tried to register and annotate the Contract on the title of Victor to the property. Although respondent Register of Deeds accepted the required fees, he nevertheless refused to register or annotate the same or even enter it in the day book or primary register.

Thus, on April 23, 1990, petitioner filed a complaint for specific performance and damages against Victor and the Register of Deeds,3 docketed as Civil Case No. 3337-V-90

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3 Records, Civil Case No. 3337-V-90, pp. 1-28.

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which was raffled off to Branch 171 of the Regional Trial Court of Valenzuela. Petitioner prayed for the surrender and delivery of possession of the subject land in accordance with the Contract terms; the surrender of title for registration and annotation thereon of the Contract; and the payment of P500,000.00 as actual damages, P500,000.00 as moral damages, P500,000.00 as exemplary damages and P300,000.00 as attorney’s fees.

Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss4 was filed by one Andres Lanozo, who claimed that he was and has been a tenant-tiller of the subject property, which was agricultural riceland, for forty-five years. He questioned the jurisdiction of the lower court over the property and invoked the Comprehensive Agrarian Reform Law to protect his rights that would be affected by the dispute between the original parties to the case.

On May 18, 1990, the lower court issued an Order5 referring the case to the Department of Agrarian Reform for preliminary determination and certification as to whether it was proper for trial by said court.

On July 4, 1990, the lower court issued another Order6 referring the case to Branch 172 of the RTC of Valenzuela which was designated to hear cases involving agrarian land, after the Department of Agrarian Reform issued a letter-certification stating that referral to it for preliminary determination is no longer required.

On July 16, 1990, the lower court issued an Order denying the Motion to Intervene,7 holding that Lanozo’s rights may well be ventilated in another proceeding in due time.

After trial on the merits, the RTC of Valenzuela, Branch 172 rendered its Decision on January 4, 1993, dismissing the Complaint and ordering petitioner to pay Victor P30,000.00 as

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4 Id., pp. 35-43.

5 Id., p. 60.

6 Id., p. 129.

7 Id., p. 130.

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attorney’s fees. On appeal to the CA, the Decision was affirmed in toto.

Hence, the instant Petition assigning the following errors:

(A)

FIRST ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PROVISION ON THE NOTICE TO EXERCISE OPTION WAS NOT TRANSMISSIBLE.

(B)

SECOND ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE NOTICE Of OPTION MUST BE SERVED BY DKC UPON ENCARNACION BARTOLOME PERSONALLY.

(C)

THIRD ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACT WAS ONE-SIDED AND ONEROUS IN FAVOR OF DKC.

(D)

FOURTH ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE EXISTENCE OF A REGISTERED TENANCY WAS FATAL TO THE VALIDITY OF THE CONTRACT.

(E)

FIFTH ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PLAINTIFF-APPELLANT WAS LIABLE TO DEFENDANTAPPELLEE FOR ATTORNEY’S FEES.8

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8 Petition for Review, pp. 9-10; Rollo, pp. 10-11.

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The issue to be resolved in this case is whether or not the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with petitioner was terminated upon her death or whether it binds her sole heir, Victor, even after her demise.

Both the lower court and the Court of Appeals held that the said contract was terminated upon the death of Encarnacion Bartolome and did not bind Victor because he was not a party thereto.

Article 1311 of the Civil Code provides, as follows—

“ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

x x x x x x x x x.”

The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law.

In the case at bar, there is neither contractual stipulation nor legal provision making the rights and obligations under the contract intransmissible. More importantly, the nature of the rights and obligations therein are, by their nature, transmissible.

The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows:

“Among contracts which are intransmissible are those which are purely personal, either by provision of law, such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated that contracts for the payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate. Thus, where the client in a contract for professional services of a lawyer died, leaving minor

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heirs, and the lawyer, instead of presenting his claim, for professional services under the contract to the probate court, substituted the minors as parties for his client, it was held that the contract could not be enforced against the minors; the lawyer was limited to a recovery on the basis of quantum meruit.”9

In American jurisprudence, “(W)here acts stipulated in a contract require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal qualification of one or both parties, the agreement is of a personal nature, and terminates on the death of the party who is required to render such service.”10

It has also been held that a good measure for determining whether a contract terminates upon the death of one of the parties is whether it is of such a character that it may be performed by the promissor’s personal representative. Contracts to perform personal acts which cannot be as well performed by others are discharged by the death of the promissor. Conversely, where the service or act is of such a character that it may as well be performed by another, or where the contract, by its terms, shows that performance by others was contemplated, death does not terminate the contract or excuse nonperformance.11

In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner upon the exercise by the latter of its option to lease the same may very well be performed by her heir Victor.

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9 IV Tolentino, CIVIL CODE OF THE PHILIPPINES, 430 (1986).

10 Kanawha Banking & Trust Co. v. Gilbert, 46 S.E. 2d 225, 131 W. Va. 88; Rowe v. Compensation Research Bureau, Inc., 62 N.W. 2d 581, 265 Wis. 589; Fressil v. Nichols, 114 So. 431, 94 Fla. 403; Cutler v. United Shoe Manufacturing Corporation, 174 N.E. 507, 274 Mass. 341, cited in 17A C.J.S. Sec. 465.

11 17 Am. Jur. 2d, Sec. 413, p. 866.

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As early as 1903, it was held that “(H)e who contracts does so for himself and his heirs.”12 In 1952, it was ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the reconveyance had not been made, the heirs can be compelled to execute the proper deed for reconveyance. This was grounded upon the principle that heirs cannot escape the legal consequence of a transaction entered into by their predecessor-in-interest because they have inherited the property subject to the liability affecting their common ancestor.13

It is futile for Victor to insist that he is not a party to the contract because of the clear provision of Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and binding as against him.14 This is clear from Parañaque Kings Enterprises vs. Court of Appeals,15 where this Court rejected a similar defense—

With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal.

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12 Eleizegui v. Lawn Tennis Club, G.R. No. 967, 2 Phil. 309, 313 (1903), citing Article 1257 of the old Civil Code.

13 Carillo v. Salak de Paz, G.R. No. L-4133, 91 Phil. 265 (1952).

14 See Galsinao v. Austria, G.R. No. L-7918, 97 Phil. 82 87 (1955).

15 G.R. No. 111538, 268 SCRA 727, 745 (1997).

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In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy.

In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death of a party does not excuse nonperformance of a contract which involves a property right, and the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract.16

Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the subject Contract of Lease with Option to Buy.

That being resolved, we now rule on the issue of whether petitioner had complied with its obligations under the contract and with the requisites to exercise its option. The payment by petitioner of the reservation fees during the

two-year period within which it had the option to lease or purchase the property is not disputed. In fact, the payment of such reservation fees, except those for February and March, 1990 were admitted by Victor.17 This is clear from the transcripts, to wit—

“ATTY. MOJADO:

One request, Your Honor. The last payment which was allegedly made in January 1990 just indicate in that stipulation that it was issued November of 1989 and postdated Janaury 1990 and then we will admit all.

COURT:

All reservation fee?

ATTY. MOJADO:

Yes, Your Honor.

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16 17A C.J.S. Section 465, p. 627.

17 See T.S.N., 19 October 1991, pp. 11-12, 14, 16, 19 and 20-21.

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COURT:

All as part of the lease?

ATTY. MOJADO:

Reservation fee, Your Honor. There was no payment with respect to payment of rentals.18

Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the same in China Bank Savings Account No. 1-04-02558-I-1, in the name of Victor as the sole heir of Encarnacion Bartolome,19 for the months of March to July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn over the subject property.20

Likewise, petitioner complied with its duty to inform the other party of its intention to exercise its option to lease through its letter dated March 12, 1990,21 well within the twoyear period for it to exercise its option. Considering that at that time Encarnacion Bartolome had already passed away, it was legitimate for petitioner to have addressed its letter to her heir.

It appears, therefore, that the exercise by petitioner of its option to lease the subject property was made in accordance with the contractual provisions. Concomitantly, private respondent Victor Bartolome has the obligation to surrender possession of and lease the premises to petitioner for a period of six (6) years, pursuant to the Contract of Lease with Option to Buy.

Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in the present petition. We note that the Motion to Intervene and to Dismiss of the alleged tenant, Andres Lanozo, was denied by the lower court and that such denial was never made the subject of an appeal. As the lower court stated in its Order, the alleged right of the

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18 T.S.N., 29 October 1991, pp. 20-21.

19 See Exhibit “K”; Records, Civil Case No. 3337-V-90, pp. 274-276.

20 See T.S.N., 9 January 1992, pp. 16-17.

21 Exh. “J,” Records, Civil Case No. 3337-V-90, pp. 272-273.

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tenant may well be ventilated in another proceeding in due time.

WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional Trial Court of Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and a new one rendered ordering private respondent Victor Bartolome to:

(a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of Title No. V-14249 by way of lease to petitioner and to perform all obligations of his predecessor-in-interest, Encarnacion Bartolome, under the subject Contract of Lease with Option to Buy;

(b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent Register of Deeds for registration and annotation thereon of the subject Contract of Lease with Option to Buy;

(c) pay costs of suit.

Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject Contract of Lease with Option to Buy at the back of Transfer Certificate of Title No. V-14249 upon submission by petitioner of a copy thereof to his office.

SO ORDERED.

Davide, Jr. (C.J.), Puno, Kapunan and Pardo, JJ., concur.

Petition granted, judgment of Court of Appeals and trial court set aside.

Notes.—Article 992 of the Civil Code enunciates what is so commonly referred to in the rules on succession as the “principle of absolute separation between the legitimate fam

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People vs. Delos Santos

ily and the illegitimate family.” (Manuel vs. Ferrer, 247 SCRA 476 [1995])

No contract may be entered into upon a future inheritance except in cases expressly authorized by law—such a contract is not valid and cannot be the source of any right nor the creator of any obligation between the parties. (Tañedo vs. Court of Appeals, 252 SCRA 80 [1996])

Grandchildren are not entitled to provisional support from the funds of the decedent’s estate. (Estate of Hilario M. Ruiz vs. Court of Appeals, 252 SCRA 541 [1996]) [DKC Holdings Corporation vs. Court of Appeals, 329 SCRA 666(2000)]

No. L-79734. December 8, 1988.*

MARMONT RESORT HOTEL ENTERPRISES, petitioner, vs. FEDERICO GUIANG, AURORA GUIANG, and COURT OF APPEALS, respondents.

Contracts; Estoppel; Pre-trial Conference; Judicial Admissions; Stipulations of Facts constitute judicial admissions which may be controverted only upon a clear showing that such stipulation had been entered into through “palpable mistake;” Respondent spouses are estopped from raising as an issue the existence or admissibility of the Memoranda of Agreements marked as exhibits during pre-trial.—Both the trial and appellate courts held that the first and second Memoranda of Agreement are not properly considered as forming part of the record of this case, because neither had been formally presented and offered in evidence at the trial of Civil Case No. 2896-C. The record shows, however, as noted earlier, that at the pre-trial conference held on 2 October 1980, both petitioner Marmont and respondent spouses had agreed upon a stipulation of facts and issues recognizing the existence of those same two (2) agreements. Such stipulation of facts constitutes a judicial admission, the veracity of which requires no further proof and which may be controverted only upon a clear showing that such stipulation had been entered into through “palpable mistake.” On this point, Section 2, Rule 129 of the Revised Rules of Court provides: “Section 2. Judicial Admis-sions.—Admission made by the parties in the pleadings, or in the course of the trial or other proceedings do not require proof and cannot be contradicted unless previously shown to have been made through palpable mistake.” There has been no showing and respondent spouses do not claim that “palpable mistake” had intervened here, in respect of the formulation of the facts stipulated by the parties at the pre-trial conference. Absent any such showing, that stipulation of facts is incontrovertible, and may be relied upon by the courts. Respondent spouses are estopped from raising as an issue in this case the existence and admissibility in evidence of both the first and second Memoranda of Agreement which, having been marked as exhibits during pre-trial, properly form part of the record of this case, even though not formally offered in evidence after trial.

Same; Same; Same; Same; Conjugal Partnership; The husband, being a witness, to the Memorandum of Agreement, is deemed to have

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* THIRD DIVISION.

