Atty Mina Cases1

EN BANC
[G.R. No. 76965. March 11, 1994.]
LUIS TAN, WILLIAM S. TAN, JOAQUIN S. TAN and VICENTE S. TAN , petitioners, vs.
HON. DAVID G. NITAFAN, Presiding Judge, Regional Trial Court, Br. 52, Manila, and
ROSITA B. LIM, in her behalf and as Guardian Ad Litem of her minor children,
JENNIFER, LYSANDER and BEVERLIE, all surnamed LIMKETKAI, respondents.
D ECISION
BELLOSILLO, J p:
Bitter rivalry in the movie theater industry led to the slaying of one of the more prominent
citizens of Cagayan do Oro almost twenty (20) years ago. Those charged for the sensational
manslaughter were either convicted or acquitted by a military court. But the verdict did not put to rest
the wounded feelings spawned by the killing; it merely terminated the criminal prosecution of those
already haled to court. llcd
The problem now before us concerns the civil aspect of the case. Petitioners claim that the
complaint 1 led against them in the trial court has already prescribed, hence, should be, as it should
have been, dismissed by respondent Judge. On the other hand, private respondents insist that the issue
on prescription may no longer be relitigated on the ground that we have already resolved the same in
G.R. No. 69418, and that assuming that the same may still be activated, respondent Judge committed
no grave abuse of discretion in denying petitioner's motion to dismiss grounded on prescription
because private respondents' cause of action for damages is coterminous with the crime of murder on
which it is based. 2
We nd no grave abuse of discretion on the part of respondent Judge in denying the motion to
dismiss.
Florentino Lim, a scion of the wealthy Limketkai family of Cagayan de Oro City, was shot dead
in his o ce on 25 August 1973. The Constabulary, the NBI and the police conducted a joint investigation
of the case. As a result, on 17 April 1975, the brothers Luis, William, Joaquin, Vicente, Alfonso and
Eusebio, all surnamed Tan, and Go E Kuan, together with eight (8) others, were charged with murder,
and unlawful possession, control and custody of a pistol before Military Commission No. 1. 3
Incidentally, Alfonso, Eusebio and Go E Kuan died even before the instant petition could be led.
Thereafter, William also died.
On 11 June 1976, after trial, Military Commission No. 1. convicted Luis and Five (5) of his co-
accused 4 for murder, while the gunman was also found guilty of illegal possession of rearm. 5 The
other brothers of Luis were simply declared "not guilty" in both cases. 6
On 11 February 1983, private respondent Rosita B. Lim, together with her minor children,
Jennifer, Lysander and Beverlie, all surnamed Limketkai, commenced in the Regional Trial Court of
Manila a civil action for damages against all those charged with the slaying of Florentino Lim. 7 The
case was ra ed to the sala of respondent Judge David G.
Nitafan. cdphil
On 10 May 1983, instead of ling an answer, the Tan brothers led a motion to dismiss 8
contending that venue was improperly laid, and that private respondents' cause of action was already
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barred or extinguished by the acquittal of William, Joaquin, Vicente, Alfonso, Eusebio and Go E Kuan
by Military Commission No. 1. But respondent Judge disagreed and denied petitioners' motion,
prompting the latter to elevate the issue to the then Intermediate Appellate Court (now Court of
Appeals) by way of certiorari, 9 which likewise rejected their arguments and denied their plea. Then
they came to this court raising the propriety of the denial of their motion to dismiss. 10
On 23 May 1984, we dismissed the petition. We ruled that the action for damages against the
convicted defendants was sanctioned by Art. 33 of the Civil Code which allowed an independent civil
action in case of physical injuries, which include death. We further held that the complaint stated a
cause of action against those acquitted because the Military Commission did not explain the grounds
for their acquittal. After all, it was not under any obligation to do so. Hence, we concluded, it would be
premature to dismiss the civil action against them. 11
Thereafter, petitioners led their answer to the complaint. Prescription was not one of their
affirmative defenses.
On 26 July 1984, Mariano Velez, Jr., a co-defendant of petitioners in Civil Case No. 83-15633,
led a separate motion to dismiss based on prescription and waiver or abandonment of claim by private
respondents. 12 Invoking Escueta v. Fandialan, 13 Velez argued that the prescriptive period for an
independent civil action under Art. 33 of the Civil Code was four (4) years, and since it took private
respondents almost ten (10) years to le the instant civil action, prescription had already set in.
On 10 September 1984, with leave of court, petitioners led an amended answer adopting the
grounds of Velez in his motion to dismiss as additional affirmative defenses.
On 18 September 1984, respondent Judge denied Velez' motion to dismiss while noting that
petitioners expressly adopted the grounds therein stated. The motion to reconsider the order of denial,
which was again joined in by petitioners, was likewise denied.
On 21 December 1984, Velez instituted a petition for certiorari 14 questioning the denial of
his motion to dismiss, the second incident to reach this Court stemming from the civil action for
damages. Petitioners did not join Velez in the petition. On 25 March 1985, in a minute resolution, the
court dismissed Velez' petition. 15
On 16 January 1986, at the pre-trial, petitioners asked for time to le a motion to dismiss, which
the trial court granted purportedly to consider the "intents and purposes of Section 3 of Rule 20, under
which if the Court nds that jurisdiction is lacking . . . or if the admitted facts and proof show that plaintiff
has no cause of action . . . the Court may render judgment dismissing the case." 16
On 28 January 1986, petitioners led their motion to dismiss, which merely reiterated
prescription and lack of cause of action as grounds therefor. On 20 March 1986, respondent Judge
denied the motion to dismiss ruling that the grounds upon which the motion was anchored were
"already passed upon adversely by this Court (trial court) and such adverse rulings were even a rmed
by superior courts . . ." 17 On 29 July 1986, reconsideration of the Order of 20 March 1986 was denied.
llcd
On 16 January 1987, or almost six (6) months after such denial, petitioners commenced the
present petition for certiorari, the third to emanate from Civil Case No. 8315633, moored solely on the
ground of prescription. After private respondents led their comment, petitioner Luis Tan through
counsel led his own reply, while William, Joaquin and Vicente, also through counsel, led jointly a
separate reply particularly introducing another issue, i.e., whether a civil action for damages led under
Art. 29 of the Civil Code 18 can still prosper against them considering that their acquittal by Military
Commission No. 1 simply declared them "not guilty", hence, without any quali cation and not merely
based on reasonable doubt. But, this is an issue which was already resolved in G.R. No. 67029.

Meanwhile, on 22 May 1987, pending resolution of the instant petition, a decision in the twin
cases of Olaguer v. Military Commission No. 34 19 was promulgated. Therein, through Mr. Justice
Emilio A. Gancayco, we ruled that courts martial could not try and exercise jurisdiction over civilians
for offenses committed by them for as long as the civil courts were open and functioning, which was
the prevailing condition during the period of martial law. Thus, in Cruz v. Enrile, 20 penned by then
Associate Justice Andres R. Narvasa, now Chief Justice, we nulli ed the proceedings against non-political
detainees who were convicted by courts martial and who were still serving sentence, although they
were not immediately released as the Department of Justice was simply directed to le the
corresponding informations against them in the civil courts.
Consequently, the Secretary of Justice designated a State Prosecutor to conduct a

reinvestigation of Crim. Case No. MC-1-67 and, if warranted, to prosecute the case. 21 The State
Prosecutor then, without conducting a reinvestigation, led two (2) informations, one for illegal
possession of rearm, 22 and another for murder, 23 against the fteen (15) original accused in Crim.
Case No. MC-1-67 before the Regional Trial Court of Cagayan de Oro.
On 7 November 1988, the brothers William, Joaquin and Vicente instituted a petition for
certiorari as well as for prohibition before this Court 24 asserting that the re ling of the two (2)
informations against them constituted double jeopardy as they were already acquitted by Military
Commission No. 1.
On 18 October 1990, through Mme. Justice Carolina Griño-Aquino, this Court sustained the
position of William, Joaquin and Vicente in G.R. Nos. 85481-82 and ordered their discharge from the
information in Crim. Case No. 88-825, ruling that the re ling of the informations against the three (3)
brothers who had been acquitted by the military court long before the promulgation of the Olaguer
decision would place them in double jeopardy. 25
With the quashal of the information for murder, private respondents were left with no
recourse but to pursue Civil Case No. 83-15633 pending in the RTC of Manila. Unfortunately, this case
has been hibernating therein for ten (10) years, the delay being attributable mainly to the tactical
maneuvers of petitioners herein, who are defendants therein.
This petition for certiorari must fail. For, prescription may be effectively pleaded in a motion
to dismiss only if the complaint shows on its face that the action had already prescribed at the time it
was led. 26 But this is not the situation here. On the contrary, the applicable prescriptive period in this
case is, at most, dubitable. While petitioners contend that it is four (4) years hence the cause of action
of private respondents already prescribed, the trial court ruled that it was coterminous with the crime
so that, in this case where the accused were charged with murder, the prescriptive period for the
offense being twenty (20) years, the action had not yet prescribed it having been instituted less than
ten
(10) years from the time the cause of action accrued. prLL
Be that as it may, in G.R. No. 69418 we already a rmed the ruling of the trial court that
prescription had not yet set in, albeit in a minute resolution. But, it is axiomatic that when a minute
resolution denies or dismisses a petition for lack of merit, the challenged decision or order, together
with its ndings of fact and legal conclusions, are deemed sustained. 27 Correspondingly, the impression
that no legal rule was enunciated in G.R. No. 69418, 28 as espoused by petitioners, is wrong and must
be corrected. The resolution in G.R. No. 69418 having already attained nality, it becomes the "law of
the case" as to the issue of prescription, which simply means that if an appellate court has passed upon
a legal question and remanded the cause to the court below for further proceedings, the legal question
thus determined by the appellate court will not be differently determined on a subsequent appeal
given the same case and substantially the same facts. 29 The law of the case, as applied to a former
decision of an appellate court, merely expresses the practice of the courts in refusing to reopen what
has been decided. Such a rule is necessary to enable an appellate court to perform its duties
satisfactorily and e ciently, which would be impossible if a question, once considered and decided by

it, were to be litigated anew in the same case upon any and every subsequent appeal. 30 Thus, the
matter on prescription in the case before us is already a settled issued, now long dead to be revived.
Corollary thereto, the issue of whether a cause of action exists against petitioners who were acquitted
was already adjudicated in G.R. No. 67029, hence, is now the law of the case, at least insofar as that
issue is concerned.
Petitioners may not have been nominal parties in G.R. No. 69418, for which reason they claim
that res judicata does not lie against them by reason thereof, they nevertheless took active part in the
proceedings before the trial court that led to the denial of Velez' motion to dismiss by joining him in
pleading prescription as a valid ground for dismissal of the complaint for damages, having adopted not
only the grounds 315 in his motion but those in his motion for reconsideration as well. 32
In retrospect, petitioners joined movant Velez in his twin motions, one to dismiss, and the
other, for reconsideration, which were both denied by respondent Judge. We subsequently sustained
the denial of both motions. However, petitioners herein did not join Velez in elevating both orders of
denial to the appellate court. Consequently, as regards petitioners, that early the issue of prescription
was already resolved against them. They can no longer revive that same issue in this petition as our
Resolution in G.R. No. 69418 is already the law of the case. Indeed, it was only because of the inordinate
reverence of respondent Judge to what he perceived to be the "intents and purposes" of Sec. 3, Rule
20, of the Rules of Court, hovering nevertheless on grave abuse of discretion, that the issue of
prescription was resuscitated.
Perforce, the nality of our denial of Velez' motion to dismiss, which relied heavily on
prescription, must also apply to petitioners who have joined cause with Velez on the same issue.
Consequently, they are now precluded from contesting the validity of that denial even on the pretext
that what is being questioned in the instant petition is the denial of their motion to dismiss of 28
January 1986, 33 and not the previous motion of Velez. After all, petitioners are rising under the same
factual backdrop the very issue of prescription as Velez did in G.R. No. 69418. The less familiar concept
or less terminological usage of res judicata as a rule on conclusiveness of judgment refers to the
situation where the judgment in the prior action operates as an estoppel only as to the matters actually
determined therein or which were necessarily included therein. 34 And prescription was one of the
grounds raised in G.R. No. 69418. Courts frown upon litigants reiterating identical motions in the hope
that they would entertain a possible change of opinion in the future. 35
Petitioners' motion to dismiss made at the pre-trial stage did not contain any new allegation
on lack of jurisdiction or lack of cause of action, which are the only grounds allowed for such a motion.
On the other hand, all the grounds raised by petitioners were mere reiterations of issues already settled
by the trial court and a rmed in G.R. Nos. 67029 and 69418. Consequently, the only recourse open to
the Court is to dismiss the petition. A contrary ruling of respondent Judge would have, instead, easily
subjected him to certiorari on grave abuse of discretion for gross disobedience to settled
pronouncements of this Court. LLpr
WHEREFORE, there being no grave abuse of discretion committed by respondent

Judge, this Petition for Certiorari is DISMISSED. The Regional Trial Court of Manila, Branch 52, or
whichever branch of the same court this case may now be assigned, is directed to proceed with the
proper disposition of Civil Case No. 83-15633 with the least possible delay. This decision is immediately
executory.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Romero, Nocon, Melo, Puno and
Kapunan, JJ., concur.