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Marmont Resort Hotel Enterprises vs. Guiang

given his consent to the execution thereof by his wife.—Article 165 and 172 state the general principle under our civil law, that the wife may not validly bind the conjugal partnership without the consent of the husband, who is legally the administrator of the conjugal partnership. In this particular case, however, as noted earlier, the second Memorandum of Agreement, although ostensibly contracted solely by Aurora Guiang with Maris Trading, was also signed by her husband Federico, as one of the witnesses thereto. This circumstance indicates not only that Federico was present during the execution of the agreement but also that he had, in fact, given his consent to the execution thereof by his wife Aurora. Otherwise, he should not have appended his signature to the document as witness. Respondent spouses cannot now disown the second Memorandum of Agreement as their effective consent thereto is sufficiently manifested in the document itself.

Same; Same; Same; Same; Public Land; Only the government may raise the issue of invalidity of the agreement since the respondents spouses and Maris Trading are in pari delicto.—That the land in dispute was, at the time of execution of the second Memorandum of Agreement, public land, is of no consequence here. Pending approval of Federico’s Miscellaneous Sales Application over said land, respondent spouses enjoyed possessory and other rights over the same which could validly be assigned or transferred in favor of third persons. In this case, respondent spouses chose to transfer such rights (over the portion upon which the water pump was installed) to Maris Trading, as evidenced by the fourth

paragraph of the second Memorandum of Agreement, quoted earlier. Furthermore, assuming (though only for the sake of argument) that the alienation to Maris Trading was legally objectionable, respondent spouses are not the proper parties to raise the issue of invalidity, they and Maris Trading being in pari delicto. Only the government may raise that issue.

Same; Same; Same; Same; Stipulation pour autrui, defined; Damages; Respondent spouses are liable for damages since they acted contrary to the principles of Arts. 19 & 21 of the Civil Code; Case at bar.—A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, which stipulation is found in a contract entered into by parties neither of whom acted as agent of the beneficiary. We believe and so hold that the purpose and intent of the stipulating parties (Maris Trading and respondent spouses) to benefit the third person (petitioner Marmont) is sufficiently clear in the second Memorandum of Agreement. Marmont was not of course a party to that second Agreement but, as cor-

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rectly pointed out by the trial court and the appellate court, the respondent spouses could not have prevented Maris Trading from entering the property possessory rights over which had thus been acquired by Maris Trading. That respondent spouses remained in physical possession of that particular bit of land, is of no moment; they did so simply upon the sufferance of Maris Trading. Had Maris Trading, and not the respondent spouses, been in physical possession, we believe that Marmont would have been similarly entitled to compel Maris Trading to give it (Marmont) access to the site involved. The two (2) courts below failed to take adequate account of the fact that the sole purpose of Maris Trading in acquiring possessory rights over that specific portion of the land where well and pump and piping had been installed, was to

supply the water requirements of petitioner’s hotel. That said purpose was known by respondent spouses, is made explicit by the second Memorandum of Agreement. Maris Trading itself had no need for a water supply facility; neither did the respondent spouses. The water facility was intended solely for Marmont Resort Hotel. The interest of Marmont cannot therefore be regarded as merely “incidental.” Finally, even if it be assumed (for purposes of argument merely) that the second Memorandum of Agreement did not constitute a stipulation pour autrui, still respondent spouses, in the circumstances of this case, must be regarded as having acted contrary to the principles of honesty, good faith and fair dealing embodied in Articles 19 and 21 of the Civil Code when they refused petitioner Marmont access to the water facility to inspect and repair the same and to increase its capacity and thereby to benefit from it. In so doing, respondent spouses forced petitioner Marmont to locate an alternative source of water for its hotel which of course involved expenditure of money and perhaps loss of hotel revenues. We believe they should respond in damages.

Same; Same; Same; Same; Same; Same; Court is compelled to remand the case to the trial court for determination of damages.—The evidence on record, however, appears insufficient for determination of the amount of damages for which respondent spouses should be liable. For this reason, the Court is compelled to remand this case to the trial court for determination of such damages in appropriate further proceedings.

PETITION for certiorari to review the decision of the Court of Appeals.


Isagani M. Jungco for petitioner.

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Regalado C. Salvador for respondents.

FELICIANO, J.:

The present Petition for Review seeks to set aside the Decision dated 9 December 1986 of the Court of Appeals in C.A.—G.R. CV 03299. The appellate court affirmed a Decision dated 31 May 1983 of Branch 83 of the Regional Trial Court of Olongapo City dismissing the complaint in Civil Case No. 2896-C filed by petitioner company against private respondent spouses.

On 2 May 1975, a Memorandum of Agreement was executed between Maris Trading and petitioner Marmont Resort Hotel Enterprises, Inc. (“Marmont”), a corporation engaged in the hotel and resort business with office and establishment at Olongapo City. Under the agreement, Maris Trading undertook to drill for water and to provide all equipment necessary to install and complete a water supply facility to service the Marmont Resort Hotel in Olongapo, for a stipulated fee of P40,000.00. In fulfillment of its contract, Maris Trading drilled a well and installed a water pump on a portion of a parcel of land situated in Olongapo City, then occupied by respondent spouses Federico and Aurora Guiang.

Five (5) months later, a second Memorandum of Agreement was executed between Maris Trading and Aurora Guiang, with Federico Guiang signing as witness. This second agreement in essential part read:1

“That the First Party [Maris Trading] has dug, drilled and tapped water source for Marmont Resort, located at Bo. Barretto, Olongapo City in accordance with their agreement executed on May 2, 1975 and notarized before Isagani M. Jungco, Notary Public and entered as Doc. No. 166; Page No. 135; Book No. XV; Series of 1975.

That the First Party has erected, built and drilled for the water source of Marmont Resort on the land owned by the Second Party [Aurora Guiang] at the

corner of J. Montelibano Street and Maquinaya Drive (Provincial Road) with the latter’s permission.

That for and in consideration of the sum of P1,500.00 the Second Party hereby Sell, Transfer and Cede all possessory rights, interest

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1 Record on Appeal, pp. 3-4.

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and claims over that portion of the lot wherein the water source of Marmont Resort is located unto and in favor of Maris Trading.”

After some time, the water supply of the Marmont Resort Hotel became inadequate to meet the hotel’s water requirements. Petitioner Marmont secured the services of another contractor (the name of which was not disclosed), which suggested that in addition to the existing water pump, a submersible pump be installed to increase the pressure and improve the flow of water to the hotel. Accordingly, Juan Montelibano, Jr., manager of the Marmont Resort Hotel, sought permission from the Guiang spouses to inspect the water pump which had been installed on the portion of the land previously occupied by the spouses and to make the necessary additional installations thereon. No such permission, however, was granted.

On 13 May 1980, petitioner Marmont filed a Complaint2 against the Guiang spouses for damages resulting from their refusal to allow representatives of petitioner and the second contractor firm entry into the water facility site. The claimed damages were broken down as follows: (a) P10,000.00 representing the amount advanced in payment to the second contractor; (b) P40,000.00

representing the total project cost of the installation made by Maris Trading: (c) P50,000.00 representing additional expenses incurred and incidental losses resulting from failure of the original pump to cope with the water requirements of the Marmont Resort Hotel; and (d) P10,000.00 for Attorney’s fees.

In their Answer,3 the Guiang spouses (defendants below) denied having had any previous knowledge of the first Memorandum of Agreement and asserted that the second Memorandum of Agreement was invalid for not having been executed in accordance with law. The spouses added a counterclaim for damages in the amount of P200,000.00.

On 2 October 1980, at the pre-trial conference, the parties agreed on the following stipulation of facts and issues embodied in a Pre-Trial Order:4

________________

2 Id., pp. 1-4.

3 Id., p. 10.

4 Id., pp. 31-33, Order.

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“III

In addition to the admission made elsewhere in their respective pleadings, the parties entered into the following stipulation of facts:

1. Plaintiff is a corporation duly organized and existing under the laws of the Philippines with office at Montelibano Street, Barrio Barretto, Olongapo City;

2. The contract referred to in paragraph 2 of the complaint between the plaintiff and Maris Trading is contained in a document captioned Memorandum Agreement executed on May 2, 1975, a xerox copy of which is Annex ‘A’ of plaintiff’s complaint;

3. On October 7, 1975, the Maris Trading represented by Ceferino Cabral and defendant Aurora Guiang entered into a memorandum agreement;

4. The portion sold under Annex ‘A’ is still a part of the public domain.

IV

The plaintiff marked the following exhibits in evidence:

Exhibit ‘A’—Memorandum Agreement dated May 2, 1975

Exhibit ‘B’—Memorandum Agreement dated October 7, 1975

V

The issues left to be ventilated during the trial are the following:

1. Whether defendants has actually prohibited the plaintiff [from] making repairs, [on] the pump constructed by Maris Trading for the plaintiff under the agreement Exhibit ‘A,’ if so;

2. Whether defendants [have] the right to prohibit the Maris Trading from performing the repairs; and if not

3. Whether defendants are liable for damages under the human relations provision of the Civil Code.”

On 1 January 1980, the Guiang spouses moved to dismiss the Complaint.5 The spouses there assailed the validity of the second Memorandum of Agreement, alleging that the subject matter thereof involved conjugal property alienated by Aurora Guiang without the marital consent of her husband, Federico Guiang. Further, it was alleged that the land upon which the

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5 Id., p. 4.

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hotel’s water supply facility was installed—and which the Guiang spouses occupied—formed part of the public domain and was then still the subject of a Miscellaneous Sales Application submitted by Federico Guiang. The Motion to Dismiss, however, was denied by the trial court.

No evidence having been adduced by the Guiang spouses on their behalf, the case was submitted for decision. On 31 May 1983, the trial court rendered a decision,6 dismissing the complaint. The trial court found that Aurora Guiang had validly alienated her rights over the disputed portion of land to Maris Trading, but held that the evidence failed to show that Maris Trading, in turn, had transferred such rights to petitioner Marmont.

Petitioner Marmont appealed to the Court of Appeals which affirmed the decision of the trial court and dismissed the appeal for lack of merit.7 The appellate court, citing Section 55, Rule 132 of the Revised Rules of Court, held that the first and second Memoranda of Agreement could not legally be considered by the court as included in the body of evidence of the case, as neither document had been formally offered in evidence by either party. It also held that, in any event, neither document showed that Marmont had in fact acquired from Maris Trading whatever rights the latter had over the land in dispute.

In the instant Petition for Review, petitioner assigns the following errors:8

“1. The Court of Appeals erred in not considering the Memorandum of Agreement of May 2, 1975 and 7 October 1975 as the same were already admitted in the pre-trial order; and

2. The Court of Appeals erred in deciding that ownership belongs to Maris Trading hence, private respondent Guiang can prohibit Marmont Resort from entering the land.”

We find for the petitioner.

Both the trial and appellate courts held that the first and

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6 Rollo, pp. 15-18.

7 Rollo, pp. 19-24.

8 Rollo, pp. 9-14.

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second Memoranda of Agreement are not properly considered as forming part of the record of this case, because neither had been formally presented and offered in evidence at the trial of Civil Case No. 2896-C. The record shows, however, as noted earlier, that at the pre-trial conference held on 2 October 1980, both petitioner Marmont and respondent spouses had agreed upon a stipulation of facts and issues recognizing the existence of those same two (2) agreements. Such stipulation of facts constitutes a judicial admission, the veracity of which requires no further proof and which may be controverted only upon a clear showing that such stipulation had been entered into through

“palpable mistake.” On this point, Section 2, Rule 129 of the Revised Rules of Court provides:

“Section 2. Judicial Admissions.—Admission made by the parties in the pleadings, or in the course of the trial or other proceedings do not require proof and cannot be contradicted unless previously shown to have been made through palpable mistake.” (Italics supplied)

There has been no showing and respondent spouses do not claim that “palpable mistake” had intervened here, in respect of the formulation of the facts stipulated by the parties at the pre-trial conference. Absent any such showing, that stipulation of facts is incontrovertible,9 and may be relied upon by the courts.10 Respondent spouses are estopped from raising as an issue in this case the existence and admissibility in evidence of both the first and second Memoranda of Agreement which, having been marked as exhibits during pre-trial, properly form part of the record of this case, even though not formally offered in evidence after trial.11

We consider briefly respondent spouses’ argument that the second Memorandum of Agreement was invalid for having been executed by Aurora Guiang without the marital consent of Federico, contrary to Articles 165 and 172 of the Civil Code.