EN BANC
[G.R. No. L-27454. April 30, 1970.]
ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.
Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.
Sulpicio E. Platon, for Defendant-Appellee.
SYLLABUS
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF

PERIOD BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where the time for
compliance had expired and there was breach of contract by non-performance, it was academic for
the plaintiff to have first petitioned the court to fix a period for the performance of the contract before
filing his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE PHILIPPINES.—
Where the defendant virtually admitted non-performance of the contract by returning the typewriter
that he was obliged to repair in a non-working condition, with essential parts missing, Article 1197 of
the Civil Code of the Philippines cannot be invoked. The fixing of a period would thus be a mere
formality and would serve no purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-appellee contravened
the tenor of his obligation because he not only did not repair the typewriter but returned it "in
shambles,’’ he is liable for the cost of the labor or service expended in the repair of the typewriter,
which is in the amount of P58.75, because the obligation or contract was to repair it. In addition, he is
likewise liable under Art. 1170 of the Code, for the cost of the missing parts, in the amount of P31.10,
for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in the
same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT RECOVERABLE; NOT ALLEGED OR
PROVED IN INSTANT CASE.— Claims for damages and attorney’s fees must be pleaded, and the
existence of the actual basis thereof must be proved. As no findings of fact were made on the claims
for damages and attorney’s fees, there is no factual basis upon which to make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT; ONLY
QUESTIONS OF LAW REVIEWABLE.— Where the appellant directly appeals from the decision of the
trial court to the Supreme Court on questions of law, he is bound by the judgment of the court a quo
on its findings of fact.

DECISION
REYES, J.B.L., J.:
This is a direct appeal by the party who prevailed in a suit for breach of oral contract and
recovery of damages but was unsatisfied with the decision rendered by the Court of First Instance of
Manila, in its Civil Case No. 65138, because it awarded him only P31.10 out of his total claim of P690
00 for actual, temperate and moral damages and attorney’s fees.
The appealed judgment, which is brief, is hereunder quoted in full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a
portable typewriter for routine cleaning and servicing. The defendant was not able to finish the job
after some time despite repeated reminders made by the plaintiff. The defendant merely gave
assurances, but failed to comply with the same. In October, 1963, the defendant asked from the
plaintiff the sum of P6.00 for the purchase of spare parts, which amount the plaintiff gave to the
defendant. On October 26, 1963, after getting exasperated with the delay of the repair of the
typewriter, the plaintiff went to the house of the defendant and asked for the return of the typewriter.
The defendant delivered the typewriter in a wrapped package. On reaching home, the plaintiff
examined the typewriter returned to him by the defendant and found out that the same was in
shambles, with the interior cover and some parts and screws missing. On October 29, 1963. the plaintiff
sent a letter to the defendant formally demanding the return of the missing parts, the interior cover
and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff some of
the missing parts, the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the
repair job cost him a total of P89.85, including labor and materials (Exhibit C).
"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding
from the defendant the payment of P90.00 as actual and compensatory damages, P100.00 for
temperate damages, P500.00 for moral damages, and P500.00 as attorney’s fees.
"In his answer as well as in his testimony given before this court, the defendant made no denials of the
facts narrated above, except the claim of the plaintiff that the typewriter was delivered to the
defendant through a certain Julio Bocalin, which the defendant denied allegedly because the
typewriter was delivered to him personally by the plaintiff.
"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should
not, however, be fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the
missing parts had a total value of only P31.10.
"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of
P31.10, and the costs of suit.
"SO ORDERED."cralaw virtua1aw library
The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it awarded
only the value of the missing parts of the typewriter, instead of the whole cost of labor and materials
that went into the repair of the machine, as provided for in Article 1167 of the Civil Code, reading as

follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been poorly done he undone."cralaw virtua1aw library
On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable
at all, not even for the sum of P31.10, because his contract with plaintiff-appellant did not contain a
period, so that plaintiff-appellant should have first filed a petition for the court to fix the period, under
Article 1197 of the Civil Code, within which the defendant appellee was to comply with the contract
before said defendant-appellee could be held liable for breach of contract.
Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any
appeal, the facts, as found by the trial court, are now conclusive and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter
for routine cleaning and servicing" ; that the defendant was not able to finish the job after some time
despite repeated reminders made by the plaintiff" ; that the "defendant merely gave assurances, but
failed to comply with the same" ; and that "after getting exasperated with the delay of the repair of
the typewriter", the plaintiff went to the house of the defendant and asked for its return, which was
done. The inferences derivable from these findings of fact are that the appellant and the appellee had
a perfected contract for cleaning and servicing a typewriter; that they intended that the defendant
was to finish it at some future time although such time was not specified; and that such time had
passed without the work having been accomplished, far the defendant returned the typewriter
cannibalized and unrepaired, which in itself is a breach of his obligation, without demanding that he
should be given more time to finish the job, or compensation for the work he had already done. The
time for compliance having evidently expired, and there being a breach of contract by non-
performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the
performance of the contract before filing his complaint in this case. Defendant cannot invoke Article
1197 of the Civil Code for he virtually admitted non-performance by returning the typewriter that he
was obliged to repair in a non-working condition, with essential parts missing. The fixing of a period
would thus be a mere formality and would serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila
Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did
not repair the typewriter but returned it "in shambles", according to the appealed decision. For such
contravention, as appellant contends, he is liable under Article 1167 of the Civil Code. jam quot, for
the cost of executing the obligation in a proper manner. The cost of the execution of the obligation in
this case should be the cost of the labor or service expended in the repair of the typewriter, which is
in the amount of P58.75. because the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of
the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound,
but failed or neglected, to return it in the same condition it was when he received it.
Appellant’s claims for moral and temperate damages and attorney’s fees were, however, correctly
rejected by the trial court, for these were not alleged in his complaint (Record on Appeal, pages 1-5).
Claims for damages and attorney’s fees must be pleaded, and the existence of the actual basis thereof
must be proved. 2 The appealed judgment thus made no findings on these claims, nor on the fraud or
malice charged to the appellee. As no findings of fact were made on the claims for damages and

attorney’s fees, there is no factual basis upon which to make an award therefor. Appellant is bound by
such judgment of the court, a quo, by reason of his having resorted directly to the Supreme Court on
questions of law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the
defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85,
with interest at the legal rate from the filing of the complaint. Costs in all instances against appellee
Fructuoso Gonzales.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Villamor, JJ., concur.
Barredo, J., did not take part.

FIRST DIVISION
[G.R. No. L-55372. May 31, 1989.]
LETTY HAHN, petitioner, vs. COURT OF APPEALS, JOSIE M. SANTOS and FRANCISCO
SANTOS, respondents.
Raymundo A. Armovit for petitioner.

Mary Concepcion Bautista for respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS; EXTINGUISHMENT OF OBLIGATIONS; UPWARD

ADJUSTMENT OF ORIGINAL AMOUNT DUE, ERRONEOUS; FLOATING RATE
JUSTIFIED BY EXTRAORDINARY INFLATION. — We agree with the respondent court that
(upward) adjustment (of the original amount due) was erroneous for, as explained by Justice Sera n M.
Cuevas: We, however, nd the contention of appellant under her fth assignment of error — that the
lower court erred in applying the oating rate to the purely peso transaction — to be meritorious. In
this regard, Article 1250 of the Civil Code provides — In case an extraordinary in ation or de ation of
the currency stipulated should supervene, the value of the currency at the time of the establishment
of the obligation should be the basis of payment, unless there is an agreement to the contrary. By
extraordinary in ation or de ation of currency is understood to be any uncommon decrease or increase
in the purchasing power of currency which the parties could not have reasonably foreseen and which
has been due to war and the effects thereof, or any unusual force majeure or fortuitous event. (Civil
Code of the Philippines,
Dean Capistrano, Vol. III, p. 186.)
2. ID.; ID.; ID.; DEBTOR OF A THING CANNOT COMPEL CREDITOR TO RECEIVE A DIFFERENT
ONE. — As for the private respondent's offer to return the solitaire ring, which was also refused, the
pertinent rule is Article 1244, providing that "the debtor of a thing cannot compel the creditor to
receive a different one, although the latter may be of the same value as, or more valuable than that
which is due." More so then in the case at bar if, as averred by the petitioner, the ring offered was
less valuable than the one that was due.
3. ID.; DAMAGES; MORAL AND EXEMPLARY DAMAGES; RESTORED IN LIGHT OF
DEFENDANT'S DUBIOUS CONDUCT. — We cannot sustain the respondent court, however, on the
moral and exemplary damages which it disallowed on the ground that "there was no clear showing
of malice and bad faith on the part of the defendant." The Court thinks otherwise. We hold that the
moral and exemplary damages should be restored in light of her dubious conduct as recounted in the
petitioner's brief and the following ndings of the trial court which we have no reason to disturb: The
Court cannot but take note of the relative case with which Josie M. Santos says one thing at one given
time and another altogether different version subsequently afterwards, even if the statements are
both under the sanction of an oath. This seeming lack of scruples and conscientiousness on her part
do not place her in a favorable light under the painstaking scrutiny of the Court. There is so much
deviousness and complexity in her testimony that does not invite the confidence of the Court.
DECISION
CRUZ, J p:

It is said that diamonds are a girl's best friend, but private respondent Josie M. Santos may
have her doubts about this. The fact is that they have caused her not a little di culty, and her troubles
are not yet over. This case was decided against her by the trial court and later by the respondent court
which, however, mitigated the judgment of the former. The petitioner does not like this and wants the
earlier decision reinstated. That is why she is now before this Court.
The basic facts as determined by the trial court 1 and a rmed by the respondent court 2 are
no longer in issue. It has been established that Santos received two diamond rings with a total value of
P47,000.00 in 1966 from the petitioner. She issued separate receipts therefor in which she
acknowledged that they had been delivered by Letty Hahn to her for sale on commission and that they
would be returned upon demand if unsold. 3 The rings were not sold nor were they returned when
demanded by Hahn.
Hahn sued for recovery of the rings or their value. While the civil case was pending, she also
led a criminal action for estafa against Santos. Santos was acquitted on reasonable doubt. 4 In the civil
action, however, where she also pleaded that the contracts between her and Hahn were not of agency
but of sale, Santos did not fare as well.
The trial court ordered her to return the two rings or pay the plaintiff their value, which was
increased to P65,000.00, with legal interest, plus P10,000 moral damages, P5,000 exemplary damages,
and P6,000.00 attorney's fees. 5 The increase on the original value of the rings was based on Article
1250 of the Civil Code calling for an adjustment of the payment due in case of extraordinary in ation
or de ation. The moral and exemplary damages were imposed because of the defendant's "seeming
lack of scruples and conscientiousness."
On appeal, this decision was modi ed. The Court of Appeals found that Article 1250 was not
applicable and that the appellant had not acted in bad faith or with malice. Accordingly, it rendered
judgment:
A.
Ordering the defendants to return to the plaintiff the two rings in
question; to pay plaintiff legal interest on the value of the ring, P47,000.00, from the
time of the ling of the complaint until restitution in made; and attorney's fees in the
amount of P6,000.00.
B.
Sentencing the defendants, in case return of the rings is no longer
feasible, to pay to the plaintiff the value thereof, which is P47,000.00, with interest at
the legal rate from the time of the ling of the complaint until full payment and
P6,000.00 attorney's fees. 6
In challenging this decision, the petitioner contends that the respondent erred in not allowing
an upward adjustment of the original price of the two rings and in disallowing the moral and exemplary
damages granted by the trial court. These are the issues in this petition.
On the rst question, the petitioner cites Central Bank gures to show that the amount of
P47,000.00 in 1966, when the obligation to return it or the rings fell due, was equivalent to about
P235,000.00 in 1980 (and necessarily to an even higher amount now in view of the continued reduction
in the purchasing power of the peso). As the increase ordered by the trial court (to P65,000.00 on
August 7, 1971) was a nding of fact based on o cial gures, the Court of Appeals was not justi ed in
reversing the same. LLpr
The petitioner also argues that the award of moral and exemplary damages by the trial court
was entirely justi ed and should not have been disallowed by the respondent court. The reason is that
there was su cient showing that the private respondent had acted with malice and in bad faith toward
the petitioner who had trusted her.