________________

9 Sta. Ana v. Maliwat, et al., 133 Phil. 1006 (1968).

10 Filipinas Investment and Finance Corporation v. Ridad, 30 SCRA 564 (1969).

11 Lim Tanhu v. Ramolete, 66 SCRA 425 (1975).

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Article 165 and 172 state the general principle under our civil law, that the wife may not validly bind the conjugal partnership without the consent of the husband, who is legally the administrator of the conjugal partnership. In this particular case, however, as noted earlier, the second Memorandum of Agreement, although ostensibly contracted solely by Aurora Guiang with Maris Trading, was also signed by her husband Federico, as one of the witnesses thereto. This circumstance indicates not only that Federico was present during the execution of the agreement but also that he had, in fact, given his consent to the execution thereof by his wife Aurora. Otherwise, he should not have appended his signature to the document as witness. Respondent spouses cannot now disown the second Memorandum of Agreement as their effective consent thereto is sufficiently manifested in the document itself.

That the land in dispute was, at the time of execution of the second Memorandum of Agreement, public land, is of no consequence here. Pending approval of Federico’s Miscellaneous Sales Application over said land, respondent spouses enjoyed possessory and other rights over the same which could validly be assigned or transferred in favor of third persons. In this case, respondent spouses chose to transfer such rights (over the portion upon which the water pump was installed) to Maris Trading, as evidenced by the fourth paragraph of the second Memorandum of Agreement, quoted earlier. Furthermore, assuming (though only for the sake of argument) that the alienation to Maris Trading was legally objectionable, respondent spouses are not the proper parties to raise the issue of invalidity, they and Maris Trading being in pari delicto. Only the government may raise that issue.

Finally, respondent spouses allege that dismissal of the complaint by the trial court was not improper as petitioner Marmont was not privy to the second Memorandum of Agreement, and that accordingly, petitioner had no valid cause of action against respondents.

A closer scrutiny of the second and third paragraphs of the second Memorandum of Agreement discloses that the first Memorandum of

Agreement, including the obligations imposed thereunder upon Maris Trading, had been acknowledged therein:

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“That the First Party (i.e., Maris Trading) has dug, drilled and tapped water source for Marmont Resort, located at Bo. Barretto, Olongapo City in accordance with their agreement executed on May 2, 1975 and notarized before Isagani M. Jungco, Notary Public and entered as Doc. No. 166; Page No. 135; Book No. XV; Series of 1975.

That the First Party has erected, built and drilled for the water source of Marmont Resort on the land owned by the Second Party [respondent spouses] at the corner of J. Montelibano Street and Maquinaya Drive (Provincial Road) with the latter’s permission; x x x” (Italics supplied)

The above paragraphs establish, among other things, that construction work had been performed by Maris Trading on the land occupied by respondent spouses; that such construction work had been performed in accordance with terms and conditions stipulated in the first Memorandum of Agreement and that the purpose of the work was to build a water supply facility for petitioner Marmont. The same excerpts also show that the work so performed was with the knowledge and consent of the Guiang spouses, who were then occupying the land.

It is clear from the foregoing stipulations that petitioner Marmont was to benefit from the second Memorandum of Agreement. In fact, said stipulations appear to have been designed precisely to benefit petitioner and, thus, partake of the nature of stipulations pour autrui, contemplated in Article 1311 of the Civil Code.

A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, which stipulation is found in a contract entered into by parties neither of whom acted as agent of the beneficiary.12 We believe and so hold that the purpose and intent of the stipulating parties (Maris Trading and respondent spouses) to benefit the third person (petitioner Marmont) is sufficiently clear in the second Memorandum of Agreement. Marmont was not of course a party to that second Agreement but, as correctly pointed out by the trial court and the appellate court, the respondent spouses could not have prevented Maris Trading from enter-

_______________

12 Florentino v. Encarnacion, Sr., 79 SCRA 195 (1977).

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ing the property possessory rights over which had thus been acquired by Maris Trading. That respondent spouses remained in physical possession of that particular bit of land, is of no moment; they did so simply upon the sufferance of Maris Trading. Had Maris Trading, and not the respondent spouses, been in physical possession, we believe that Marmont would have been similarly entitled to compel Maris Trading to give it (Marmont) access to the site involved. The two (2) courts below failed to take adequate account of the fact that the sole purpose of Maris Trading in acquiring possessory rights over that specific portion of the land where well and pump and piping had been installed, was to supply the water requirements of petitioner’s hotel. That said purpose was known by respondent spouses, is made explicit by the second Memorandum of Agreement. Maris Trading itself had no need for a water supply facility; neither did the respondent spouses. The water facility was

intended solely for Marmont Resort Hotel. The interest of Marmont cannot therefore be regarded as merely “incidental.”13 Finally, even if it be assumed (for purposes of argument merely) that the second Memorandum of Agreement did not constitute a stipulation pour autrui, still respondent spouses, in the circumstances of this case, must be regarded as having acted contrary to the principles of honesty, good faith and fair dealing embodied in Articles 19 and 21 of the Civil Code when they refused petitioner Marmont access to the water facility to inspect and repair the same and to increase its capacity and thereby to benefit from it. In so doing, respondent spouses forced petitioner Marmont to locate an alternative source of water for its hotel which of course involved expenditure of money and perhaps loss of hotel revenues. We believe they should respond in damages.

The evidence on record, however, appears insufficient for determination of the amount of damages for which respondent spouses should be liable. For this reason, the Court is compelled to remand this case to the trial court for determination of such damages in appropriate further proceedings.

WHEREFORE, the Petition for Review on Certiorari is hereby

________________

13 Cf. Uy Tam and Uy Yet v. Leonard, 30 Phil. 471 (1915).

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GRANTED. The Decision dated 9 December 1986 of the Court of Appeals in C.A.—G.R. CV No. 03299, as well as the Decision dated 31 May 1983 of the Regional Trial Court of Olongapo City in Civil Case No. 2896-C, are REVERSED. This case is REMANDED to the trial court for determination, in further proceedings

consistent with this decision, of the amount of damages petitioner is entitled to receive from respondent spouses. No pronouncement as to costs.

SO ORDERED.

Fernan (C.J.), Gutierrez, Jr., Bidin and Cortés, JJ., concur.

Petition granted. Decision reversed.

Notes.—Petitioners are estopped to raise the question of jurisdiction, having submitted their cause voluntarily to the jurisdiction of the trial court. (Lee vs. Municipal Trial Court of Legaspi City, Br. 1, 145 SCRA 408.)

Petitioners are not in estoppel to question the subsequent letter agreement as they never acknowledged full payment by respondent MWSS. (Integrated Construction Services, Inc. vs. Relova, 146 SCRA 360.) [Marmont Resort Hotel Enterprises vs. Guiang, 168 SCRA 373(1988)]

G.R. No. 119850. June 20, 1996.*

MANDARIN VILLA, INC., petitioner, vs. COURT OF APPEALS, and CLODUALDO DE JESUS, respondents.

Contracts; Credit Cards; Stipulations Pour Autri; A card holder’s offer to pay by means of his credit card constitutes not only an acceptance of the provisions of a stipulation pour autri but also an explicit communication of his acceptance to the obligor.—While private respondent may not be a party to the said agreement, the above-quoted stipulation conferred a favor upon the private respondent, a holder of credit card validly issued by BANKARD. This stipulation is a stipulation pour autri and under Article 1311 of the Civil Code private respondent may demand its fulfillment provided he communicated his acceptance to the petitioner before its revocation. In this case, private respondent’s offer to pay by means of his BANKARD credit card constitutes not only an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor.

Same; Same; Estoppel; Where a party posts a logo inside his establishment stating that a particular credit card is accepted therein, it cannot disclaim its obligation to accept such card without violating the equitable principle of estoppel.—In addition, the record

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* THIRD DIVISION.

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VOL. 257, JUNE 20, 1996

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Mandarin Villa, Inc. vs. Court of Appeals

shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that “Bankard is accepted here.” This representation is conclusive upon the

petitioner which it cannot deny or disprove as against the private respondent, the party relying thereon. Petitioner, therefore, cannot disclaim its obligation to accept private respondent’s BANKARD credit card without violating the equitable principle of estoppel.

Same; Same; Negligence; Test for determining existence of negligence.—The test for determining the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary prudent person would have used in the same situation? If not, then he is guilty of negligence.

Same; Same; Same; Judicial Notice; The Supreme Court takes judicial notice of the current practice among major establishments to accept payment by means of credit cards in lieu of cash.—We find this contention also devoid of merit. While it is true that private respondent did not have sufficient cash on hand when he hosted a dinner at petitioner’s restaurant, this fact alone does not constitute negligence on his part. Neither can it be claimed that the same was the proximate cause of private respondent’s damage. We take judicial notice of the current practice among major establishments, petitioner included, to accept payment by means of credit cards in lieu of cash. Thus, petitioner accepted private respondent’s BPI Express Credit Card after verifying its validity, a fact which all the more refutes petitioner’s imputation of negligence on the private respondent.


The facts are stated in the resolution of the Court.

Armando M. Marcelo and Jesus M. Bigornia, Jr. for petitioner.

Bienvenido N. Quiñones for private respondent.

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R E S O L U T I O N

FRANCISCO, J.:

With ample evidentiary support are the following antecedent facts:

In the evening of October 19, 1989, private respondent, Clodualdo de Jesus, a practicing lawyer and businessman, hosted a dinner for his friends at the petitioner’s restaurant, the Mandarin Villa Seafoods Village, Greenhills, Mandaluyong City. After dinner the waiter handed to him the bill in the amount of P2,658.50. Private respondent offered to pay the bill through his credit card issued by Philippine Commercial Credit Card, Inc. (BANKARD). This card was accepted by the waiter who immediately proceeded to the restaurant’s cashier for card verification. Ten minutes later, however, the waiter returned and audibly informed private respondent that his credit card had expired.1 Private respondent remonstrated that said credit card had yet to expire on September 1990, as embossed on its face.2 The waiter was unmoved, thus, private respondent and two of his guests approached the restaurant’s cashier who again passed the credit card over the verification computer. The same information was produced, i.e., CARD EXPIRED. Private respondent and his guests returned to their table and at this juncture, Professor Lirag, another guest, uttered the following remarks: “Clody [referring to Clodualdo de Jesus], may problema ba? Baka kailangang maghugas na kami ng pinggan?”3 Thereupon, private respondent left the restaurant and got his BPI Express Credit Card from his car and offered it to pay their bill. This was accepted and honored by the cashier after verification.4 Petitioner and his companions left afterwards.

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1 TSN, Clodualdo de Jesus, October 7, 1990, p. 5.

2 Id., p. 6.

3 Id., p. 8.

4 Exhibit E; Records, p. 119.

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The incident triggered the filing of a suit for damages by private respondent. Following a full-dress trial, judgment was rendered directing the petitioner and BANKARD to pay jointly and severally the private respondent: (a) moral damages in the amount of P250,000.00; (b) exemplary damages in the amount of P100,000.00; and (c) attorney’s fees and litigation expenses in the amount of P50,000.00.

Both the petitioner and BANKARD appealed to the respondent Court of Appeals which rendered a decision, thus:

“WHEREFORE, the decision appealed from is hereby MODIFIED by:

1. Finding appellant MANDARIN solely responsible for damages in favor of appellee;

2. Absolving appellant BANKARD of any responsibility for damages;

3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND and 00/100 (P25,000.00) PESOS;

4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and 00/100 (P10,000.00) PESOS;

5. Reversing and setting aside the award of P50,000.00 for attorney’s fees as well as interest awarded; and

6. AFFIRMING the dismissal of all counterclaims and cross-claims.

Costs against appellant Mandarin.

SO ORDERED.”5

Mandarin Villa, thus, interposed this present petition, faulting the respondent court with six (6) assigned errors which may be reduced to the following issues, to wit: (1) whether or not petitioner is bound to accept payment by means of credit card; (2) whether or not petitioner is negligent under the circumstances obtaining in this case; and (3) if negligent, whether or not such negligence is the proximate

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5 Court of Appeals Decision, promulgated on March 21, 1995, p. 8; Rollo, p. 49. Ninth Division, penned by Justice Cañizares-Nye with Justices Imperial and Callejo concurring.

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cause of the private respondent’s damage.