Thus, Santos misrepresented her agreements with the petitioner as contracts of sale when the
very language of the receipts she herself had written and signed clearly shows that she was receiving
the rings in trust from the petitioner, as later found in both the criminal and civil cases. 7 Second, she
claimed she had made installment payments directly and personally to the petitioner during the period
from August 14 to November 20, 1966, and when this lie was exposed with evidence that the petitioner
was abroad during that period, changed her testimony to make it appear that the alleged payments
had been made when Hahn was in the country. 8 In fact, the nding of the trial court as sustained by
the respondent court was that she had made no payment at all at any time. 9 Third, when Santos
offered to return the solitaire ring to the petitioner, the latter readily saw that it was not the same ring
she had entrusted to the private respondent, who evidently wanted to foist another deception upon
her. 10
For her part, the private respondent dismisses the claim for upward adjustment of the amount
due and says Article 1250 of the Civil Code is not applicable, there being no in ation or de ation. The
Central Bank statistics Hahn invokes are hearsay and immaterial. Not in point either is the case of
Zulueta v. PanAmerican World Airways, 11 as cited by the petitioner, where the issue of in ation was
not even raised. Moreover, the delay in the payment of the amount due was imputable not to her but
to the petitioner, who had unreasonably prevented her from discharging her obligation.
As early as December of 1966, she says she had offered to return the
marquisette ring to the petitioner but the petitioner's lawyer, acting on her instructions, refused to
accept it and demanded the return also of the P35,000.00 solitaire ring. 12 She offered to pay for this
other ring on installment but this offer was also rejected. 13 At the trial of the criminal case against
her, she brought the solitaire ring to prove that she had not disposed of it, but the petitioner denied it
was the ring she had delivered to the accused. 14 Still later, she offered to pay for both rings on
installment, but the offer was also rejected without reason by the petitioner. 15 In sum, it is the
petitioner who has delayed payment of the amount due and not the private respondent, who was
ready to settle her obligation.
The trial court cited no legal basis for the upward adjustment of the original amount due
although the reason was presumably Article 1250 of the Civil Code. We agree with the respondent
court that such adjustment was erroneous for, as explained by Justice Serafin M. Cuevas (later a
member of this Court):
We, however, nd the contention of appellant under her fth assignment of error
— that the lower court erred in applying the oating rate to the purely peso transaction
— to be meritorious.
In this regard, Article 1250 of the Civil Code provides —
In case an extraordinary in ation or de ation of the currency stipulated
should supervene, the value of the currency at the time of the establishment of the
obligation should be the basis of payment, unless there is an agreement to the
contrary. cdll
By extraordinary in ation or de ation of currency is understood to be any

uncommon decrease or increase in the purchasing power of currency which the parties
could not have reasonably foreseen and which has been due to war and the effects
thereof, or any unusual force majeure or fortuitous event. (Civil Code of the
Philippines, Dean Capistrano, Vol. III, p. 186.)
Under the circumstances, we do not nd any legal justi cation in applying the so-
called " oating rate," since there has been no "extraordinary in ation" of currency within
the meaning of the aforequoted Art. 1250 of the Civil Code. 16

The Court holds that, in determining the accountability of the private respondent, the trial
judge should have applied the following provisions of the Civil Code, as the respondent court
apparently did:
Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.
Art. 2210. Interest may, in the discretion of the court, be allowed upon damages
awarded for breach of contract.
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent upon this point.
The Court notes, however, that the respondent court should also have imposed interest on
the interest due on the principal amount of P47,000.00, conformably to Article 2212. The interest due
started to earn interest from the date it was judicially demanded with the filing of the complaint on
January 6, 1967. prcd
As to the delay in the performance of the private respondent's obligation, our ruling is that it
was caused by the private respondent herself and not the petitioner who had the right to demand
performance in full of the former's obligation she had assumed under their written agreement.
The receipts composed and signed by Santos, which were offered as Exhibits A and B, read as
follows:
June 2,
1966
Received from Mrs. Letty Hahn 1 ring marquise dia, worth P12,000 to be sold on commission
or to be return upon demand.
Josie M. Santos
266 A. del
Mundo
Grace Park
Tel. No. 3-57-87 June 7, 1966
Received from Mrs. Letty Hahn 1 ring solo diamond worth P35,000 to be sold on commission
basis or to be return upon demand.
Josie M. Santos
266 A. del
Mundo
Grace Park
Tels. 2-28-21 & 2-57-87
From the moment demand was made upon Santos and she did not or could not comply, she
has already incurred in delay. The meaning of the receipts is unmistakable. Her contention that it was
the private respondent who had prevented her from ful lling her obligation is simply untenable and
unacceptable.
There is no doubt that the petitioner could validly reject the private respondent's offer to pay
for the rings on installment because Hahn was entitled to payment in full. If such payment could not
be made, Santos was obligated to return both of the rings — and not one or the other only at her
option — "upon demand," under the separate receipts she had signed. According to Article 1233 of

the Civil Code, "a debt shall not be understood to have been paid unless the thing or service in which
the obligation consists has been completely delivered or rendered as the case may be."
As for the private respondent's offer to return the solitaire ring, which was also refused, the
pertinent rule is Article 1244, providing that "the debtor of a thing cannot compel the creditor to
receive a different one, although the latter may be of the same value as, or more valuable than that
which is due." More so then in the case at bar if, as averred by the petitioner, the ring offered was less
valuable than the one that was due.
17
We cannot sustain the respondent court, however, on the moral and exemplary damages
which it disallowed on the ground that "there was no clear showing of malice and bad faith on the part
of the defendant." The Court thinks otherwise. We hold that the moral and exemplary damages should
be restored in light of her dubious conduct as recounted in the petitioner's brief and the following
ndings of the trial court which we have no reason to disturb: cdll
The Court cannot but take note of the relative case with which Josie M. Santos says one thing
at one given time and another altogether different version subsequently afterwards, even if the
statements are both under the sanction of an oath. This seeming lack of scruples and conscientiousness
on her part do not place her in a favorable light under the painstaking scrutiny of the Court. There is
so much deviousness and complexity in her testimony that does not invite the confidence of the Court.
18
WHEREFORE, the petition is partly GRANTED. The decision of the respondent court dated
August 29, 1980, is MODIFIED as follows: a) the award of moral damages in the sum of P10,000.00 and
exemplary damages in the sum of P5,000.00 is added to the other amounts to be paid by the private
respondent to the petitioner in accordance with the said decision; and b) interest on the principal
amount of P47,000.00 shall earn interest, also at the legal rate, from January 6, 1967, and until full
payment is made.
Costs against the private respondent.
SO ORDERED.
Narvasa (Chairman), Gancayco and Medialdea, JJ., concur.

Griño-Aquino, J., No part.

FIRST DIVISION
[G.R. No. L-44349. October 29, 1976.]
JESUS V. OCCEÑA and EFIGENIA C. OCCEÑA , petitioners, vs. HON. RAMON V.

JABSON, Presiding Judge of the Court of First Instance of Rizal, Branch XXVI; COURT
OF APPEALS and TROPICAL HOMES, INC., respondents.
Occeña Law Office for petitioners.
Serrano, Diokno & Serrano for respondents.
DE C I S I O N
TEEHANKEE, J p:
The Court reverses the Court of Appeals' appealed resolution. The Civil Code authorizes
the release of an obligor when the service has become so di cult as to be manifestly beyond the
contemplation of the parties but does not authorize the courts to modify or revise the subdivision
contract between the parties or x a different sharing ratio from that contractually stipulated with
the force of law between the parties. Private respondent's complaint for modi cation of the contract
manifestly has no basis in law and must therefore be dismissed for failure to state a cause of action.
LLjur
On February 25, 1975 private respondent Tropical Homes, Inc. led a complaint for modi
cation of the terms and conditions of its subdivision contract with petitioners (landowners of a
55,330 square meter parcel of land in Davao City), making the following allegations:
"That due to the increase in price of oil and its derivatives and the
concomitant worldwide spiralling of prices, which are not within the control of
plaintiff, of all commodities including basis raw materials required for such
development work, the cost of development has risen to levels which are
unanticipated, unimagined and not within the remotest contemplation of the parties
at the time said agreement was entered into and to such a degree that the
conditions and factors which formed the original basis of said contract, Annex 'A',
have been totally changed;
"That further performance by the plaintiff under the contract, Annex 'A', will
result in situation where defendants would be unjustly enriched at the expense of
the plaintiff; will cause an inequitous distribution of proceeds from the sales of
subdivided lots in manifest contravention of the original essence of the agreement;
and will actually result in the unjust and intolerable exposure of plaintiff to
implacable losses, all such situations resulting in an unconscionable, unjust and
immoral situation contrary to and in violation of the Primordial concepts of good
faith, fairness and equity which should pervade all human relations."
Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the

latter's xed and sole share and participation an amount equivalent to forty (40%) per cent
of all cash receipts from the sale of the subdivision lots"
Respondent prayed of the Rizal court of rst instance that "after due trial, this Honorable
Court render judgment modifying the terms and conditions of the contract . . . by xing the proper

shares that should pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subject subdivision"
Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon
denial thereof and of reconsideration by the lower court elevated the matter on certiorari to
respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary
injunction previously issued by it and dismissed petition on the ground that under Article 1267 of
the Civil Code which provides that.
"ART. 1267. When the service has become so di cult as to be manifestly

beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part." 1
". . . a positive right is created in favor of the obligor to be released from the
performance of an obligation in full or in part when its performance 'has become so
difficult as to be manifestly beyond the contemplation of the parties'."
Hence, the petition at bar wherein petitioners insist that the worldwide increase in prices
cited by respondent does not constitute a su cient cause of action for modification of the
subdivision contract. After receipt of respondent's comment, the Court in its Resolution of
September 13, 1976 resolved to treat the petition as a special civil action and declared the case
submitted for decision.
The petition must be granted.
While respondent court correctly cited in its decision the Code Commission's report giving
the rationale for Article 1267 of the Civil Code, to wit,
"The general rule is that impossibility of performance releases the obligor.

However, it is submitted that when the service has become so di cult as to be
manifestly beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part. The intention of the parties
should govern and if it appears that the service turns out to be so di cult as have
been beyond their contemplation, it would be doing violence to that intention to
hold the obligor still responsible. . . .," 2 it
misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to comply with the subdivision
contract, assuming it could show at the trial that the service undertaken contractually by it had
"become so di cult as to be manifestly beyond the contemplation of the parties", then respondent
court's upholding of respondent's complaint and dismissal of the petition would be justi able under
the cited codal article. Without said article, respondent would remain bound by its contract under
the theretofore prevailing doctrine that performance therewith is not excused "by the fact that the
contract turns out to be hard and improvident, unpro table or impracticable, ill advised or even
foolish, or less pro table, or unexpectedly burdensome", 3 since in case a party desires to be
excused from performance in the event of such contingencies arising, it is his duty to provide
therefor in the contract.
But respondent's complaint seeks not release from the subdivision contract but that the
court "render judgment modifying the terms and conditions of the contract . . . by xing the proper
shares that should pertain to the herein parties out of the gross
proceeds from the sales of subdivided lots of subject subdivision". The cited article does not grant
the courts this authority to remake, modify or revise the contract or to x the division of shares

between the parties as contractually stipulated with the force of law between the parties, so as to
substitute its own terms for those covenanted by the parties themselves. Respondent's complaints
for modi cation of contract manifestly has no basis in law and therefore states no cause of action.
Under the particular allegations of respondent's complaint and the circumstances therein averred,
the courts cannot even in equity grant the relief sought. LLjur
A nal procedural note. Respondent cites the general rule that an erroneous order denying
a motion to dismiss is interlocutory and should not be corrected by certiorari but by appeal in due
course. This case however manifestly falls within the recognized exception that certiorari will lie
when appeal would not prove to be a speedy and adequate remedy. 4 Where the remedy of appeal
would not, as in this case, promptly relieve petitioners from the injurious effects of the patently
erroneous order maintaining respondent's baseless action and compelling petitioners needlessly
to go through a protracted trial and clogging the court dockets by one more futile case, certiorari
will issue as the plain, speedy and adequate remedy of an aggrieved party. cdrep
ACCORDINGLY, the resolution of respondent appellate court is reversed and the petition
for certiorari is granted and private respondent's complaint in the lower court is ordered dismissed
for failure to state a su cient cause of action. With costs in all instances against private respondent.
Makasiar, Muñoz Palma, Concepcion, Jr. and Martin, JJ., concur.