Petitioner contends that it cannot be faulted for its cashier’s refusal to accept private respondent’s BANKARD credit card, the same not being a legal tender. It argues that private respondent’s offer to pay by means of credit card partook of the nature of a proposal to novate an existing obligation for which petitioner, as creditor, must first give its consent otherwise there will be no binding contract between them. Petitioner cannot seek refuge behind this averment.

We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an “Agreement”6 entered into by petitioner and BANKARD dated June 23, 1989, provides inter alia:

“The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding holders in the purchase of goods and/or services supplied by it provided that the card expiration date has not elapsed and the card number does not appear on the latest cancellation bulletin of lost, suspended and canceled PCCCI credit cards and, no signs of tampering, alterations or irregularities appear on the face of the credit card.”7

While private respondent may not be a party to the said agreement, the above-quoted stipulation conferred a favor upon the private respondent, a holder of credit card validly issued by BANKARD. This stipulation is a stipulation pour autri and under Article 1311 of the Civil Code private respondent may demand its fulfillment provided he communicated his acceptance to the petitioner before its revocation.8 In this case, private respondent’s offer to pay by means of his BANKARD credit card constitutes not only an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor.

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6 Exhibit 13; Records, p. 189.

7 Exhibit 13-D; Records, p. 189.

8 See Kauffman v. Philippine National Bank, 42 Phil. 182 (1921).

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VOL. 257, JUNE 20, 1996

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In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that “Bankard is accepted here.”9 This representation is conclusive upon the petitioner which it cannot deny or disprove as against the private respondent, the party relying thereon. Petitioner, therefore, cannot

disclaim its obligation to accept private respondent’s BANKARD credit card without violating the equitable principle of estoppel.10

Anent the second issue, petitioner insists that it is not negligent. In support thereof, petitioner cites its good faith in checking, not just once but twice, the validity of the aforementioned credit card prior to its dishonor. It argues that since the verification machine flashed an information that the credit card has expired, petitioner could not be expected to honor the same much less be adjudged negligent for dishonoring it. Further, petitioner asseverates that it only followed the guidelines and instructions issued by BANKARD in dishonoring the aforementioned credit card. The argument is untenable.

The test for determining the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary prudent person would have used in the same situation? If not, then he is guilty of negligence.11 The Point of Sale (POS) Guidelines which outlined the steps that petitioner must follow under the circumstances provides:

“x x x x x x x x x

“CARD EXPIRED

a. Check expiry date on card.

b. If unexpired, refer to CB.

_______________

9 TSN, Clodualdo de Jesus, October 7, 1990, p. 25.

10 Article 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it and cannot be denied or disapproved as against the person relying thereon (Civil Code).

11 See Picart v. Smith, 37 Phil. 809; Cangco v. Manila Railroad Co., 38 Phil. 768.

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b.1. If valid, honor up to maximum of SPL only.

b.2. If in CB as Lost, do procedures 2a to 2e.

b.3. If in CB as Suspended/Cancelled, do not honor card.

c. If expired, do not honor card.”12

A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on the screen of the verification machine, petitioner should check the credit card’s expiry date embossed on the card itself. If unexpired, petitioner should honor the card provided it is not invalid, cancelled or otherwise suspended. But if expired, petitioner should not honor the card. In this case, private respondent’s BANKARD credit card has an embossed expiry date of September 1990.13 Clearly, it has not yet expired in October 19, 1989, when the same was wrongfully dishonored by the petitioner. Hence, petitioner did not use the reasonable care and caution which an ordinary prudent person would have used in the same situation and as such petitioner is guilty of negligence. In this connection, we quote with approval the following observations of the respondent Court.

“Mandarin argues that based on the POS Guidelines (supra), it has three options in case the verification machine flashes ‘CARD EXPIRED.’ It chose to exercise option (c) by not honoring appellee’s credit card. However, appellant apparently intentionally glossed over option ‘(a) Check expiry date on card” (id.) which would have shown without any shadow of doubt that the expiry date embossed on the BANKARD was ‘SEP 90.’ (Exhibit “D.”) A cursory look at the appellee’s BANKARD would also reveal that appellee had been as of that date a cardholder since 1982, a fact which would have entitled the customer the courtesy of better treatment.”14

_______________

12 Rollo, pp. 17-18.

13 Exhibit D; Record, p. 118.

14 Rollo, p. 18.

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Petitioner, however, argues that private respondent’s own negligence in not bringing with him sufficient cash was the proximate cause of his damage. It likewise sought exculpation by contending that the remark of Professor Lirag15 is a supervening event and at the same time the proximate cause of private respondent’s injury.

We find this contention also devoid of merit. While it is true that private respondent did not have sufficient cash on hand when he hosted a dinner at petitioner’s restaurant, this fact alone does not constitute negligence on his part. Neither can it be claimed that the same was the proximate cause of private respondent’s damage. We take judicial notice16 of the current practice among major establishments, petitioner included, to accept payment by means of credit cards in lieu of cash. Thus, petitioner accepted private respondent’s BPI Express Credit Card after verifying its validity,17 a fact which all the more refutes petitioner’s imputation of negligence on the private respondent.

Neither can we conclude that the remark of Professor Lirag was a supervening event and the proximate cause of private respondent’s injury. The humiliation and embarrassment of the private respondent was brought about not by such a remark of Professor Lirag but by the fact of dishonor by the petitioner of private respondent’s valid BANKARD credit card. If at all, the remark of Professor Lirag

served only to aggravate the embarrassment then felt by private respondent, albeit silently within himself.

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15 “Clody, may problema ba? Baka kailangang maghugas na kami ng pinggan?”

16 Sec. 2. Judicial notice, when discretionary.—A court may take judicial notice of matters which are of public knowledge, or are capable of unquestionable demonstration, or ought to be known to judges because of their judicial functions. Rule 129, Revised Rules of Court.

17 TSN, Clodualdo de Jesus, October 7, 1990, p. 8; Exhibit E, Records, p. 119.

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Ram vs. National Labor Relations Commission

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.

Davide, Jr., Melo and Panganiban, JJ., concur.

Narvasa (C.J., Chairman), No part: no participation in deliberations.

Petition dismissed.

Notes.—A bank employee is grossly negligent where she delivered several credit cards to a person who was merely identified and described over the telephone. (Citibank, N.A. vs. Gatchalian, 240 SCRA 212 [1995])

In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from negligence—an act of God cannot be urged for the protection of a person who has been guilty of gross negligence in not trying

to avert its results. (Metal Forming Corporation vs. Office of the President, 247 SCRA 731 [1995]) [Mandarin Villa, Inc. vs. Court of Appeals, 257 SCRA 538(1996)]

G.R. No. 79518. January 13, 1989.*

REBECCA C. YOUNG, assisted by her husband ANTONIO GO, petitioner, vs. COURT OF APPEALS, PH CREDIT CORP., PHIL. HOLDING, INC. FRANCISCO VILLAROMAN, FONG YOOK LU, ELLEN YEE FONG and THE REGISTER OF DEEDS OF MANILA, respondents.

Civil Law; Contracts; Compromise Agreement; A party is not entitled to enforce a compromise agreement to which he was not a party, and that as to its effect and scope, its effectivity is limited to the parties thereto.—This issue has already been squarely settled by this Court in the negative in J.M. Tuason & Co., Inc. v. Cadampog (7 SCRA 808 [1963]) where it was ruled that appellant is not entitled to enforce a compromise agreement to which he was not a party and that as to its effect and scope, it has been determined in the sense that its effectivity if at all, is limited to the parties thereto and those mentioned in the exhibits (J.M. Tuason & Co., Inc. v. Aguirre, 7 SCRA 112 [1963]). It was reiterated later that a compromise agreement cannot bind persons who are not parties thereto (Guerrero v. C.A., 29 SCRA 791 [1969]).

Same; Same; Same; Petitioner was not impleaded as a necessary party in the case and that her written conformity did not appear in the agreement.—For unknown reasons, the above conditions were not complied with. The parties did not make any move to implead Rebecca as necessary party in the case. Neither did her written

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* SECOND DIVISION.

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Young vs. Court of Appeals

conformity appear in said agreement. While there is the printed name of Rebecca C. Young appearing at the end of the joint motion for approval of the Compromise Agreement, she did not her signature above her printed name, nor on the left margin of each and every page thereof. In fact, on cross-examination, she admitted that she was not a party to the case and that she did not sign the aforesaid joint motion because it was not presented to her (Rollo, p. 18) More than that, by the aforesaid actuations of the parties and petitioner’s apparent lack of interest, the intention is evident, not to include the latter either in the onerous, or in the beneficient provisions of said agreement.

Same; Same; Stipulation pour autrui or a stipulation in favor of a third person; Requisites.—The requisites of a stipulation pour autrui or a stipulation in favor of a third person are the following: (1) there must be a stipulation in favor. of a third person, (2) the stipulation must be a part, not the whole of the contract, (3) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest, (4) the third person must have communicated his acceptance to the obligor before its revocation, (5) neither of the contracting parties bears the legal representation or authorization of the third party. (Florentino v. Encarnacion, Sr., 79 SCRA 193 [1977]).

Same; Same; Same; Stipulation pour autrui is not present as petitioner did not communicate her acceptance of the stipulation whether expressly or impliedly; Sale of the property to some other person or entity constitutes a revocation of the grant of the right of first refusal of the petitioner.—Assuming that petitioner is correct in claiming that this is a stipulation pour autrui, it is unrebutted that she did not communicate her acceptance whether expressly or impliedly. She insists, however, that the stipulation has not yet been revoked, so that her present claim or demand is still timely. As correctly observed by the Court of Appeals, the above argument is pointless, considering that the sale of subject property to some other person or entity constitutes in effect a revocation of the grant of the right of first refusal to Rebecca C. Young.

PETITION for certiorari to review the decision of the Court of Appeals. Lombos-De la Fuente, J.


Diego O. Untalan for petitioner.

Esteban B. Bautista for respondents Fong Yook Lu and

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Ellen Yee Fong.

Jonette Borres for respondents.

PARAS, J.:

This is a petition for review on certiorari seeking to set aside the decision of the Court of Appeals1 in CA-G.R. No. 1002, entitled Spouses Chui Wan and Felisa Tan Yu and Rebecca Young vs. PH Credit Corporation et al., which affirmed the decision of the Regional Trial Court of Manila, Branch XXXII, earlier dismissing the complaint of petitioners for Annulment of Sale, Specific Performance and Damages, against respondents.

The facts of the case are as follows:

Defendant Philippine Holding, Inc. is the former owner of a piece of land located at Soler St., Sta. Cruz, Manila, and a two storey building erected thereon, consisting of six units; Unit 1350 which is vacant, Unit 1352 occupied by Antonio Young, Unit 1354 by Rebecca C. Young, Unit 1356 by Chui Wan and Felisa Tan Yu, Unit 1358 by Fong Yook Lu and Ellen Yee Fong and Unit 1360 by the Guan Heng Hardware (Rollo, pp. 14–15).

The owner Philippine Holding, Inc. secured an order from the City Engineer of Manila to demolish the building. Antonio Young, then a tenant of said Unit

1352, filed an action to annul the City Engineer’s demolition Order (Civil Case No. 123883) entitled Antonio S. Young vs. Philippine Holding, Inc. before the then Court of First Instance of Manila, Branch XXX, As an incident in said case, the parties submitted a Compromise Agreement to the Court on September 24,1981. Paragraph 3 of said agreement provides that plaintiff (Antonio S. Young) and Rebecca Young and all persons claiming rights under them bind themselves to voluntarily and peacefully vacate the premises which they were occupying as lessees (Units 1352 and 1354, respectively) which are the subject of the condemnation and demolition order and to surrender possession thereof to the defendant Philippine Holding, Inc. within sixty (60) days from written notice, subject to the proviso that should defen-

_________________

1 Penned by CA Justices Lorna S. Lombos-De la Fuente (ponente), Ricardo J. Francisco and Alfredo L. Benipayo.

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dant decided to sell the subject property or portion thereof, “plaintiff and Rebecca C. Young have the right of first refusal thereof.” (Rollo, p. 49).

On September 17, 1981, Philippine Holding, Inc. had previously sold the above said property described in the compromise , agreement by way of dacion in payment to PH Credit Corporation (Rollo, p. 49).