EN BANC
[G.R. No. L-27454. April 30, 1970.]
ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.
Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.
Sulpicio E. Platon, for Defendant-Appellee.
SYLLABUS
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD

BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where the time for
compliance had expired and there was breach of contract by non-performance, it was academic for
the plaintiff to have first petitioned the court to fix a period for the performance of the contract
before filing his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE PHILIPPINES.—
Where the defendant virtually admitted non-performance of the contract by returning the typewriter
that he was obliged to repair in a non-working condition, with essential parts missing, Article 1197 of
the Civil Code of the Philippines cannot be invoked. The fixing of a period would thus be a mere
formality and would serve no purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-appellee contravened
the tenor of his obligation because he not only did not repair the typewriter but returned it "in
shambles,’’ he is liable for the cost of the labor or service expended in the repair of the typewriter,
which is in the amount of P58.75, because the obligation or contract was to repair it. In addition, he is
likewise liable under Art. 1170 of the Code, for the cost of the missing parts, in the amount of P31.10,
for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in the
same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT RECOVERABLE; NOT ALLEGED OR
PROVED IN INSTANT CASE.— Claims for damages and attorney’s fees must be pleaded, and the
existence of the actual basis thereof must be proved. As no findings of fact were made on the claims
for damages and attorney’s fees, there is no factual basis upon which to make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT; ONLY
QUESTIONS OF LAW REVIEWABLE.— Where the appellant directly appeals from the decision of the
trial court to the Supreme Court on questions of law, he is bound by the judgment of the court a quo
on its findings of fact.
DECISION
REYES, J.B.L., J.:

This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery of
damages but was unsatisfied with the decision rendered by the Court of First Instance of Manila, in its
Civil Case No. 65138, because it awarded him only P31.10 out of his total claim of P690 00 for actual,
temperate and moral damages and attorney’s fees.
The appealed judgment, which is brief, is hereunder quoted in full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a
portable typewriter for routine cleaning and servicing. The defendant was not able to finish the job
after some time despite repeated reminders made by the plaintiff. The defendant merely gave
assurances, but failed to comply with the same. In October, 1963, the defendant asked from the
plaintiff the sum of P6.00 for the purchase of spare parts, which amount the plaintiff gave to the
defendant. On October 26, 1963, after getting exasperated with the delay of the repair of the
typewriter, the plaintiff went to the house of the defendant and asked for the return of the
typewriter. The defendant delivered the typewriter in a wrapped package. On reaching home, the
plaintiff examined the typewriter returned to him by the defendant and found out that the same was
in shambles, with the interior cover and some parts and screws missing. On October 29, 1963. the
plaintiff sent a letter to the defendant formally demanding the return of the missing parts, the interior
cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff
some of the missing parts, the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the
repair job cost him a total of P89.85, including labor and materials (Exhibit C).
"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding
from the defendant the payment of P90.00 as actual and compensatory damages, P100.00 for
temperate damages, P500.00 for moral damages, and P500.00 as attorney’s fees.
"In his answer as well as in his testimony given before this court, the defendant made no denials of
the facts narrated above, except the claim of the plaintiff that the typewriter was delivered to the
defendant through a certain Julio Bocalin, which the defendant denied allegedly because the
typewriter was delivered to him personally by the plaintiff.
"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should
not, however, be fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the
missing parts had a total value of only P31.10.
"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of
P31.10, and the costs of suit.
"SO ORDERED."cralaw virtua1aw library
The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it
awarded only the value of the missing parts of the typewriter, instead of the whole cost of labor and
materials that went into the repair of the machine, as provided for in Article 1167 of the Civil Code,
reading as follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been poorly done he undone."cralaw virtua1aw library

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable
at all, not even for the sum of P31.10, because his contract with plaintiff-appellant did not contain a
period, so that plaintiff-appellant should have first filed a petition for the court to fix the period,
under Article 1197 of the Civil Code, within which the defendant appellee was to comply with the
contract before said defendant-appellee could be held liable for breach of contract.
Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any
appeal, the facts, as found by the trial court, are now conclusive and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter
for routine cleaning and servicing" ; that the defendant was not able to finish the job after some time
despite repeated reminders made by the plaintiff" ; that the "defendant merely gave assurances, but
failed to comply with the same" ; and that "after getting exasperated with the delay of the repair of
the typewriter", the plaintiff went to the house of the defendant and asked for its return, which was
done. The inferences derivable from these findings of fact are that the appellant and the appellee had
a perfected contract for cleaning and servicing a typewriter; that they intended that the defendant
was to finish it at some future time although such time was not specified; and that such time had
passed without the work having been accomplished, far the defendant returned the typewriter
cannibalized and unrepaired, which in itself is a breach of his obligation, without demanding that he
should be given more time to finish the job, or compensation for the work he had already done. The
time for compliance having evidently expired, and there being a breach of contract by non-
performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the
performance of the contract before filing his complaint in this case. Defendant cannot invoke Article
1197 of the Civil Code for he virtually admitted non-performance by returning the typewriter that he
was obliged to repair in a non-working condition, with essential parts missing. The fixing of a period
would thus be a mere formality and would serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila
Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did
not repair the typewriter but returned it "in shambles", according to the appealed decision. For such
contravention, as appellant contends, he is liable under Article 1167 of the Civil Code. jam quot, for
the cost of executing the obligation in a proper manner. The cost of the execution of the obligation in
this case should be the cost of the labor or service expended in the repair of the typewriter, which is
in the amount of P58.75. because the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of
the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was
bound, but failed or neglected, to return it in the same condition it was when he received it.
Appellant’s claims for moral and temperate damages and attorney’s fees were, however, correctly
rejected by the trial court, for these were not alleged in his complaint (Record on Appeal, pages 1-5).
Claims for damages and attorney’s fees must be pleaded, and the existence of the actual basis
thereof must be proved. 2 The appealed judgment thus made no findings on these claims, nor on the
fraud or malice charged to the appellee. As no findings of fact were made on the claims for damages
and attorney’s fees, there is no factual basis upon which to make an award therefor. Appellant is
bound by such judgment of the court, a quo, by reason of his having resorted directly to the Supreme
Court on questions of law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the
defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85,

with interest at the legal rate from the filing of the complaint. Costs in all instances against appellee
Fructuoso Gonzales.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Villamor, JJ., concur.
Barredo, J., did not take part.

EN BANC
[G.R. No. 106063. November 21, 1996.]
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC.,

petitioners, vs. MAYFAIR THEATER, INC. , respondent.
Romulo, Mabanta, Buenaventura Sayoc & De los Angeles for Equatorial Realty Development,
Inc.
Emiliano S. Samson, E. Balderama for Samson and Mary Anne B. Samson and Carmelo &
Bauermann, Inc.
De Borja, Medialdea, Ata Bello, Guevarra & Serapio for respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; OPTION CONTRACT; PARAGRAPH 8 OF THE

LEASE CONTRACT GRANTS TO MAYFAIR THE RIGHT OF FIRST REFUSAL, NOT AN OPTION. — We agree
with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right
of rst refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a
right of rst refusal. Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the
right of rst refusal to Mayfair and is not an option contract. It also correctly reasoned that as such, the
requirement of a separate consideration for the option, has no applicability in the instant case. There
is nothing in the identical paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts which
would bring them into the ambit of the usual offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an agreed time and at a determined
price. It is a separate and distinct contract from that which the parties may enter into upon the
consummation of the option. It must be supported by consideration. In the instant case, the right of
rst refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal
obligations of the parties. To rule that a contractual stipulation such as that found in paragraph 8 of
the contracts is governed by Article 1324 on withdrawal of the offer or Article 1479 on promise to buy
and sell would render ineffectual or "inutile" the provisions on right of rst refusal so commonly inserted
in leases of real estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 was
incorporated into the contracts of lease for the bene t of Mayfair which wanted to be assured that it
shall be given the rst crack or the rst option to buy the property at the price which Carmelo is willing
to accept. It is not also correct to say that there is no consideration in an agreement of right of rst
refusal. The stipulation is part and parcel of the entire contract of lease. The consideration for the lease
includes the consideration for the right of rst refusal. Thus, Mayfair is in effect stating that it consents
to lease the premises and to pay the price agreed upon provided the lessor also consents that, should
it sell the leased property, then, Mayfair shall be given the right to match the offered purchase price
and to buy the property at that price. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract,
the obligation or promise of each party is the consideration for that of the other. cdasia
DI
2. ID.; ID.; SINCE PETITIONER IS A BUYER IN BAD FAITH, THE SALE TO IT OF
THE PROPERTY IN QUESTION IS RESCISSIBLE. — Since Equatorial is a buyer in bad faith, this nding
renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court
that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers

had, prior to the sale, studied the said contracts. As such Equatorial cannot tenably claim to be a
purchaser in good faith, and, therefore, rescission lies. Petitioners assert the alleged impossibility of
performance because the entire property is indivisible property. It was petitioner Carmelo which xed
the limits of the property it was leasing out. Common sense and fairness dictate that instead of
nullifying the agreement on that basis, the stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the right of rst refusal. A valid and legal
contract where the ascendant or the more important of the two parties is the landowner should be
given effect, if possible, instead of being nulli ed on a sel sh pretext posited by the owner. Following
the arguments of petitioners and the participation of the owner in the attempt to strip Mayfair of its
rights, the right of rst refusal should include not only the property speci ed in the contracts but also
the appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible. Carmelo
acted in bad faith when it sold the entire property to Equatorial without informing Mayfair, a clear
violation of Mayfair's rights. While there was a series of exchanges of letters evidencing the offer and
counter-offers between the parties, Carmelo abandoned the negotiations without giving Mayfair full
opportunity to negotiate within the 30-day period.
DII
3. ID.; ID.; THE RIGHT OF FIRST REFUSAL SHOULD BE ENFORCED ACCORDING
TO THE LAW ON CONTRACTS INSTEAD OF THE CODAL PROVISIONS ON HUMAN

RELATIONS. — Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there
was nothing to execute because a contract over the right of rst refusal belongs to a class of preparatory
juridical relations governed not by the law on contracts but by the codal provisions on human relations.
This may apply here if the contract is limited to the buying and selling of the real property. However,
the obligation of Carmelo to rst offer the property to Mayfair is embodied in a contract. It is Paragraph
8 on the right of rst refusal which created the obligation. It should be enforced according to the law
on contracts
instead of the panoramic and indenite rule on human relations. The latter remedy encourages
multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation
to the property under the right of the rst refusal according to the terms at which they should have
been offered then to Mayfair, at the price when that offer should have been made. Also, Mayfair has
to accept the offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraph 8
of the two leases can be executed according to their terms. HATEDC PADILLA, J., separate opinion:
DIII CIVIL LAW; OBLIGATIONS AND CONTRACTS; DAMAGES; WHILE MAYFAIR'S RIGHT
OF FIRST REFUSAL SHOULD BE UPHELD, IT SHOULD NOT BE REQUIRED TO PAY A COMPOUNDED

INTEREST OF 12% PER ANNUM UNDER ITS CONTRACT OF LEASE. — I am
of the considered view (like Mr. Justice Jose A. R. Melo) that the Court in this case should categorically
recognize Mayfair's right of rst refusal under its contract of lease with Carmelo and Bauermann, Inc.
(hereafter, Carmelo) and, because of Carmelo's and Equatorial's bad faith in riding "roughshod" over
Mayfair's right of rst refusal, the Court should order the rescission of the sale of the Claro M. Recto
property by the latter to Equatorial (Arts. 1380-1381[3], Civil Code). I do not agree with the proposition
that, in addition to the aforesaid purchase price, Mayfair should be required to pay a compounded
interest of 12% per annum of said amount computed from 1 August 1978. Under the Civil Code, a party
to a contract may recover interest as indemnity for damages in the following instances: "Art. 2209. If
the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. Art. 2210.
Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract."
There appears to be no basis in law for adding 12% per annum compounded interest to the purchase

price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such stipulation in writing
between the parties (Mayfair and Carmelo) but, more importantly, because Mayfair neither incurred
in delay in the performance of its obligation nor committed any breach of contract. Indeed, why should
Mayfair be penalized by way of making it pay 12% per annum compounded interest when it was
Carmelo which violated
Mayfair's right of first refusal under the contract? HCEcAa
PANGANIBAN, J., separate concurring opinion:

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RESCISSION OF CONTRACT; SALE OF AN
IMMOVABLE IN BREACH OF A RIGHT OF FIRST REFUSAL; MAYFAIR, NOT
BEING A PARTY TO THE SALE OF THE PROPERTY, HAD NO PERSONALITY TO SUE FOR ITS ANNULMENT;
BUT THE FACTS IN THIS CASE MAKE OUT A CASE FOR RESCISSION UNDER ART. 1177, IN RELATION TO
ART. 1381(3), OF THE CIVIL CODE. — With respect to the sale of the property, Mayfair was not a party.
It therefore had no personality to sue for its annulment, since Art. 1397 of the Civil Code provides,
inter alia, that "(t)he action for the annulment of contracts may be instituted by all who are thereby
obliged principally or subsidiarily." But the facts as alleged and proved clearly in the case at bar make
out a case for rescission under Art. 1177, in relation to Art 1381(3), of the Civil Code, which pertinently
reads as follows: "Art. 1177. The creditors, after having pursued the property in possession of the
debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the
same purpose, save those which are inherent in his person;
they may also impugn the acts which the debtor may have done to defraud them." "Art. 1381. The
following contracts are rescissible: . . . (3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them; . . . " The term "creditors" as used in these
provisions of the Civil Code is broad enough to include the obligee under an option contract as well as
under a right of rst refusal, sometimes known as a right of rst priority. Thus, in Nietes, the Supreme
Court, speaking through then Mr. Chief Justice Roberto Concepcion, repeatedly referred to the grantee
or optionee as "the creditor" and to the grantor or optioner as "the debtor." In any case, the personal
elements of an obligation are the active and passive subjects thereof, the former being known as
creditors or obligees and the latter as debtors or obligors. Insofar as the right of first refusal is
concerned, Mayfair is the obligee or creditor.
DIV
2. ID.; SPECIFIC PERFORMANCE; A PROPER REMEDY TO ENFORCE A RIGHT OF
FIRST REFUSAL; THE PRINCIPLE OF CONSENSUALITY OF A CONTRACT OF SALE SHOULD BE DEEMED