On November 9,1982, the property was subdivided into two parcels, one 244.09 sq.m. in area covering Units 1350, 1352 and 1354 (TCT No. 152439) and the other 241.71 sq.m. in area covering Units 1356, 1358 and 1360 (TCT No. 152440) and both titles were placed in the name of PH Credit Corporation.

On December 8, 1982, PH Credit Corporation sold the property covered by TCT 152439 to the Blessed Land Development Corporation represented by its President Antonio T.S. Young; and on September 16, 1983, PH Credit Corporation sold the property covered by TCT 152440 embracing Units 1356, 1358 and 1360 to spouses Fong Yook Lu and Ellen Yee Fong (Rollo, p. 15).

Thereafter, petitioner Rebecca C. Young and her co-plaintiffs, the spouses Chui Wan and Felisa Tan Yu filed in the Regional Trial Court of Manila, Civil Case No. 84–22676 for the annulment of the sale in favor of herein respondent spouses, Fong Yook Lu and Ellen Yee Fong and for specific performance and damages against the PH Credit Corporation and Philippine Holding, Incorporated.

Plaintiff spouses Chui Wan and Felisa Tan Yu alleged that defendant corporation and Francisco Villaroman, sold the property without affording them (the plaintiffs-spouses) the right of first refusal to purchase that portion of the property which they are renting.

Plaintiff Rebecca C. Young, now petitioner, also claimed the right of first refusal purportedly granted to her under the aforestated proviso of the abovesaid compromise agreement and prayed that the sale be annulled and that they be allowed to exercise her right of first refusal to purchase subject property (Rollo, p. 50).

The lower court decided in favor of the defendants and against the plaintiffs, thus dismissing the complaint together with defendants’ counterclaims (Rollo, p. 15)

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On the other hand, the claim of Rebecca C. Young was similarly rejected by the trial court on the following grounds: (1) that she was not a party in the Civil Case

No. 123883, wherein subject compromise agreement was submitted and approved by the trial court apart from the fact that she did not even affix her signature to the said compromise agreement; (2) that Rebecca Young had failed to present any evidence to show that she had demanded from the defendants-owners, observance of her right of first refusal before the said owners sold units 1356, 1358 and 1360; (3) that even assuming that her supposed right of first refusal is a stipulation for the benefit of a third person, she did not inform the obligor of her acceptance as required by the second paragraph of Article 1311 of the Civil Code.

Chui Wan and Felisa Tan Yu and Rebecca C. Young, assisted by her husband, appealed to the Court of Appeals which dismissed the same on August 7, 1987, for lack of merit.

Hence this petition, which was brought to this Court only by Rebecca Young, assisted by her husband Antonio Go.

On October 2, 1987, respondents Fong Yook Lu, moved to strike out or dismiss outright the instant petition (Rollo, p. 35). In the resolution of November 4, 1987, the Second Division of this Court required the petitioner to comment on said motion (Rollo, p. 37), which comment was filed on December 17, 1987 (Rollo, p. 38). Thereafter, in the resolution of January 20,1988, respondents were required to file a reply thereto (Rollo, p. 42) which was filed on January 11, 1988 (Rollo, p. 43). On March 24, 1988, petitioner filed a rejoinder to reply (Rollo, p. 46) in compliance with the resolution of February 29, 1988 (Rollo, p. 45).

In the resolution of May 11,1988, the petition was given due course and the parties were required to submit simultaneously their respective memoranda (Rollo, p. 47). Respondents filed their memorandum on June 29,1988 (Rollo, p. 48), while petitioner’s memorandum was filed on July 14, 1988 (Rollo, p. 64).

Petitioner raised the following assignments of error:

1. The lower court erred in holding that Rebecca C. Young cannot enforce the stipulation in her favor in the compromise agreement as she is not party therein.

2. The lower court erred in holding that even if par. 3 of the

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compromise agreement is construed as a stipulation pour autrui Rebecca Young cannot enforce it because she did not communicate her acceptance thereof to the obligor. (Rollo, p. 7)

The petition is devoid of merit.

The main issue in this case is whether or not petitioner can enforce a compromise agreement to which she was not a party.

This issue has already been squarely settled by this Court in the negative in J.M. Tuason & Co., Inc. v. Cadampog (7 SCRA 808 [1963] where it was ruled that appellant is not entitled to enforce a compromise agreement to which he was not a party and that as to its effect and scope, it has been determined in the sense that its effectivity if at all, is limited to the parties thereto and those mentioned in the exhibits (J.M. Tuason & Co., Inc. v. Aguirre, 7 SCRA 112 [1963]). It was reiterated later that a compromise agreement cannot bind persons who are not parties thereto (Guerrero v. C.A., 29 SCRA 791 [1969]).

The pertinent portion of the Compromise Agreement reads:

“Plaintiff Antonio T.S. Young and the Defendant HOLDING hereby agree to implead in this action as necessary party-plaintiff, plaintiffs daughter Rebecca C. Young who is the recognized lawful lessee of the premises known and identified as 1354 Soller St., Sta. Cruz, Manila and whose written conformity appears hereunder.” (Rollo, p. 18)

From the terms of this agreement, the conditions are very clear, such as: (1) that Rebecca C. Young shall be impleaded in the action and (2) that she shall signify her written conformity thereto.

For unknown reasons, the above conditions were not complied with. The parties did not make any move to implead Rebecca as necessary party in the case. Neither did her written conformity appear in said agreement. While there is the printed name of Rebecca C. Young appearing at the end of the joint motion for approval of the Compromise Agreement, she did not affix her signature above her printed name, nor on the left margin of each and every page thereof.

In fact, on cross-examination, she admitted that she was not a party to the case and that she did-not sign the aforesaid joint motion because it was not presented to her (Rollo, p. 18).

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Young vs, Court of Appeals

More than that, by the aforesaid actuations of the parties and petitioner’s apparent lack of interest, the intention is evident, not to Include the latter either in the onerous, or in the beneficient provisions of said agreement.

Petitioner further argued that the stipulation giving her the right of first refusal is a stipulation pour autrui or a stipulation in favor of a third person under Article 1311 of the Civil Code.

The requisites of a stipulation pour autrui or a stipulation in favor of a third person are the following:

(1) there must be a stipulation in favor of a third person.

(2) the stipulation must be a part, not the whole of the contract.

(3) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest.

(4) the third person must have communicated his acceptance to the obligor before its revocation.

(5) neither of the contracting parties bears the legal representation or authorization of the third party. (Florentino v. Encarnacion, Sr., 79 SCRA 193 [1977]).

Assuming that petitioner is correct in claiming that this is a stipulation pour autrui, it is unrebutted that she did not communicate her acceptance whether expressly or impliedly. She insists however, that the stipulation has not yet been revoked, so that her present claim or demand is still timely.

As correctly observed by the Court of Appeals, the above argument is pointless, considering that the sale of subject property to some other person or entity constitutes in effect a revocation of the grant of the right of first refusal to Rebecca C. Young.

PREMISES CONSIDERED, the petition is DENIED for lack of merit, and the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.

Petition denied. Decision affirmed. [Young vs, Court of Appeals, 169 SCRA 213(1989)]

No. L-40424. June 30, 1980.*

R. MARINO CORPUS, petitioner, vs. COURT OF APPEALS and JUAN T. DAVID, respondents.

Attorneys; Contracts; An attorney-client relationship can be created by implied agreement, as when the attorney actually rendered

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* FIRST DIVISION

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Corpus vs. Court of Appeals

legal services for a person who is a close friend. The obligation of such a person to pay attorney’s fees is based on the law of contracts’ concept of facio ut des (I do and you give).—WE find respondent David’s position meritorious. While there was no express agreement between petitioner Corpus and respondent David as regards attorney’s fees, the facts of the case support the position of respondent David that there was at least an implied agreement for the payment of attorney’s fees. Petitioner s act of giving the check for P2,000.00 through his aforestated April 18, 1962 letter to respondent David indicates petitioner’s commitment to pay the former attorney’s fees, which is stressed by expressing that “I wish I could give more but as you know we were banking on a SC decision reinstating me and reimbursing my back salaries.’ This last sentiment constitutes a promise to pay more upon his reinstatement and payment of his back salaries. Petitioner ended his letter that he was “looking forward to a continuation of the case in the lower court, x x x”, to which the certiorari-mandamus-quo warranto case was remanded by the Supreme Court for further proceedings.

Same; Same; Same.—It may be advanced that respondent David may be faulted for not reducing the agreement for attorney’s fees with petitioner Corpus in writing. However, this should be viewed from their special relationship. It appears that both have been friends for several years and were co-members of the Civil Liberties Union. In addition, respondent David and petitioner’s father, the late Rafael Corpus, were also close friends. Thus, the absence of an express contract for attorney’s fees between respondent David and petitioner Corpus is no argument against the payment of attorney’s fees, considering their close relationship which signifies mutual trust and confidence between them.

Same; Same; Same.—Moreover, the payment of attorney’s fees to respondent David may also be justified by virtue of the innominate contract of facio ut des (I do and you give) which is based on the principle that “no one shall unjustly enrich himself at the expense of another.” Innominate contracts have been elevated to a codal provision in the New Civil Code by providing under Article 1307 that such contracts shall be regulated by the stipulations of the parties, by the general provisions or principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the customs of the people.

Same; Same; An attorney cannot charge his client a percentage of the amount recovered as his fees in the absence of an express

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agreement.—There was no contract for contingent fee between Corpus and respondent David. Contingent fees depend on an express contract therefor. Thus, “an attorney is not entitled to a percentage of the amount recovered by his client in the absence of an express contract to that effect” (7 C.J.S. 1063 citing Thurston v. Travelers Ins. Co., 258 N.W. 66, 128 Neb. 141).

Same; Same; Attorney’s fees on a quantum meruit basis will be resolved by taking all relevant factors into consideration.—In determining a reasonable fee to be paid to respondent David as compensation for his services, on a quantum meruit basis, it is proper to consider all the facts and circumstances obtaining in this case particularly the following: x x x.

Same; Judges; Contempt; Constitutional Law; An attorney who files in the trial court a motion for issuance of a writ of execution for his fees, while the resolution of the Supreme Court thereon is still pending, on the ground that the Supreme Court failed to resolve the claim within 18 months as provided for in the Constitution — a provision not yet interpreted by the Supreme Court, and a trial judge who grants such a motion are both guilty of contempt of court. They are both reprimanded.—Respondent David filed on or about September 13, 1978 a motion with the court a quo for the issuance of a writ of execution to enforce its decision in Civil Case No. 61802, subject of the present petition, knowing fully well that it was then still pending appeal before this Court. In addition, no certification that the aforesaid decision is already deemed affirmed had as yet been issued by the Chief Justice pursuant to Section 11, paragraph 2, Article X of the New Constitution; because respondent David’s petitions filed with the Supreme Court on January 31, 1978 and on July 7, 1978 to remand the case to the trial court for execution and for the issuance of such certification had not yet been acted upon as the same were still pending consideration by this Court. In fact, this Court has not as of this time made any pronouncement on the aforesaid provision of the New Constitution.

Same; Same; Same; Same; Same.—This act of respondent David constitute disrespect to, as well as disregard of the authority of this Court as the final arbiter of all cases duly appealed to it, especially constitutional questions. It must be emphasized that as a member of the Philippine Bar he is required “to observe and maintain the respect due to the courts of justice and judicial officers” (Section 20(b), Rule 138 of the Revised Rules of Court). Likewise, Canon 1 of

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the Canons of Professional Ethics expressly provides that: “It is the duty of the lawyer to maintain towards the Courts a respectful attitude, not for the sake of the temporary incumbent of the judicial office, but for the maintenance of its supreme importance.” And this Court had stressed that “the duty of an attorney to the courts ’can only be maintained by rendering no service involving any disrespect to the judicial office which he is bound to uphold’ ” (Rheem of the Philippines v. Ferrer, 20 SCRA 441, 444 [1967] citing the case of Lualhati v. Albert, 57 Phil. 86, 92 [1932]).

Same; Same; Same; Same; Same.—Moreover, this Court takes judicial notice of the fact that herein respondent David, in the previous case of Integrated Construction Services, Inc. and Engineering Construction, Inc. v. Relova (65 SCRA 638 [1975]), had sent letters addressed to the then Chief Justice Querube C. Makalintal and later to the Chief Justice Fred Ruiz Castro, requesting for the issuance of certification on the basis of the aforementioned provision of the New Constitution which were not given due consideration. And knowing this, respondent David should have been more prudent and cautious in filing with the court a quo any motion for execution.