SATISFIED IN THE CASE AT BAR; REASON. — The inescapable conclusion from all of the foregoing is not
only that rescission is the proper remedy but also — and more importantly — that speci c performance
was actually used and given free rein as an effective remedy to enforce a right of rst refusal in the wake
of its violation, in the cited case of Guzman. The consensuality required for a contract of sale is distinct
from, and should not be confused with, the consensuality attendant to the right of rst refusal itself.
While indeed, prior to the actual sale of the property to Equatorial and the filing of Mayfair's complaint
for speci c performance, no perfected contract of sale involving the property ever existed between
Carmelo as seller and Mayfair as buyer, there already was, in law and in fact, a perfected contract
between them which established a right of rst refusal, or of first priority. Worth stressing at this
juncture is the fact that Mayfair had the right to require that the offer to sell the property be sent to it
by Carmelo, and not to anybody else. This was violated when the offer was made to Equatorial. Under
its covenant with Carmelo, Mayfair had the right, at that point, to sue for either speci c performance
or rescission, with damages in either case, pursuant to Arts. 1165 and 1191, Civil Code. An action for
speci c performance and damages seasonably led, forti ed by a writ of preliminary injunction, would
have enabled Mayfair to prevent the sale to Equatorial from taking place
and to compel Carmelo to sell the property to Mayfair for the same terms and price, for the reason
that the ling of the action for speci c performance may juridically be considered as a solemn, formal,

and unquali ed acceptance by Mayfair of the speci c terms of the offer of sale. Note that by that time,
the price and other terms of the proposed sale by Carmelo had already been determined, being set
forth in the offer of sale that had wrongfully been directed to Equatorial. The act of promptly filing this
suit, coupled with the fact that it is one for speci c performance, indicates beyond cavil or doubt
Mayfair's unqualied acceptance of the misdirected offer of sale, giving rise, thereby, to a demandable
obligation on the part of Carmelo to execute the corresponding document of sale upon the payment
of the price of P11,300,000.00. In other words, the principle of consensuality of a contract of sale
should be deemed satis ed. The aggrieved party's consent to, or acceptance of, the misdirected offer
of sale should be legally presumed in the context of the proven facts. To say, therefore, that the
wrongful breach of a right of rst refusal does not sanction an action for speci c performance simply
because, factually, there was no meeting of the minds as to the particulars of the sale since ostensibly
no offer was ever made to, let alone accepted by, Mayfair, is to ignore the proven fact of presumed
consent. To repeat, that consent was deemed given by Mayfair when it sued for invalidation of the
sale and for speci c performance of Carmelo's obligation to Mayfair. Nothing in the law as it now stands
will be violated, or even simply emasculated, by this holding. AEITDH
ROMERO, J., concurring and dissenting opinion:
DV
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; LEASE; RIGHT OF FIRST
REFUSAL; OPTION; THE RIGHT OF FIRST REFUSAL IS UNLIKE AN OPTION WHICH

REQUIRES A CERTAINTY AS TO THE OBJECT AND CONSIDERATION OF THE
ANTICIPATED CONTRACT. — An option is a privilege granted to buy a determinate thing at a price
certain within a speci ed time and is usually supported by a consideration which is why, it may be
regarded as a contract in itself. The option results in a perfected contract of sale once the person to
whom it is granted decides to exercise it. The right of rst refusal is unlike an option which requires a
certainty as to the object and consideration of the anticipated contract. When the right of the rst
refusal is exercised, there is no perfected contract of sale because the other terms of the sale have yet
to be determined. Hence, in case the offeror reneges on his promise to negotiate with offeree, the
latter may only recover damages in the belief that a contract could have been perfected under Article
19 of the New Civil Code. CTDHSE
2. ID.; RESCISSION OF CONTRACT; THE CONTRACT OF SALE ENTERED INTO BY CARMELO AND
BAUERMANN, INC. AND EQUATORIAL REALTY, INC. SHOULD NOT BE RESCINDED; REASON. — I beg to
disagree, however, with the majority opinion that the contract of sale entered into by Carmelo and
Bauermann, Inc. and Equatorial Realty, Inc., should be rescinded. Justice Hermosisima, in citing Art.
1381 (3) as ground for rescission apparently relied on the case of Guzman, Bocaling and Co. v. Bonnevie
(206 SCRA 668 [1992]) where the offeree was likened to the status of a creditor. The case, in citing
Tolentino, stated that rescission is a remedy granted by law to contracting parties and even to third
persons, to secure reparation for damages caused to them by a contract, even if this should be valid,
by means of restoration of things to their condition prior to celebration of the contract. It is my opinion
that "third persons" should be construed to refer to the wards, creditors, absentees, heirs and others
enumerated under the law who are prejudiced by the contract sought to be rescinded. It should be
borne in mind that rescission is an extreme remedy which may be exercised only in the speci c
instances provided by law. Article 1381 (3) speci cally refers to contracts undertaken in fraud of
creditors when the latter cannot in any manner collect the claims due them. If rescission were allowed
for analogous cases, the law would have so stated. While Article 1381 (5) itself says that rescission may
be granted to all other contracts specially declared by law to be subject to rescission, there is nothing
in the law that states that an offeree who failed to exercise his right of refusal because of bad faith on
the part of the offeror may rescind the subsequent contract entered into by the offeror and a third

person. Hence, there is no legal justi cation to rescind the contract between Carmelo and Bauermann,
Inc. and
Equatorial Realty. DHITcS
VITUG, J., dissenting opinion:

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RESCISSION OF CONTRACT; RIGHT OF FIRST
REFUSAL; A "BREACH" OF THE RIGHT OF FIRST REFUSAL CAN ONLY GIVE
RISE TO AN ACTION FOR DAMAGES BUT NOT TO AN ACTION FOR SPECIFIC
PERFORMANCE. — The concept of a right of rst refusal as a simple juridical relation, and so governed
(basically) by the Civil Code's title on "Human Relations," is not altered by the fact alone that it might
be among the stipulated items in a separate document or even in another contract. A "breach" of the
right of rst refusal can only give rise to an action for
damages primarily under Article 19 of the Civil Code, as well as its related provisions, but not to an
action for speci c performance set out under Book IV of the Code on "Obligations and Contracts." That
right, standing by itself, is far distant from being the obligation referred to in Article 1159 of the Code
which would have the force of law sufficient to compel compliance per se or to establish a creditor-
debtor or obligee-obligor relation between the parties. If, as it is rightly so, a right of rst refusal cannot
even be properly classed as an offer or as an option, certainly, and with much greater reason, it cannot
be the equivalent of, nor be given the same legal effect as, a duly perfected contract. It is not possible
to cross out, such as we have said in Ang Yu Asuncion vs. Court
of Appeals (238 SCRA 602), the indispensable element of consensuality in the perfection of contracts.
It is basic that without mutual consent on the object and on the cause, a contract cannot exist (Art.
1305, Civil Code); corollary to it, no one can be forced, least of all perhaps by a court, into a contract
against his will or compelled to perform thereunder.
2. ID.; A RIGHT OF FIRST REFUSAL CANNOT BE DEEMED A PERFECTED CONTRACT OF SALE

UNDER ART. 1458 OF THE CIVIL CODE; REASON. — It would be perilous a journey, rst of all, to try to
seek out a common path for such juridical relations as contracts, options, and rights of rst refusal since
they differ, substantially enough, in their concepts, consequences and legal implications. Very brie y,
in the area on sales particularly, I borrow from Ang Yu, a unanimous decision of the Supreme Court En
Banc, which held: "In the law on sales, the so-called 'right of rst refusal' is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of
the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought
within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly
of an offer under Article 1319 of the same Code. An option or an offer would require, among other
things, a clear certainty on both the object and the cause or consideration of the envisioned contract.
In a right of rst refusal, while the object might be made determinate, the exercise of the right, however,
would be dependent not only on the grantor's eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that obviously are yet to be later firmed
up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential elements to establish the vinculum juris would
still be inde nite and inconclusive) but by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct." An obligation, and so a conditional
obligation as well (albeit subject to the occurrence of the condition), in its context under Book IV of
the Civil Code, can only be "a juridical necessity to give, to do or not to do" (Art. 1156, Civil Code), and
one that is constituted by law, contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil
Code) which all have their respective legal signi cance rather well settled in law. The law certainly must
have meant to provide congruous, albeit contextual, consequences to its provisions. Interpretare et
concordore legibus est optimus interpretendi. As a valid source of an obligation, a contract must have
the concurrence of (a) consent of the contracting parties, (b) object certain (subject matter of the
contract) and (c) cause (Art. 1318, Civil Code). These requirements, clearly de ned, are essential. The
consent contemplated by the law is that which is manifested by the meeting of the offer and of the

acceptance upon the object and the cause of the obligation. The offer must be certain and the
acceptance absolute (Article 1319 of the Civil Code). Thus, a right of rst refusal cannot have the
effect of a contract because, by its very essence, certain basic terms would have yet to be determined
and xed. How its "breach" be also its perfection escapes me. It is only when the elements concur that
the juridical act would have the force of law between the contracting parties that must be complied
with in good faith (Article 1159 of the Civil Code; see also Article 1308, of the Civil Code), and, in case
of its breach, would allow the creditor or obligee (the passive subject) to invoke the remedy that speci
cally appertains
to it. AaDSEC
DECISION
HERMOSISIMA, JR., J p:
Before us is a petition for review of the decision 1 of the Court of Appeals 2 involving questions
in the resolution of which the respondent appellate court analyzed and interpreted particular
provisions of our laws on contracts and sales. In its assailed decision, the respondent court reversed
the trial court 3 which, in dismissing the complaint for speci c performance with damages and
annulment of contract, 4 found the option clause in the lease contracts entered into by private
respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc.
(hereafter, Carmelo) to be impossible of performance and unsupported by a consideration and the
subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc. (hereafter,
Equatorial) to have been made without any breach of or prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court, which narration, we note,
is almost verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings:
"Carmelo owned a parcel of land, together with two 2-storey buildings

constructed thereon located at Claro M Recto Avenue, Manila, and covered by TCT
No. 18529 issued in its name by the Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for
the latter's lease of a portion of Carmelo's property particularly described, to wit:
'A PORTION OF THE SECOND FLOOR of the two-storey building,

situated at C.M. Recto Avenue, Manila, with a oor area of 1,610 square
meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building,

situated at C.M. Recto Avenue, Manila, with a oor area of 150 square
meters,
for use by Mayfair as a motion picture theater and for a term of twenty (20)
years. Mayfair hereafter constructed on the leased property a movie house known
as Maxim Theatre.
Two years later, on March 31, 1969, Mayfair entered into a second contract
of lease with Carmelo for the lease of another portion of Carmelo's property, to wit:
'A PORTION OF THE SECOND FLOOR of the two-storey building,

situated at C.M. Recto Avenue, Manila, with a oor area of 1,064 square
meters.

THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto Avenue,
Manila, with a oor area of 300 square meters and bearing street numbers
1871 and 1875,'
for similar use as a movie theater and for a similar term of twenty (20)
years. Mayfair put up another movie house known as 'Miramar Theatre' on this
leased property.
Both contracts of lease provides (sic) identically worded paragraph 8, which

reads:
'That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone

other than the LESSEE, the lessor is bound and obligated, as it hereby binds
and obligates itself, to stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be bound by all the terms and
conditions thereof.’
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr.