Same; Same; Same; Same; Same.—On the part of Judge Jose H. Tecson, his presumptuous and precipitate act of granting the motion for execution of respondent David likewise constitutes disrespect to, as well as disregard of, the authority of this Court because he knew for a fact that the case was still pending appeal as the records thereof had not yet been remanded to it and that no certification has been issued by this Court. As a judicial officer, Judge Tecson is charged with the knowledge of the fact that this Court has yet to make a definite pronouncement on Section 11, paragraph 2, Article X of the New Constitution. Judge Tecson should know that only the Supreme Court can

authoritatively interpret Section 11(2) of Article X of the 1973 Constitution. Yet, Judge Tecson assumed the role of the Highest Court of the Land.

PETITION for review the decision of the Court of Appeals. Certiorari.


MAKASIAR, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals promulgated on February 14, 1975 in CA-

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G.R. No. 40583-R, affirming the decision of the Court of Instance of Manila, Branch V, dated September 4, 1967, in Civil Case No. 61802 entitled “Juan T. David, plaintiff, versus R. Marino Corpus, defendant”, for the recovery of attorney’s fees for professional services rendered by the plaintiff, private respondent herein, to the defendant, petitioner herein.

A

Having been close friends, aside from being both members of the Civil Liberties Union, petitioner Corpus intimately calls respondent David by his nickname “Juaning” and the latter addresses the former simply as “Marino”.

The factual setting of this case is stated in the decision of the lower court, thus:

“It appears that in March, 1958, the defendant was charged administratively by several employee of the Central Bank Export Department of which the defendant is the director. The defendant was represented by Atty. Rosauro Alvarez. Pending the investigation and effective March 18, 1958, he defendant was suspended from office. After the investigating committee found the administrative charges to be without merit, and subsequently recommended

the immediate reinstatement of the defendant, the then Governor of Central Bank, Miguel Cuaderno, Sr., recommended that the defendant be considered resigned on the ground that he had lost confidence in him. The Monetary Board, by a resolution of July 20, 1959, declared the defendant as resigned as of the date of suspension.

“On August 18, 1959, the defendant, thru Atty. Alvarez, filed the Court of First Instance of Manila a petition for certiorari, mandamus and quo warranto with preliminary mandatory injunction and damages against Miguel Cuaderno, Sr., the Central Bank and Mario Marcos who was appointed to the position of the defendant, said case having been docketed as Civil Case No. 41226 and assigned to Branch VII presided over by Judge Gregorio T. Lantin. On September 7, 1959, the respondent filed a motion to dismiss the petition, alleging among other grounds, the failure of the defendant to exhaust available administrative remedies (Exh. X). On September 25, 1959, the defendant, thru Atty. Alvarez, filed his opposition to the said motion. On March 17, 1960, during the course of the presentation of the evidence for the petition for a writ of preliminary man-

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datory injunction, Atty. Alvarez manifested that the defendant was abandoning his prayer for a writ of preliminary mandatory injunction, and asked for a ruling on the motion to dismiss. On June 14, 1960, Judge Lantin dismissed Civil Case No. 41226 for failure to exhaust the administrative remedies available to the herein defendant.

“On June 24, 1960, Atty. Alvarez received a copy of the order of dismissal. It was at this state that the plaintiff entered into the case under circumstances about which the parties herein have given divergent versions.

“According to the plaintiff, six or seven days prior to the expiration of the period for appeal from the order of dismissal he chanced to meet the late Rafael Corpus, father of the defendant, at the Taza de Oro coffee shop. After they talked about the defendant’s having lost his case before Judge Lantin, and knowing that the plaintiff and the defendant were both members of the Civil Liberties Union, Rafael Corpus requested the plaintiff to go over the case and further said that he would send his son, the herein defendant, to the plaintiff to find out what could be done about the case. The defendant called up the plaintiff the following morning for an appointment, and the plaintiff agreed to see him in the latter’s office. At said conference, the defendant requested the plaintiff to handle the case because Atty. Alvarez had already been disenchanted and wanted to give up the case. Although at first reluctant to handle the case, the plaintiff finally agreed on condition that he and Atty. Alvarez would collaborate in the case.

“The defendant’s version of how the plaintiff came into the case is as follows:

“After the order of dismissal issued by Judge Lantin was published in the newspapers, the plaintiff sought a conference with the defendant at Taza de Oro, but the defendant told him that he would rather meet the plaintiff at the Swiss Inn. Even before the case was dismissed the plaintiff had shown interest in the same by being present during the hearings of said case in the sala of Judge Lantin. When the plaintiff and the defendant met at the Swiss Inn, the plaintiff handed the defendant a memorandum prepared by him on how he can secure the reversal of the order of dismissal by means of a formula stated in said memorandum. During the said occasion the plaintiff scribbled some notes on a paper napkin (Exhibit 19). On June 28, 1960 the defendant wrote the plaintiff, sending with it a copy of the order of Judge Lantin dated June 14, 1960 (Exhibit S). Inasmuch as said letter, Exhibit S, already mentions the ’memorandum’ of the

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plaintiff, the defendant contends that it was not six or seven days prior to the expiration of the period of appeal (which should be on or about July 2 or 3, 1960) but on a date even earlier than June 28, 1960 that the plaintiff and the defendant met together to discuss the latter’s case.

“Laying aside for the moment the true circumstances under which the plaintiff started rendering professional services to the defendant, the undisputed evidence shows that on July 7, 1960, the plaintiff filed a motion for reconsideration of the order of dismissal under the joint signatures of the plaintiff and Atty. Alvarez (Exhibit B). The plaintiff argued the said motion during the hearing thereof. On August 8, 1960, he filed a 13-page ’Memorandum of Authorities’ in support of said motion for reconsideration (Exhibit C). A 3-page supplemental memorandum of authorities was filed by the plaintiff on September 6, 1960 (Exhibit D)

“On November 15, 1960, Judge Lantin denied the motion for reconsideration. On November 19, 1960, the plaintiff perfected the appeal from the order of dismissal dated June 14, 1960. For purposes of said appeal, the plaintiff prepared a 232-page brief and submitted the same before the Supreme Court in Baguio City on April 20, 1961. The plaintiff was the one who orally argued the case before the Supreme Court. In connection with the trip to Baguio for the said oral argument, the plaintiff used his car which broke down and necessitated extensive repairs paid for by the plaintiff himself.

“On March 30, 1962, the Supreme Court promulgated its decision reversing the order of dismissal and remanding the case for further proceedings. On April 18, 1962, after the promulgation of the decision of the Supreme Court reversing the dismissal of the case, the defendant wrote the plaintiff the following letter, Exhibit ‘Q’:

‘x x x x

‘Dear Juaning:

‘Will you please accept the attached check in the amount of TWO THOUSAND (P2,000.00) PESOS for legal services in the handling of L-17860 recently decided by the Supreme Court? I wish I could give more but as you know we were banking on a SC decision reinstating me and reimbursing my back-salaries. I had been wanting to offer some token of my appreciation of your legal fight for and in my behalf, and it was only last week that I received something on account of a pending claim.

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‘Looking forward to a continuation of the case in the lower court, I remain

‘Sincerely yours,

Illegible’

x x x x x

“In a reply letter dated April 25, 1962, the plaintiff returned the check, explaining said act as follows:

‘April 25, 1962

‘My dear Marino:

‘Yesterday, I received your letter of April 18th with its enclosure. I wish to thank you for your kind thoughts, however, please don’t take offense if I have to return the check. I will explain.

‘When I decided to render professional services in your case, I was motivated by the value to me of the very intimate relations which you and I have enjoyed during the past many many years. It was not, primarily, for a professional fee.

‘Although we were not fortunate to have obtained a decision in your case which should have put an end to it. I feel that we have reason to be jubilant over the outcome, because, the final favorable outcome of the case seems certain, irrespective of the length of time required to terminate the same.

‘Your appreciation of the efforts I have invested in your case is enough compensation therefor, however, when you shall have obtained a decision which would have finally resolved the case in your favor, remembering me then will make me happy. In the meantime, you will make me happier by just keeping the check.

‘Sincerely yours,

JUANING’

x x x x x x

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“When the case was remanded for further proceedings before Judge Lantin, the evidence for the defendant was presented by Atty. ‘Alvarez with the plaintiff cooperating in the same.’ On June 24, 1963, Judge Lantin rendered his decision in favor of the defendant, declaring illegal the resolution of the Monetary Board of July 20, 1959, and ordering the defendant’s reinstatement and the payment of his back salaries and allowances. The respondents in said Civil Case No. 41226 filed a motion for reconsideration which was opposed by the herein plaintiff. The said decision was appealed by the respondents, as well as by the herein defendant with respect to the award of P5,000.00 attorney’s fees. The plaintiff prepared two briefs for submission to the Court of Appeals, one as appellee (Exhibit H) and the other as appellant (Exhibit H-1). The Court of Appeals, however, certified the case to the Supreme Court in 1964.

“On March 31, 1965, the Supreme Court rendered a decision affirming the judgment of the Court of First Instance of Manila.

“On April 19, 1965, the plaintiffs law office made a formal demand upon the defendant for collection of 50% of the amount recovered by the defendant as back salaries and other emoluments from the Central Bank (Exhibit N). This letter was written after the defendant failed to appear at an appointment with the plaintiff so that they could go together to the Central Bank to claim the possession of the office to which the defendant was reinstated and after a confrontation in the office of the plaintiff wherein the plaintiff was demanding 50% of the back salaries and other emoluments amounting to P203,000.00 recoverable by the defendant. The defendant demurred to this demand inasmuch as he had plenty of outstanding obligations and that his tax liability for said back salaries was around P90,000.00, and that he expected to net only around P10,000.00 after deducting all expenses and taxes.

“On the same date, April 19, 1965 the plaintiff wrote the Governor of Central Bank requesting that the amount representing the back salaries of the defendant be made out in two checks, one in favor of the defendant and the other representing the professional fees equivalent to 50% of the said back salaries being claimed by the plaintiff (Exhibit 8). Failing to obtain the desired relief from the Central Bank, the plaintiff instituted this action before this Court on July 20, 1965” (italics supplied).

As therein defendant, herein petitioner Marino Corpus filed on August 5, 1965 an answer with counterclaim. On

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August 30, 1965, private respondent Atty. Juan T. David, plaintiff therein, filed a reply with answer to the counterclaim of petitioner.

After due trial, the lower court rendered judgment on September 4, 1967, the dispositive portion of which reads:

“WHEREFORE, judgment is hereby rendered, ordering the defendant to pay plaintiff the sum of P30,000.00 in the concept of professional fees, and to pay the costs” (pp. 112-113, CA Record on Appeal, p. 54, rec.)

After receipt on September 7, 1967 of a copy of the afore-quoted judgment, petitioner Marino Corpus, defendant therein, filed on October 7, 1967 a notice of appeal from said judgment to the Court of Appeals. In his appeal, he alleged that the lower court erred:

“1. In not holding that the plaintiff’s professional services were offered and rendered gratuitously;

“2. Assuming that plaintiff is entitled to compensation — in holding that he was entitled to attorney’s fees in the amount of P30,000.00 when at most he would be entitled to only P2,500.00;

“3. In not dismissing plaintiff’s complaint; and

“4. In not awarding damages and attorney’s fees to the defendant“ (p. 2, CA Decision, p. 26, rec.)

Likewise, private respondent Atty. Juan T. David, plaintiff therein, appealed to the Court of Appeals on October 9, 1967 assigning one error, to wit:

“The lower court erred in ordering the defendant to pay the plaintiff only the sum of P30,000.00 in the concept of attorney’s fees” (p. 1, CA Decision, p. 25, rec.).

On February 14, 1975, respondent Court of Appeals promulgated its decision affirming in toto the decision of the lower court, with costs against petitioner Marino Corpus (Annex A, Petition for Certiorari, p. 25, rec.)

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Hence, the instant petition for review on certiorari, petitioner contending that the respondent Court of Appeals erred in finding that petitioner accepted private respondent’s services “with the understanding of both that he (private respondent) was to be compensated” in money; and that the fee of private respondent was contingent (pp. 3 & 5, Petition for Certiorari, pp. 17 & 19, rec.)