Henry Yang, President of Mayfair, through a telephone conversation that Carmelo
was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang
that a certain Jose Araneta was offering to buy the whole property for US Dollars
1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the
property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision. On
August 23, 1974, Mayfair replied through a letter stating as follows:
'It appears that on August 19, 1974 your Mr. Henry Pascal
informed our client's Mr. Henry Yang through the telephone that your
company desires to sell your above-mentioned C.M Recto Avenue
property.
Under your company's two lease contracts with our client, it is

uniformly provided:
'8. That if the LESSOR should desire to sell the leased

premises the LESSEE shall be given 30-days exclusive option to
purchase the same. In the event, however, that the leased
premises is sold to someone other than the LESSEE, the LESSOR is
bound and obligated, as it is (sic) herebinds (sic) and obligates
itself, to stipulate in the Deed of Sale thereof that the purchaser
shall recognize this lease and be bound by and the terms and
conditions hereof (sic).'
Carmelo did no reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo purporting

to express interest in acquiring not only the leased premises but the entire building
and other improvements if the price is reasonable. However, both Carmelo and
Equatorial questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto

Avenue land and building, which included the leased premises housing the 'Maxim'
and 'Miramar' theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the
total sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for speci c

performance and annulment of the sale of the leased premises to Equatorial. In its
Answer, Carmelo alleged as special and a rmative defense (a) that it had informed
Mayfair of its desire to sell the entire C.M. Recto Avenue property and offered the
same to Mayfair, but the latter answered that it was interested only in buying the
areas under lease, which was impossible since the property was not a
condominium; and (b) that the option to purchase invoked by Mayfair is null and
void for lack of consideration. Equatorial, in its Answer, pleaded as special and a
rmative defense that the option is void for lack of considertion (sic) and is
unenforceable by reason of its impossibility of performance because the leased
premises could not be sold separately from the other portions of the land and
building. It counterclaimed for cancellation of the contracts of lease, and for
increase of rentals in view of alleged supervening extraordinary devaluation of the
currency. Equatorial likewise cross-claimed against co-defendant Carmelo for
indemnification in respect of Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the parties
stipulated on the following:
'1. That there was a deed of sale of the contested premises by the
defendant Carmelo . . . in favor of defendant Carmelo . . . in favor of
defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the

stipulation granting the plaintiff exclusive option to purchase the leased
premises should the lessor desire to sell the same (admitted subject to the
contention that the stipulation is null and void);
3. That the two buildings erected on this land are not of the
condominium plan;
4. That the amounts stipulated and mentioned in paragraphs 3

(a) and (b) of the contracts of lease constitute the consideration for the
plaintiff's occupancy of the leased premises, subject of the same contracts
of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration speci ed in the option to buy

embodied in the contract;
7. That Carmelo & Bauermann owned the land and the two
buildings erected thereon;
8. That the leased premises constitute only the portions

actually occupied by the theaters; and
9. That what was sold by Carmelo & Bauermann to defendant

Equatorial Realty is the land and the two buildings erected thereon.'
xxx xxx xxx

After assessing the evidence, the court a quo rendered the appealed
decision, the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;

(2) Ordering plaintiff to pay defendant Carmelo & Bauermann
P40,000.00 by way of attorneys’s fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty

P35,000.00 per month as reasonable compensation for the use of areas
not covered by the contract (sic) of lease from July 31, 1979 until plaintiff
vacates said area (sic) plus legal interest from July 31, 1978; P70,000.00 per
month as reasonable compensation for the use of the premises covered by
the contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until
plaintiff vacates the premises plus legal interest from .June 1, 1987;
P55,000.00 per month as reasonable compensation for the use of the
premises covered by the contract of lease dated March 31, 1969 from
March 30, 1989 until plaintiff vacates the premises plus legal interest from
March 30, 1989; and P40,000.00 as attorney’s fees;
(4) Dismissing defendant Equatorial’s crossclaim against

defendant Carmelo & Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are
declared expired and all persons claiming rights under these contracts are
directed to vacate the premises'." 6
The trial court adjudged the identically worded paragraph 8 found in both aforecited lease
contracts to be an option clause which however cannot be deemed to be binding on Carmelo because
of lack of distinct consideration therefor.
The court a quo ratiocinated.
"Signi cantly, during the pre-trial, it was admitted by the parties that the
option in the contract of lease is not supported by a separate consideration.
Without a consideration, the option is therefore not binding on defendant Carmelo
& Bauermann to sell the C.M. Recto property to the former. The option invoked by
the plaintiff appears in the contracts of lease . . . in effect there is no option, on the
ground that there is no consideration. Article 1352 of the Civil Code, provides:
'Contracts without cause or with unlawful cause, produce no

effect whatever. The cause is unlawful if it is contrary to law,
morals, good custom, public order or public policy.'
Contracts therefore without consideration produce no effect whatsoever.

Article 1324 provides:
'When the offeror has allowed the offeree a certain period to

accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon
consideration, as something paid or promised.'
in relation with Article 1479 of the same Code:

'A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate

thing for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price.'
The plaintiff cannot compel defendant Carmelo to comply with the promise
unless the former establishes the existence of a distinct consideration. In other
words, the promisee has the burden of proving the consideration. The
consideration cannot be presumed as in Article 1354:
'Although the cause is not stated in the contract, it is presumed

that it exists and is lawful unless the debtor proves the contrary.'
where consideration is legally presumed to exist. Article 1354 applies to

contracts in general, whereas when it comes to an option it is governed particularly
and more speci cally by Article 1479 whereby the promisee has the burden of
proving the existence of consideration distinct from the price. Thus, in the case of
Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said:
'(1) Article 1354 applies to contracts in general, whereas the

second paragraph of Article 1479 refers to sales in particular, and, more
speci cally, to an accepted unilateral promise to buy or to sell. In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be binding upon the
promisor, Article 1479 requires the concurrence of a condition, namely,
that the promise be supported by a consideration distinct from the price.
Accordingly, the promisee cannot compel the promisor to comply

with the promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even alleged the
existence thereof in his complaint.' 7
It follows that plaintiff cannot compel defendant Carmelo & Bauermann to

sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the battleground shifted to the
respondent Court of Appeals. Respondent appellate court reversed the court a quo and rendered
judgment:
"1. Reversing and setting aside the appealed Decision;
2.
Directing the plaintiff-appellant Mayfair Theater Inc. to pay and
return to Equatorial the amount of P11,300,000.00 within fteen (15) days from
notice of this Decision, and ordering Equatorial Realty Development, Inc. to accept
such payment;
3. Upon payment of the sum of P11,300,000, directing Equatorial Realty

Development, Inc. to execute the deeds and documents necessary for the issuance
and transfer of ownership to Mayfair of the lot registered under TCT Nos. 17350,
118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the

amount as adjudged, declaring the Deed of Absolute Sale between the

defendants-appellants Carmelo & Bauermann, Inc. and Equatorial Realty
Development, Inc. as valid and binding upon all the parties.” 8
Rereading the law on the matter of sales and option contracts, respondent Court of Appeals
differentiated between Article 1324 and Article 1479 of the Civil Code, analyzed their application to
the facts of this case, and concluded that since paragraph 8 of the two lease contracts does not state
a xed price for the purchase of the leased premises, which is an essential element for a contract of sale
to be perfected, what paragraph 8 is, must be a right of first refusal and not an option contract. It
explicated:
"Firstly, the court a quo misapplied the provisions of Articles 1324 and
1479, second paragraph, of the Civil Code.
Article 1324 speaks of an 'offer' made by an offeror which the offeree may
or may not accept within a certain period. Under this article, the offer may be
withdrawn by the offeror before the expiration of the period and while the offeree
has not yet accepted the offer. However, the offer cannot be withdrawn by the
offeror within the period if a consideration has been promised or given by the
offeree in exchange for the privilege of being given that period within which to
accept the offer. The consideration is distinct from the price which is part of the
offer. The contract that arises is known as option. In the case of Beaumont vs.
Prieto, 41 Phil. 670, the Supreme Court, citing Bouvier, de ned an option as follows:
'A contract by virtue of which A, in consideration of the payment of a certain sum
to B, acquires the privilege of buying from or selling to B, certain securities or
properties within a limited time at a specified price.' (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of an

'accepted unilateral promise to buy or to sell a determinate thing for a price within
(which) is binding upon the promisee if the promise is supported by a consideration
distinct from the price.' That 'unilateral promise to buy or to sell a
determinate thing for a price certain' is called an offer. An 'offer', in law, is a

proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute
a legal offer, the proposal must be certain as to the object, the price and other
essential terms of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision granting

Mayfair '30-days exclusive option to purchase' the leased premises is NOT AN
OPTION in the context of Arts. 1324 and 1479, second paragraph, of the Civil Code.
Although the provision is certain as to the object (the sale of the leased premises)
the price for which the object is to be sold is not stated in the provision. Otherwise
stated, the questioned stipulation is not, by itself, an 'option' or the 'offer to sell'
because the clause does not specify the price for the subject property.
Although the provision giving Mayfair '30-days exclusive option to

purchase' cannot be legally categorized as an option, it is, nevertheless, a valid and
binding stipulation. What the trial court failed to appreciate was the intention of
the parties behind the questioned proviso.
xxx xxx xxx

The provision in question is not of the pro-forma type customarily found in
a contract of lease. Even appellees have recognized that the stipulation was
incorporated in the two Contracts of Lease at the initiative and behest of Mayfair.
Evidently, the stipulation was intended to bene t and protect Mayfair in its rights as
lessee in case Carmelo should decide, during the term of the lease, to sell the leased

property. This intention of the parties is achieved in two ways in accordance with
the stipulation. The rst is by giving Mayfair '30-days exclusive option to purchase'
the leased property. The second is, in case Mayfair would opt not to purchase the
leased property, 'that the purchaser (the new owner of the leased property) shall
recognize the lease and be bound by all the terms and conditions thereof.’
In other words, paragraph 8 of the two Contracts of Lease, particularly the

stipulation giving Mayfair '30 days exclusive option to purchase the (leased
premises),' was meant to provide Mayfair the opportunity to purchase and acquire
the leased property in the event that Carmelo should decide to dispose of the
property. In order to realize this intention, the implicit obligation of Carmelo once
it had decided to sell the leased property, was not only to notify Mayfair of such
decision to sell the property, but, more importantly, to make an offer to sell the
leased premises to Mayfair, giving the latter a fair and reasonable opportunity to
accept or reject the offer, before offering to sell or selling the leased property to
third parties. The right vested in Mayfair is analogous to the right of rst refusal,
which means that Carmelo should have offered the sale of the leased premises to
Mayfair before offering it to other parties, or, if Carmelo should receive any offer
from third parties to purchase the leased premises, then Carmelo must rst give
Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of rst
refusal when he made the telephone call to Mr. Yang in 1974. Mr. Pascal thus
testified:
'Q: Can you tell this Honorable Court how you made the offer to Mr. Henry Yang by
telephone?
A: I have an offer from another party to buy the property and having the offer we
decided to make an offer to Henry Yang on a rst-refusal basis.' (TSN November 8,
1983, p. 12.). and on cross-examination:
'Q. When you called Mr. Yang on August 1974 can you remember exactly what you
have told him in connection with that matter, Mr. Pascal?
A. More or less, I told him that I received an offer from another party to buy the
property and I was offering him rst choice of the entire property.' (TSN,
November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders effectual

the intention of the parties. " 9
Besides the ruling that paragraph 8 vests in Mayfair the right of rst refusal as to which the
requirement of distinct consideration indispensable in an option contract, has no application,
respondent appellate court also addressed the claim of Carmelo and Equatorial that assuming
arguendo that the option is valid and effective, it is impossible of performance because it covered only
the leased premises and not the entire Claro M.
Recto property, while Carmelo's offer to sell pertained to the entire property in question.
The Court of Appeals ruled as to this issue in this wise:
"We are not persuaded by the contentions of the defendants-appellees. It

is to be noted that the Deed of Absolute Sale between Carmelo and Equatorial
covering the whole Claro M. Recto property, made reference to four titles: TCT Nos.
17350, 118612, 60936 and 52571. Based on the information submitted by Mayfair
in its appellant’s Brief (pp. 5 and 46) which has not been controverted by the

appellees, and which We, therefore, take judicial notice of the two theaters stand
on the parcels of land covered by TCT No. 17350 with an area of 622.10 sq.
m. and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four
separate parcels of land covering the whole Recto property demonstrates the legal
and physical possibility that each parcel of land, together with the buildings and
improvements thereon, could have been sold independently of the other parcels.
At the time both parties executed the contracts, they were aware of the
physical and structural conditions of the buildings on which the theaters were to be
constructed in relation to the remainder of the whole Recto property. The peculiar
language of the stipulation would tend to limit Mayfair’s right under paragraph 8 of
the Contract of Lease to the acquisition of the leased areas only. Indeed, what is
being contemplated by the questioned stipulation is a departure from the
customary situation wherein the buildings and improvements are included in and
form part of the sale of the subjacent land. Although this situation is not common,
especially considering the non-condominium nature of the buildings, the sale would
be valid and capable of being performed. A sale limited to the leased premises only,
if hypothetically assumed, would have brought into operation the provisions of co-
ownership under which Mayfair would have become the exclusive owner of the
leased premises and at the same time a co-owner with Carmelo of the subjacent
land in proportion to Mayfair’s interest over the premises sold to it." 10
Carmelo and Equatorial now comes before us questioning the correctness and legal basis for
the decision of respondent Court of Appeals on the basis of the following assigned errors:
"I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION

CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST
REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE

CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN
OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR
STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS

ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN
(18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS RIGHT
OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE
EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT

DIRECTED
IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT
GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE
COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE

ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION

XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE
MOTIONS IN THE 'COMPLETION PROCESS' AND TO STILL RESOLVE THE MERITS OF
THE CASE IN THE 'DECISION STAGE.' " 11
We shall rst dispose of the fourth assigned error respecting alleged irregularities in the ra e of
this case in the Court of Appeals. Su ce it to say that in our Resolution, 12 dated December 9, 1992, we
already took note of this matter and set out the proper applicable procedure to be the following:
"On September 20, 1992, counsel for petitioner Equatorial Realty