On October 1, 1975, the case was deemed submitted for decision (p. 177, rec.), after the parties filed their respective memoranda.

B

On January 31, 1978, private respondent Atty. Juan T. David filed a petition to remand the case to the court a quo for execution of the latter’s decision in Civil Case No. 61802, dated September 4, 1967, alleging that said decision is already deemed affirmed pursuant to Section 11(2), Article X of the New Constitution by reason of the failure of this Tribunal to decide the case within 18 months. Then on July 7, 1978, another petition to remand the case to the lower court for execution was filed by herein private respondent.

Subsequently, private respondent Atty. Juan T. David filed with the court a quo a motion dated September 13, 1978 for the issuance of a writ of execution of the lower court’s decision in the aforesaid civil case, also invoking Section 11 (2), Article X of the 1973 Constitution. In an order dated September 19, 1978, the lower court, through Judge Jose H. Tecson, directed the issuance of a writ of execution. The writ of execution was issued on October 2, 1978 and a notice of garnishment was also issued on October 13, 1978 to garnish the bank deposits of herein petitioner Marino Corpus in the Commercial Bank and Trust Company, Makati Branch.

It appears that on October 13, 1978, herein petitioner filed a motion for reconsideration of the September 19, 1978 order. Private respondent Atty. Juan T. David filed on October 19, 1978 an opposition to said motion and herein petitioner filed a reply on October 30, 1978. The lower court denied said motion tor reconsideration in its order dated November 7, 1978.

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It appears also that in a letter dated October 18, 1978, herein petitioner Marino Corpus requested this Court to inquire into what appears to be an irregularity in the issuance of the aforesaid garnishment notice to the Commercial Bank and Trust Company, by virtue of which his bank deposits were garnished and he was prevented from making withdrawals from his bank account.

In OUR resolution of November 3, 1978, WE required private respondent Atty. Juan T. David and the Commercial Bank and Trust Company to comment on petitioner’s letter, and for the bank to explain why it did not honor petitioner’s withdrawals from his bank deposits when no garnishment order has been issued by the Supreme Court. This Court further inquired from the lower court whether it has issued any garnishment order during the pendency of the present case.

On November 27, 1978, the Commercial Bank and Trust Company filed its comment which was noted in the Court’s resolution of December 4, 1978. In said resolution, the Court also required Judge Jose H. Tecson to comply with the resolution of November 3, 1978, inquiring as to whether he had issued any garnishment order, and to explain why a writ of execution was issued despite the pendency of the present case before the Supreme Court.

Further, WE required private respondent Atty. Juan T. David to explain his failure to file his comment, and to file the same as directed by the resolution of the Court dated November 3, 1978. Private respondents compliance came on December 13, 1978, requesting to be excused from the filing of his comment because herein petitioner’s letter was unverified. Judge Tecson’s compliance was filed on December 15, 1978, to which herein petitioner replied on January 11, 1979.

In OUR resolution dated January 3, 1979, WE set aside the order of Judge Jose H. Tecson dated September 19, 1978, the writ of execution as well as the notice of garnishment, and required private respondent Atty. Juan T. David to show cause why he should not be cited for contempt for his failure to file his comment as directed by the resolution of the Court dated December 4, 1978, and for filing a motion for execution know-

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ing that the case is pending appeal and review before this Court. Likewise, the Court required Judge Jose H. Tecson to show cause why he should not be cited for contempt for issuing an order directing the issuance of a writ of execution and for issuing such writ despite the pendency of the present case in the Supreme Court.

On January 12, 1979, Judge Jose H. Tecson filed his compliance-explanation as directed by the aforesaid resolution of January 3, 1979, while private respondent Atty. Juan T. David filed on January 30, 1979 his compliance and motion for reconsideration after the Court has granted him an extension of time to file his compliance.

Private respondent Atty. Juan T. David filed on February 28, 1979, a petition praying that the merits of his compliance be resolved by the Court en banc. Subsequently, on March 26, 1979, another petition was filed by herein private respondent asking the Chief Justice and the members of the First Division to inhibit themselves from participating in the determination of the merits of his compliance and for its merits to be resolved by the Court en banc.

C

The main thrust of this petition for review is whether or not private respondent Atty. Juan T. David is entitled to attorney’s fees.

Petitioner Marino Corpus contends that respondent David is not entitled to attorney’s fees because there was no contract to that effect. On the other hand, respondent David contends that the absence of a formal contract for the payment of at torney’s fees will not negate the payment thereof because the contract may be express or implied, and there was an implied understanding between the petitioner and private respondent that the former will pay the latter attorney’s fees when a final decision shall have been rendered in favor of the petitioner reinstating him to his former position in the Central Bank and paying his back salaries.

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I

WE find respondent David’s position meritorious. While there was express agreement between petitioner Corpus and respondent David as regards attorney’s fees, the facts of the case support the position of respondent David that there was at least an implied agreement for the payment of attorney’s fees.

Petitioner’s act of giving the check for P2,000.00 through his aforestated April 18, 1962 letter to respondent David indicates petitioner’s commitment to pay the former attorney’s fees, which is stressed by expressing that “I wish I could give more but as you know we were banking on a SC decision reinstating me and reimbursing my back salaries.” This last sentiment constitutes a promise to pay more upon his reinstatement and payment of his back salaries. Petitioner ended his letter that he was “looking forward to a continuation of the case in the lower court, x x x”, to which the certiorari-mandamus-quo warranto case was remanded by the Supreme Court for further proceedings.

Moreover, respondent David’s letter-reply of April 25, 1962 confirms the promise of petitioner Corpus to pay attorney’s fees upon his reinstatement and payment of back salaries. Said reply states that respondent David decided to be his counsel in the case because of the value to him of their intimate relationship over the years and “not, primarily, for a professional fee.” It is patent then, that respondent David agreed to render professional services to petitioner Corpus secondarily for a professional fee. This is stressed by the last paragraph of said reply which states that “however, when you shall have obtained a decision which would have finally resolved the case in your favor, remembering me then will make me happy. In the meantime, you will make me happier by just keeping the check.” Thereafter, respondent David continued to render legal services to petitioner Corpus, in collaboration with Atty. Alvarez until he and Atty. Alvarez secured the decision directing petitioner’s reinstatement with back salaries, which legal services were undisputedly accepted by, and benefited petitioner.

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Moreover, there is no reason to doubt respondent David’s assertion that Don Rafael Corpus, the late father of petitioner Corpus, requested respondent to help his son, whose suit for reinstatement was dismissed by the lower court; that pursuant to such request, respondent conferred in his office with petitioner, who requested respondent to handle the case as his lawyer, Atty. Alvarez, was already disenchanted and wanted to give up the case; and that respondent agreed on the case. It would have been unethical for respondent to even offer his services when petitioner had a competent counsel in the person of Atty. Alvarez, who has been teaching political, constitutional and administrative law for over twenty years.

Likewise, it appears that after the Supreme Court affirmed on March 31, 1965 the order of the lower court reinstating petitioner Corpus with back salaries and

awarding attorney’s fees of P5,000.00, respondent David made a written demand on April 19, 1965 upon petitioner Corpus for the payment of his attorney’s fees in an amount equivalent to 50% of what was paid as back salaries (Exh. N, p. 75, Folder of Exhibits, Civil Case No. 61802). Petitioner Corpus, in his reply dated May 7, 1965 to the aforesaid written demand, while disagreeing as to the amount of attorney’s fees demanded, did not categorically deny the right of respondent David to attorney’s fees but on the contrary gave the latter the amount of P2,500.00, which is one-half (½) of the court-awarded attorney’s fees of P5,000.00, thus impliedly admitting the right of respondent David to attorney’s fees (Exh. K, p. 57, Folder of Exhibits, Civil Case No. 61802).

It is further shown by the records that in the motion filed on March 5, 1975 by petitioner Corpus before the Court of Appeals for the reconsideration of its decision affirming the order of the lower court granting P30,000.00 attorney’s fees to respondent David, he admitted that he was the first to acknowledge that respondent David was entitled to compensation for legal services rendered when he sent the check for P2,000.00 in his letter of April 18, 1962, and he is still willing to compensate the respondent but only to the extent of P10,000.00 (p. 44, rec.). This admission serves only to further

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emphasize the fact that petitioner Corpus was aware all the time that he was liable to pay attorney’s fees to respondent David which is therefore inconsistent with his position that the services of respondent David were gratuitous, which did not entitle said respondent to compensation.

It may be advanced that respondent David may be faulted for not reducing the agreement for attorney’s fees with petitioner Corpus in writing. However, this should be viewed from their special relationship. It appears that both have been

friends for several years and were co-members of the Civil Liberties Union. In addition, respondent David and petitioner’s father, the late Rafael Corpus, were also close friends. Thus, the absence of an express contract for attorney’s fees between respondent David and petitioner Corpus is no argument against the payment of attorney’s fees, considering their close relationship which signifies mutual trust and confidence between them.

II

Moreover, the payment of attorney’s fees to respondent David may also be justified by virtue of the innominate contract of facio ut des (I do and you give) which is based on the principle that “no one shall unjustly enrich himself at the expense of another.” innominate contracts have been elevated to a codal provision in the New Civil Code by providing under Article 1307 that such contracts shall be regulated by the stipulations of the parties, by the general provisions or principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the customs of the people. The rationale of this article was stated in the 1903 case of Perez vs. Pomar (2 Phil. 982). In that case, the Court sustained the claim of plaintiff Perez for payment of services rendered against defendant Pomar despite the absence of an express contract to that effect, thus:

“It does not appear that any written contract was entered into between the parties for the employment of the plaintiff as interpreter, or that any other innominate contract was entered into; but

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whether the plaintiffs services were solicited or whether they were offered to the defendant for his assistance, inasmuch as these services were accepted and made use of by the latter, we must consider that there was a tacit and mutual

consent as to the rendition of the services. This gives rise to the obligation upon the person benefited by the services to make compensation therefor, since the bilateral obligation to render service as interpreter, on the one hand, and on the other to pay for the service rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code).

x x x x x x

“x x x. Whether the service was solicited or offered, the fact remains that Perez rendered to Pomar services as interpreter. As it does not appear that he did this gratuitously, the duty is imposed upon the defendant, he having accepted the benefit of the service, to pay a just compensation therefor, by virtue of the innominate contract of facio ut des implicitly established.

“x x x x x.

“x x x because it is a well-known principle of law that no one shouls be permitted to enrich himself to the damage of another” (italics supplied; see also Tolentino, Civil Code of the Philippines, p. 388, Vol. IV [1962], citing Estate of Heguera vs. Tandra, 81 Phil. 404 [1948]; Arroyo vs. Azur. 76 Phil. 493 [1946]; and Perez vs. Pomar, 2 Phil. 682 [1903]).

WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976]) citing the case of Perez v. Pomar, supra, thus:

“Where one has rendered services to another, and these services are accepted by the latter, in the absence of proof that the service was rendered gratuitously, it is but just that he should pay a reasonable remuneration therefor because it is a well-known principle of law, that no one should be permitted to enrich himself to the damage of another’ ” (italics supplied).

Likewise, under American law, the same rule obtains (7 CJS 1079; F.L Stitt & Co. v. Powell, 114 So 375).

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III

There was no contract for contingent fee between Corpus and respondent David. Contingent fees depend on an express contract therefor. Thus, “an attorney is not entitled to a percentage of the amount recovered by his client in the absence of an express contract to that effect” (7 C.J.S. 1063 citing Thurston v. Travelers Ins. Co., 258 N.W. 66, 128 Neb. 141).

“Where services were rendered without any agreement whatever as to the amount or terms of compensation, the attorney is not acting under a contract for a contingent fee, and a letter by the attorney to the client stating that a certain sum would be a reasonable amount to charge for his services and adding that a rate of not less than five percent nor more than ten would be reasonable and customary does not convert the original agreement into a contract for a contingent fee” (7 C.J.S. 1063 citing Fleming v. Phinizy, 134 S.E. 814).

While there was no express contract between the parties for the payment of attorney’s fees, the fact remains that respondent David rendered legal services to petitioner Corpus and therefore as aforestated, is entitled to compensation under the innominate contract ot facio ut des. And such being the case, respondent David is entitled to a reasonable compensation.