Development, Inc. wrote a letter-complaint to this Court alleging certain
irregularities and infractions committed by certain lawyers, and Justices of the
Court of Appeals and of this Court in connection with case CA-G.R. CV No. 32918
(now G.R. No. 106063). This partakes of the nature of an administrative complaint
for misconduct, against members of the judiciary. While the lettercomplaint arose
as an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the disposition
thereof should be separate and independent from Case G.R No. 106063. However,
for purposes of receiving the requisite pleadings necessary in disposing of the
administrative complaint, this Division shall continue to have control of the case.
Upon completion thereof, the same shall be referred to the Court En Banc for
proper disposition." 13
This court having ruled the procedural irregularities raised in the fourth assigned error of
Carmelo and Equatorial, to be an independent and separate subject for an administrative complaint
based on misconduct by the lawyers and justices implicated therein, it is the correct, prudent and
consistent course of action not to pre-empt the administrative proceedings to be undertaken
respecting the said irregularities. Certainly, a discussion thereupon by us in this case would entail a
nding on the merits as to the real nature of the questioned procedures and the true intentions and
motives of the players therein.
In essence, our task is two-fold: (1) to de ne the true nature, scope and e cacy of paragraph 8
stipulated in the two contracts of lease between Carmelo and Mayfair in the face of connecting
ndings by the trial court and the Court of Appeals; and (2) to determine the rights and obligations of
Carmelo and Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the entire
Claro M. Recto property to Equatorial.
Both contracts of lease in question provide the identically worded paragraph 8, which reads:
"That if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other
than the LESSEE, the LESSOR is bound and obligated, as it is hereby binds and
obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions thereof." 14
We agree with the respondent Court of Appeals that the aforecited contractual stipulation
provides for a right of rst refusal in favor of Mayfair. It is not an option clause
or an option contact. It is a contract of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was our characterization
of an option contract as one necessarily invoking the choice granted to another for a distinct and
separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed
price.

"It is unquestionable that, by means of the document Exhibit E, to wit, the
letter of December 4, 1911, quoted at the beginning of this decision, the defendant
Valdes granted to the plaintiff Borck the right to purchase the Nagtajan Hacienda
belonging to Benito Legarda, during the period of three months and for its assessed
valuation, a grant which necessarily implied the offer or obligation on the part of
the defendant Valdes to sell to Borck the said hacienda during the period and for
the price mentioned, . . . There was, therefore, a meeting of minds on the part of
the one and the other, with regard to the stipulations made in the said document.
But it is not shown that there was any cause or consideration for that agreement,
and this omission is a bar which precludes our holding that the stipulations
contained in Exhibit E is a contract of option, for, . . . there can be no contract
without the requisite, among others, of the cause for the obligation to be
established.
In his Law Dictionary, edition of 1897, Bouvier de nes an option as a

contract, in the following language:
'A contract by virtue of which A, in consideration of the payment

of a certain sum to B, acquires the privilege of buying from, or selling to B,
certain securities or properties within a limited time at a speci ed price.
(Story vs Salamon, 71 N.Y. 420.)'
From vol 6, page 5001, of the work 'Words and Phrases, ' citing the case of
Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation
has been taken:
'An agreement in writing to give a person the option to purchase

lands within a given time at a named price is neither a sale nor an
agreement to sell. It is simply a contract by which the owner of property
agrees with another person that he shall have the right to buy his property
at a xed price within a certain time. He does not sell his land, he does not
then agree to sell it; but he does sell something; that is, the right or privilege
to buy at the election or option of the other party. The second party gets
in
praesenti, not lands, nor an agreement that he shall have lands, but he does
get something of value, that is, the right to call for and receive lands if he
elects. The owner parts with his right to sell his lands, except to the second
party, for a limited period. The second party receives this right, or, rather,
from his point of view, he receives the right to elect to buy.'
But the two de nitions above cited refer to the contract of option, or, what
amounts to the same thing, to the case where there was cause or consideration for
the obligation, the subject of the agreement made by the parties; while in the case
at bar there was no such cause or consideration." 16 (Italics ours.)
The rule so early established in this jurisdiction is that the deed of option or option clause in a
contract, in order to be valid and enforceable, must, among other things, indicate the definite price at
which the person granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased property for a
named price per square meter upon failure to make the purchase within the time speci ed; 17 in one
other case we freed the landowner from her promise to sell her land if the prospective buyer could
raise P4,500.00 in three weeks because such option was not supported by a distinct consideration; 18
in the same vein in yet one other case, we also invalidated an instrument entitled, "Option to Purchase"
a parcel of land for the sum of P1,510.00 because of lack of consideration; 19 and as an exception to
the doctrine enumerated in the two preceding cases, in another case, we ruled that the option to buy

the leased premises for P12,000.00 as stipulated in the lease contract, is not without consideration for
in reciprocal contracts, like lease, the obligation or promise of each party is the consideration for that
of the other. 20 In all these cases, the selling price of the object thereof is always predetermined and
speci ed in the option clause in the contract or in the separate deed of option. We elucidated, thus, in
the very recent case of Ang Yu Asuncion vs. Court of Appeals 21 that:
". . . In sales, particularly, to which the topic for discussion about the case
at bench belongs, the contract is perfected when a person, called the seller,
obligates himself for a price certain, to deliver and to transfer ownership of a thing
or right to another, called the buyer, over which the latter agrees. Article 1458 of
the Civil Code provides:
'Art. 1458. By the contract of sale one of the contracting parties

obligates himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.'
When the sale is not absolute but conditional, such as in a 'Contract to Sell'
where invariably the ownership of the thing sold is retained until the ful llment of a
positive suspensive condition (normally, the full payment of the purchase price),
the breach of the condition will prevent the obligation to convey title from acquiring
an obligatory force. . .
An unconditional mutual promise to buy and sell, as long as the object is

made determinate and the price is xed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.
An accepted unilateral promise which speci es the thing to be sold and the
price to be paid, when coupled with a valuable consideration distinct and separate
from the price, is what may properly be termed a perfected contract of option. This
contract is legally binding, and in sales, it conforms with the second paragraph of
Article 1479 of the Civil Code, viz:
ART. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate

thing for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price (1451a).'
Observe, however, that the option is not the contract of sale itself. The optionee has the right,
but not the obligation, to buy. Once the option is exercised timely, i e., the offer is accepted before a
breach of the option, a bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer. An

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

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

deemed perfected, and it would be a breach of that contract to withdraw the offer
during the agreed period. The option, however, is an independent contract by itself,
and it is to be distinguished from the projected main agreement (subject matter of
the option) which it obviously yet to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise of the option) by the optionee-
offeree, the latter may not sue for speci c performance on the proposed contract
('object' of the option) since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages for breach of the
option. . . ."
In the light of the foregoing disquisition and in view of the wording of the questioned provision
in the two lease contracts involved in the instant case, we so hold that no option to purchase in
contemplation of the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair
under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of rst
refusal to Mayfair and is not an option contract. It also correctly reasoned that as such, the
requirement of a separate consideration for the option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969
contracts which would bring them into the ambit of the usual offer or option requiring an independent
consideration.
An option is a contract granting a privilege to buy or sell within an agreed time and at a
determined price. It is a separate and distinct contract from that which the parties may enter into upon
the consummation of the option. It must be supported by consideration. 22 In the instant case, the
right of rst refusal is an integral part of the contracts of lease. The consideration is built into the
reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is
governed by Article 1324 on withdrawal of the offer on Article 1479 on promise to buy and sell would
render ineffectual or "inutile" the provisions on right of rst refusal so commonly inserted in leases of
real estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 was incorporated into
the contracts of lease for the bene t of Mayfair which wanted to be assured that it shall be given the
rst crack or the rst option to buy the property at the price which Carmelo is willing to accept. It is not
also correct to say that there is no consideration in an agreement of right of rst refusal. The stipulation
is part and parcel of the entire contract of lease. The consideration for the lease includes the
consideration for the right of rst refusal. Thus, Mayfair is in effect stating that it consents to lease the
premises and to pay the price agreed upon provided the lessor also consents that, should it sell the
leased property, then, Mayfair shall be given the right to match the offered purchase price and to buy

the property at that price. As stated in Vda. De Quirino vs. Palarca, 23 in reciprocal contract, the
obligation or promise of each party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited
paragraph 8 to be that of a contractual grant of the right of rst refusal to Mayfair.
We shall now determine the consequential rights, obligations and liabilities of Carmelo,
Mayfair and Equatorial.
The different facts and circumstances in this case call for an ampli cation of the precedent in
Ang Yu Asuncion vs. Court of Appeals. 24
First and foremost is that the petitioners acted in bad faith to render Paragraph 8
"inutile."
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair
will have the right of rst refusal in the event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said
property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by
both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially
recognized Mayfair's right of rst refusal, Carmelo violated such right when without affording its
negotiations with Mayfair the full process to ripen to at least an interface of a de nite offer and a
possible corresponding acceptance within the "30-day exclusive option" time granted Mayfair,
Carmelo abandoned negotiations, kept a low pro le for some time, and then sold, without prior notice
to Mayfair, the entire Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this nding renders the sale to it of the property in
question rescissible. We agree with respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said
contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies.
". . . Contract of Sale was not voidable but rescissible. Under Article 1380
to 1381(3) of the Civil Code, a contract otherwise validly accorded the Bonnevies
for they had substantial interests that were prejudiced by the sale of the subject
property to the petitioner without recognizing their right of rst priority under the
Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the

contracting parties and even to third persons, to secure reparation for damages
caused to them by a contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior to the celebration of
said contract. It is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the contract may cause,
or to protect some incompatible and preferential right created by the contract.
Rescission implies a contract which, even if initially valid, produces a lesion or
pecuniary damage to someone that justi es its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of

the contract is an obstacle to the action for its rescission where it is shown that such
third person is in lawful possession of the subject of the contract and that he did
not act in bad faith. However, this rule is not applicable in the case before us
because the petitioner is not considered a third party in relation to the Contract of
Sale nor may its possession of the subject property be regarded as acquired lawfully
and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale.
Moreover, the petitioner cannot be deemed a purchaser in good faith for the record
shows that it categorically admitted it was aware of the lease in favor of the
Bonnevies, who were actually occupying the subject property at the time it was sold
to it. Although the Contract of Lease was not annotated on the transfer certi cate
of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner
cannot deny actual knowledge of such lease which was equivalent to and indeed
more binding than presumed notice by registration.
A purchaser in good faith and for value who buys the property of another
without notice that some other person has a right to or interest in such property
and pays a full and fair price for the same at the time of such purchase or before he
has notice of the claim or interest of some other person in the property. Good faith
connotes an honest intention to abstain from taking unconscientious advantage of
another. Tested by these principles, the petitioner cannot tenably claim to be a
buyer in good faith as it had notice of the lease of the property by the Bonnevies
and such knowledge should have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its own interests.
The petitioner insists that it was not aware of the right of rst priority,
granted by the Contract of Lease. Assuming this to be true, we nevertheless agree
with the observation of the respondent court that:
If Guzman-Bocaling failed to inquire about the terms of the Lease