IV

In determining a reasonable fee to be paid to respondent David as compensation for his services, on a quantum meruit basis, it is proper to consider all the facts and circumstances obtaining in this case particularly the following:

The extent of the services rendered by respondent David should be considered together with the extent of the services of petitioner’s other counsel, Atty. Rosauro Alvarez. It is undisputed that Atty. Rosauro Alvarez had rendered legal

services as principal counsel for more than six (6) years while respondent David has rendered legal services as collaborating

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counsel for almost four (4) years. It appears that Atty. Alvarez started to render legal services after the administrative case was filed on March 7, 1958 against petitioner Corpus. He represented petitioner Corpus in the hearing of said case which was conducted from May 5, 1958 to October 8, 1958, involving 56 sessions, and this resulted in the complete exoneration by the Investigating Committee of all the charges against the petitioner. It appears further that after the Monetary Board, in its resolution of July 20, 1959, declared petitioner Corpus as being considered resigned from the service, Atty. Alvarez instituted on August 18, 1958 Civil Case No. 41126 in the Court of First Instance of Manila for the setting aside of the aforestated resolution and for the reinstatement of petitioner Corpus. Atty. Alvarez actively participated in the proceedings.

On the other hand, respondent David entered his appearance as counsel for petitioner Corpus sometime after the dismissal on June 14, 1960 of the aforesaid civil case. From the time he entered his appearance, both he and Atty. Alvarez rendered legal services to petitioner Corpus in connection with the appeals of the aforementioned civil case to the Court of Appeals and to the Supreme Court. The records disclose that in connection with the appeal from the June 14, 1960 order of dismissal, respondent David prepared and signed pleadings although the same were made for and on behalf of Atty. Alvarez and himself. And it is not far-fetched to conclude that all appearances were made by both counsels considering that Atty. Alvarez was the principal counsel and respondent David was the collaborating counsel. Thus, when the case was called for oral argument on April 20, 1961 before the Supreme Court, respondent

David and Atty. Alvarez appeared for petitioner Corpus although it was David who orally argued the case.

When the Supreme Court, in its decision of March 30, 1962, remanded the case to the lower court for further proceedings, it was Atty. Alvarez who conducted the presentation of evidence while respondent David assisted him. The records also reveal that respondent David prepared and signed for Atty. Alvarez and himself, certain pleadings, including a memorandum.

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Moreover, after the lower court rendered judgment on June 24, 1963 ordering the reinstatement and payment of back salaries to petitioner Corpus and awarding him P5,000.00 by way of attorney’s fees, both petitioner Corpus and the respondents in said case appealed the judgment. At that stage, respondent David again prepared and signed for Atty. Alvarez and himself, the necessary pleadings, including two appeal briefs. And in addition, he made oral arguments in the hearings of motions filed in the lower court before the records of the case were forwarded to the appellate court. Furthermore, while it appears that it was Atty. Alvarez who laid down the basic theory and foundation of the case of petitioner Corpus in the administrative case and later in the civil case, respondent David also advanced legal propositions. Petitioner Corpus contends that said legal propositions were invariably rejected by the courts. This is, however, of no moment because the fact remains that respondent David faithfully rendered legal services for the success of petitioner’s case.

The benefits secured for petitioner Corpus may also be considered in ascertaining what should be the compensation of respondent David. It cannot be denied that both Atty. Alvarez and respondent David were instrumental in obtaining substantial benefits for petitioner Corpus which consisted primarily of

his reinstatement, recovery of back salaries and the vindication of his honor and reputation. But, note should also be taken of the fact that respondent David came at the crucial stage when the case of petitioner Corpus was dismissed by the lower court.

Atty. Rosauro Alvarez admittedly was paid by petitioner Corpus the sum of P20,000.00 or at most P22,500.00 (T.s.n., Jan. 11, 1967, pp. 34-35; T.s.n., Feb. 10, 1967, pp. 48-49). On the other hand, petitioner Corpus, after WE suggested on August 15, 1975 that they settle the case amicably has, in his September 15, 1975 pleading filed before this Court (p. 166, rec.), manifested his willingness to pay P10,000.00 for the services of respondent David. However, respondent David has not manifested his intention to accept the offer.

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In his complaint in the instant case, he asked for P75,000.00 as his attorney’s fees. The records reveal that petitioner Corpus actually received only P150,158.50 as back salaries and emoluments after deducting taxes as well as retirement and life insurance premiums due to the GSIS. The amount thus claimed by respondent David represents 50% of the amount actually received by petitioner Corpus. The lower court, however, awarded only P30,000.00 and it was affirmed by the Court of Appeals.

Considering the aforestated circumstances, WE are of the opinion that the reasonable compensation of respondent David should be P20,000.00.

V

WE find private respondent Juan T. David and Judge Jose H. Tecson, Presiding Judge of the Court of First Instance of Manila, Branch V, guilty of contempt of court.

Respondent David filed on or about September 13, 1978 a motion with the court a quo for the issuance of a writ of execution to enforce its decision in Civil Case No. 61802, subject of the present petition, knowing fully well that it was then still pending appeal before this Court. In addition, no certification that the aforesaid decision is already deemed affirmed had as yet been issued by the Chief Justice pursuant to Section 11, paragraph 2, Article X of the New Constitution; because respondent David’s petitions filed with the Supreme Court on January 31, 1978 and on July 7, 1978 to remand the case to the trial court for execution and for the issuance of such certification had not yet been acted upon as the same were still pending consideration by this Court. In fact, this Court has not as of this time made any pronouncement on the aforesaid provision of the New Constitution.

This act of respondent David constitutes disrespect to, as well as disregard of, the authority of this Court as the final arbiter of all cases duly appealed to it, especially constitutional questions. It must be emphasized that as a member of the Philippine Bar he is required “to observe and maintain the

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respect due to the courts of justice and judicial officers” (Section 20 (b), Rule 138 of the Revised Rules of Court). Likewise, Canon 1 of the Canons of Professional Ethics expressly provides that: “It is the duty of the lawyer to maintain towards the Courts a respectful attitude, not for the sake of the temporary incumbent of the judicial office, but for the maintenance of its supreme importance.” And this Court had stressed that “the duty of an attorney to the courts ‘can only be maintained by rendering no service involving any disrespect to the judicial office which he is bound to uphold’ ” (Rheem of the Philippines v. Ferrer, 20 SCRA 441, 444 [1967] citing the case of Lualhati v. Albert, 57 Phil. 86, 92 [1932]).

Moreover, this Court takes judicial notice of the fact that herein respondent David, in the previous case of Integrated Construction Services, Inc. and Engineering Construction, Inc. v. Relova (65 SCRA 638 [1975]), had sent letters addressed to the then Chief Justice Querube C. Makalintal and later to the late Chief Justice Fred Ruiz Castro, requesting for the issuance of certification on the basis of the aforementioned provision of the New Constitution which were not given due consideration. And knowing this, respondent David should have been more prudent and cautious in filing with the court a quo any motion for execution.

Furthermore, there was even a taint of arrogance and defiance on the part of respondent David in not filing his comment to the letter-complaint dated October 18, 1978 of petitioner Corpus, as required by this Court in its November 3, 1978 and December 4, 1978 resolutions which were duly received by him; and instead, he sent on December 13, 1978 a letter requesting to be excused from the filing of his comment on the lame excuse that petitioner’s letter-complaint was not verified.

On the part of Judge Jose H. Tecson, his presumptuous and precipitate act of granting the motion for execution of respondent David likewise constitutes disrespect to, as well as disregard of, the authority of this Court because he knew for a fact that the case was still pending appeal as the records thereof had not yet been remanded to it and that no certification has been issued by this Court. As a judicial officer, Judge

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Tecson is charged with the knowledge of the fact that this Court has yet to make a definite pronouncement on Section 11, paragraph 2, Article X of the New Constitution. Judge Tecson should know that only the Supreme Court can

authoritatively interpret Section 11 (2) of Article X of the 1973 Constitution. Yet, Judge Tecson assumed the role of the Highest Court of the Land. He should be reminded of what Justice Laurel, speaking for the Court, has said in People v. Vera (65 Phil. 56, 82 [1937]):

“A becoming modesty of inferior courts demands conscious realization of the position that they occupy in the interrelation and operation of the integrated judicial system of the nation.”

It may also be added that the improvident act of respondent David in filing the motion for execution and the precipitate act of Judge Tecson in issuing the writ of execution are intriguing as they invite suspicion that there was connivance between the two. Respondent David would seem to imply that his claim for attorney’s fees should be given preference over the other cases now pending in this Court. Certainly, such should not be the case because there are cases which by their nature require immediate or preferential attention by this Tribunal, like habeas corpus cases, labor cases and criminal cases involving death sentence, let alone cases involving properties and property rights of poor litigants pending decision or resolution long before the New Constitution of 1973. Nobility and exemplary forbearance were expected of Atty. David, who is old and experienced in the practice of the legal profession, from which he has derived a great measure of economic well-being and independence.

Consequently, the filing of the motion for immediate execution and the issuance of the writ of execution constitute a defiance and usurpation of the jurisdiction of the Supreme Court. As a disciplinary measure for the preservation and vindication of the dignity of this Supreme Tribunal, respondent Atty. Juan T. David should be REPRIMANDED for his precipitate action of filing a motion for execution as well as Judge Jose H. Tecson for his improvident issuance of a writ of execution

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while the case is pending appeal before the Supreme Court, and a repetition of said acts would be dealt with more severely.

WHEREFORE, PETITIONER R. MARINO CORPUS IS HEREBY DIRECTED TO PAY RESPONDENT ATTY. JUAN T. DAVID THE SUM OF TWENTY THOUSAND (P20,000.00) PESOS AS ATTORNEY’S FEES.

RESPONDENT ATTY. JUAN T. DAVID AND JUDGE JOSE H. TECSON OF THE COURT OF FIRST INSTANCE OF MANILA, BRANCH V, ARE HEREBY DECLARED GUILTY OF CONTEMPT AND ARE HEREBY REPRIMANDED, WITH A WARNING THAT REPETITION OF THE SAME OR SIMILAR ACTS WILL BE DEALT WITH MORE SEVERELY.

COSTS AGAINST PETITIONER.

SO ORDERED.

Teehankee (Chairman), Fernandez and Melencio-Herrera, JJ., concur.

Guerrero, J., is on leave.

De Castro, J., in the result.

Notes.—No valid notice of attorney’s lien is made where the same was filed with the trial court at the time when the record of the case was in the Court of Appeals. (G. A. Machineries, Inc. vs. Court of Appeals, 79 SCRA 291).

In every case of disbarment, the burden of proof lies with the complainant to show that the respondent is guilty of the acts charged. (Beltran vs. Magsarili, 79 SCRA 655).

A notary public who acted under an honest mistake of fact in regards the age of a person who executed a power of attorney before him is exonerated from the disbarment charge. (Soto vs. Lacre, 77 SCRA 453).

The right to the practice of law is not a natural or constitutional right, but is in the nature of a privilege or franchise. It is limited to persons of good moral character with special qualifications duly ascertained and certified. (In re: Sycip, 92 SCRA 1).

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A counsel’s fee of P10,000.00 is fair where the adverse party acted in wanton disregard of respondent’s rights. (St. Peter Memorial Park, Inc. vs. Cleofas, 92 SCRA 389).

Attorney’s fees awarded by inferior court may be reduced motu proprio by the appellate court. (Ramos vs. Court of Appeals, 63 SCRA 331).

In impairment of contract, attorney’s fees of 10% of the award is reasonable. (Central Bank of the Philippines vs. Court of Appeals, 63 SCRA 431).

Even if counsel has already an existing right to his attorney’s fees at the time of issuance of the writ of preliminary mandatory injunction in his favor, said writ will still be vitiated by absence of showing that the non-issuance thereof would cause irreparable injury or damage to counsel. (Integrated Construction Services, Inc. vs. Relova, 65 SCRA 638).

Agreement in written on attorney’s fees cannot be reduced by amicable settlement of private litigants. (Calalang vs. De Borja, 66 SCRA 365).

Claim of attorney’s fees is reasonable considering the work still to be performed on the foreclosure proceedings and the collection work by judicial proceedings. (De Cortes vs. Venturanza, 79 SCRA 709). [Corpus vs. Court of Appeals, 98 SCRA 424(1980)]

Documents

Contracts 1e