Contract, which includes Par. 20 on priority right given to the Bonnevies, it
had only itself to blame. Having known that the property it was buying was
under lease, it behooved it as a prudent person to have required Reynoso
or the broker to show to it the Contract of Lease in which Par. 20 is
contained." 25
Petitioners assert the alleged impossibility of performance because the entire property is
indivisible property. It was petitioner Carmelo which xed the limits of the property it was leasing out.
Common sense and fairness dictate that instead of nullifying the agreement on that basis, the
stipulation should be given effect by including the indivisible appurtenances in the sale of the dominant
portion under the right of first refusal. A valid and legal contract where the ascendant or the more
important of the two parties is the landowner should be given effect, if possible, instead of being nulli
ed on a sel sh pretext posited by the owner. Following the arguments of petitioners and the
participation of the owner in the attempt to strip Mayfair of its rights; the right of rst refusal should
include not only the property speci ed in the contracts but also the appurtenant portions sold to
Equatorial which are claimed by petitioners to be indivisible. Carmelo acted in bad faith when it sold
the entire property to Equatorial without informing Mayfair, a clear violation of Mayfair's rights. While
there was a series of exchanges of letters evidencing the offer and counter-offers between the parties,
Carmelo abandoned the negotiations without giving Mayfair full opportunity to negotiate within the
30-day period.
Accordingly, even as it recognizes the right of rst refusal, this Court should also order that
Mayfair be authorized to exercise its right of rst refusal under the contract to include the entirety of
the indivisible property. The boundaries of the property sold should
be the boundaries of the offer under the right of rst refusal. As to the remedy to enforce Mayfair's
right, the Court disagrees to a certain extent with the concluding part of the dissenting opinion of
Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court
of Appeals should be modified, if not amplified under the peculiar facts of this case.
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the

prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that
its lawyers had studied the contract of lease prior to the sale. Equatorial's knowledge of the stipulations
therein should have cautioned it to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is
rst set aside or rescinded. All of these matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate into endless litigation. The facts of
the case and considerations of justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the contracting parties and even third persons
from all injury and damage the contract may cause or to protect some incompatible and preferred
right by the contract. 26 The sale of the subject real property by Carmelo to Equatorial should now be
rescinded considering that Mayfair, which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair
every opportunity to negotiate within the 30-day stipulated period. 27
This Court has always been against multiplicity of suits where all remedies according to the
facts and the law can be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial,
the price at which Mayfair could have purchased the property is, therefore, xed. It can neither be more
nor less. There is no dispute over it. The damages which Mayfair suffered are in terms of actual injury
and lost opportunities. The fairest solution would be to allow Mayfair to exercise its right of rst refusal
at the price which it was entitled to accept or reject which is P11,300,000.00. This is clear from the
records.
To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the
sale to the latter of the disputed property would be unjust and unkind to Mayfair because it is once
more compelled to litigate to enforce its right. It is not proper to give it an empty or vacuous victory in
this case. From the viewpoint of Carmelo, it is like asking a sh if it would accept the choice of being
thrown back into the river. Why should Carmelo be rewarded for and allowed to pro t from, its
wrongdoing? Prices of real estate have skyrocketed. After having sold the property for P11,300,000.00,
why should it be given another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was
nothing to execute because a contract over the right of rst refusal belongs to a class of preparatory
juridical relations governed not by the law on contracts but by the codal provisions on human relations.
This may apply here if the contract is limited to the buying and selling of the real property. However,
the obligation of Carmelo to rst offer the property to Mayfair is embodied in a contract. It is Paragraph
8 on the right of rst refusal which created the obligation. It should be enforced according to the law
on contracts
instead of the panoramic and indenite rule on human relations. The latter remedy encourages
multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation
to the property under the right of the rst refusal according to the terms at which they should have
been offered then to Mayfair, at the price when that offer should have been made. Also, Mayfair has
to accept the offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8
of the two leases can be executed according to their terms.
On the question of interest payments on the principal amount of P11,300,000.00, it must be

borne in mind that both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately
broke a contract entered into with Mayfair. It sold the property to Equatorial with purpose and intend
to withhold any notice or knowledge of the sale coming to the attention of Mayfair. All the
circumstances point to a calculated and contrived plan of non-compliance with the agreement of first
refusal.

On the part of Equatorial, it cannot be a buyer in good faith because it bought the property
with notice and full knowledge that Mayfair had a right to or interest in the property superior to its
own. Carmelo and Equatorial took unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on equity which might
warrant the grant of interests. The vendor received as payment from the vendee what, at the time,
was a full and fair price for the property. It has used the P11,300,000.00 all these years earning income
or interest from the amount. Equatorial, on the other hand, has received rents and otherwise pro ted
from the use of the property turned over to it by Carmelo. In fact, during all the years that this
controversy was being litigated, Mayfair paid rentals regularly to the buyer who had an inferior right
to purchase the property. Mayfair is under no obligation to pay any interests arising from this judgment
to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23,
1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners
Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded;
petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the
purchase price. The latter is directed to execute the deeds and documents necessary to return
ownership to Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow
Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED.
Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza, and Francisco, JJ ., concur.
Padilla and Panganiban, JJ ., concur in separate opinion.
Romero, J ., concurs and dissents in a separate opinion.
Vitug and Torres, Jr., JJ ., dissent in separate opinion.
Narvasa, C .J ., took no part.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16370 October 31, 1961
JOSE S. GALVEZ, Deceased (Represented by his widow and heir, GRACIA VDA. DE GALVEZ), petitioner,
vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY AND THE COURT OF INDUSTRIAL
RELATIONS,respondents.
Narciso E. Martin and Antonio N. Castro for petitioner.

Perkins, Ponce Enrile, Siguion Reyna, Montecillo and Belo for respondent Company.
F.A. Sambajon for respondent Court of Industrial Relations.
CONCEPCION, J.:
Appeal by certiorari from an order of the Court of Industrial Relations.
Petitioner herein, Gracia Vda. de Galvez, hereafter referred to as Mrs. Galvez, is the widow of the late
Jose S. Galvez, who during his lifetime was an employee of respondent Philippine Long Distance
Telephone Company, hereafter referred to as the Company. Mr. Galvez had worked therefor from
December 1, 1908 to December 31, 1941, when the operation of the Company was disrupted by the
Japanese invasion and occupation of the Philippines. As of the date last mentioned he had served the
Company for thirty-three (33) years and one (1) month. Upon the liberation of the Philippines, or on
April 1, 1945, Mr. Galvez was reinstated and continued under the employment of the Company for
another five (5) years, ten (10) months and six (6) days, or up to February 7, 1951, when he died.
Thus, his prewar and post-war services to the Company aggregated thirty-eight (38) years, eleven (11)
months and six (6) days. Sometime in 1951, Mrs. Galvez received from the Company P24,000, as
pension and death benefits due to the deceased under an Employees' Pension Plan adopted by the
Company on September 18, 1923.
Subsequently, or on December 22, 1951, Crispin Jeturian and about sixty-three (63) other persons,
who had served the Company as its prewar employees, instituted in the Court of Industrial Relations a
proceeding for the collection of their proportionate shares in said Employees' Pension Plan, which
had been discontinued by a resolution dated November 6, 1945, unilaterally taken by the Board of
Directors of the Company, to be effective retroactively as of January 1, 1942. In due course, a decision
was, on February 23, 1954, rendered in said proceeding, docketed as Case No. 639-V of the Court of
Industrial Relations, directing payment to the petitioners therein of their respective proportionate
shares in the aforementioned Employees' Pension Plan, as well as — to those who had not received
their 30-day notice of dismissal from the service of the Company before the resumption of its
business operations in 1946 — a severance pay equivalent to one month salary. With a slight
modification, immaterial to the case at bar, said decision was affirmed by the Supreme Court
in Philippine Long Distance Telephone Co. vs. Jeturian, et al., G.R. No. L-7756, decided on June 20,
1955.
Later on, the Court of Industrial Relations ordered its chief examiner to liquidate said prewar pension
plan. By an order dated May 12, 1956, the report thereon of said chief examiner was approved by the
Court of Industrial Relations. The report specified the names of all prewar employees entitled to

participate in the distribution of the Employees' Pension fund and the amount each was entitled to. It
included the name of several persons not petitioners in the case, whose aggregate share was said to
be P23,381.96. Among these persons was Jose S. Galvez whose share, forming part of the sum last
mentioned, amounted to P13,028.64. Thereafter, said non-petitioners, including Mrs. Galvez, on
behalf of her deceased spouse, asked the Court of Industrial Relations to order the payment of their
aforementioned shares, according to the examiner's report. Despite the opposition of the Company,
predicated upon the theory that these claimants were not parties to the proceeding and could not
invoke, therefore, the benefits of the aforementioned decisions (of the Court of Industrial Relations,
of February 23, 1954, and of the Supreme Court, promulgated on June 20, 1955), the Court of
Industrial Relations issued an order, dated January 8, 1959, granting said request and directing the
Company to deposit with the cashier of said Court, within a specified time, the aforementioned sum
of P23,381.96, exclusive of service fee. On motion for reconsideration filed by the company, said
order was affirmed by the Court of Industrial Relations, sitting en banc, in a resolution dated February
14, 1959. Thereupon, or on or about February 28, 1959, the Company filed with this Court a petition,
docketed as G.R. No. L-15120, for review by certiorari of said order and the aforementioned
resolution of the Court of Industrial Relations, dated January 8, and February 14, 1959, respectively,
but the petition was dismissed by resolution of this Court of March 17, 1959, for lack of merit.
Presently, or on April 14, 1959, the Company filed with the Court of Industrial Relations a petition
praying that it be no longer required to deposit the aforementioned share of Jose S. Galvez in the
amount of P13,028.64, because Mrs. Galvez had already been paid P24,000, as above stated,
inasmuch as, at the time of his death, Mr. Galvez was receiving a monthly compensation of P2,000
and, under the rules governing the Employees' Pension Plan, he would have received only the salary
for six (6) months, or P12,000, for his post liberation services, which were over five (5) years but less
than ten (10) years, but was given the benefit of a provision prescribing a 12-month pay for those
who had served ten (10) years or over, in view of his prewar services. By an order dated September 8,
1959, the Court of Industrial Relations held that amounts collectible by Jose S. Galvez under said
pension plan for his prewar and post-liberation services were P13,028.64 and P12,000, respectively,
or the aggregate sum of P25,028.64, and that since Mrs. Galvez had already received P24,000, the
sum now due her is only P1,028.64, which the Company was ordered to deposit in court.
A reconsideration having been denied by the Court of Industrial Relations sitting en banc, Mrs. Galvez
now seeks a review by certiorari of said order of September 8, 1959, upon the ground that it had in
effect amended unlawfully the aforementioned order of January 8, 1959, which was already final and
executory. By way of justification for the action complained of, lower court stated in its order of
September 8, 1959.
The order of this Court dated May 12, 1956, approving the Report of Examiner in which the
equities of all employees of the respondent company were determined in accordance with
the decision of this Court in Case No. 639-V, Crispin Jeturian, et al. vs. Philippine Long
Distance Telephone Co., as modified by the Supreme Court in G.R. No. L-7756, Philippine Long
Distance Telephone Company vs. Crispin Jeturian, et al., recognizes the equity in favor of Jose
S. Galvez in the pre-war pension plan, although his name was not specifically mentioned as
one of the petitioners in said Case No. 639-V, being one of the employees of said company.
The order of this Court of July 8, 1959 in the instant incidental case implements said Report of
Examiner, thus giving effectivity to the award in favor of Jose S. Galvez, We believe that this
Court may in its sound discretion, after discovering — through hearings as was done in this
case — a certain error which might do injustice to the aggrieved party if not corrected, alter
or modify its order to accord substantial justice to the party concerned during the effectivity
of an award, order or decision.

The lower court was thus aware of the fact that it was thereby altering or modifying its order of
January 8, 1959. Regardless of the excellence of the motive for acting as it did, we are constrained to
hold, however, that the lower court had no authority to make said alteration or modification. The
order of January 8, 1959, awarding P13,028.64 to Jose S. Galvez, was affirmed by the Court of
Industrial Relations sitting en banc, and an appeal by certiorari from said order and from the
confirmatory resolution of said Court en banc was dismissed by this Court, for lack of merit. As a
consequence, said order of January 8, 1959 and the award of P13,028.64 in favor of Jose S. Galvez
become executory and are no longer subject to alteration or modification (Rattan Art & Decorations,
Inc. vs. Rattan Art & Decorations [Daily Workers] Union, G.R. No. L-6466, May 28, 1954; Pepsi-Cola
Bottling Co. of the P.I. vs. Philippine Labor Organization, G.R. No. L-3506, January 31, 1951).
The equitable considerations that led the lower court to take the action complained of cannot offset
the demands of public policy and public interest — which are also responsive to the tenets of equity
— requiring that all issues passed upon in decisions or final orders that have become executory, be
deemed conclusively disposed of and definitely closed, for, otherwise, there would be no end to
litigations, thus setting at naught the main role of courts of justice, which is to assist in the
enforcement of the rule of law and the maintenance of peace and order, by settling justiciable
controversies with finality.
WHEREFORE, the order appealed from is hereby set aside and another one shall be entered directing
that, within thirty (30) days from entry of judgment in this case, the sum of P13,028.64 exclusive of
service fee, be deposited by respondent Philippine Long Distance Telephone Co. with the Court of
Industrial Relations for the benefit of the heirs of Jose S. Galvez with costs against said respondent. It
is so ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Paredes, Dizon and De Leon,
JJ., concur.
Barrera, J., took no part.

FIRST DIVISION
[G.R. No. 91029. February 7, 1991.]
NORKIS DISTRIBUTORS, INC., petitioner, vs. THE COURT OF APPEALS &

ALBERTO NEPALES, respondents.
Jose D. Palma for petitioner.
Public Attorney's Office for private respondent.
DECISION
GRIÑO-AQUINO, J p:
Subject of this petition for review is the decision of the Court of Appeals (Seventeenth
Division) in CA-G.R. No. 09149, affirming with modification the judgment of the Regional
Trial Court, Sixth (6th) Judicial Region, Branch LVI. Himamaylan, Negros Occidental, in Civil Case
No. 1272, which was private respondent Alberto Nepales' action for specific performance of a contract
of sale with damages against petitioner Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha motorcycles
in Negros Occidental with office in Bacolod City with Avelino Labajo as its Branch Manager. On
September 20, 1979, private respondent Alberto Nepales bought from the Norkis-Bacolod branch a
brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No. L2-329401K, Frame No. NL2-
0329401, Color Maroon, then displayed in the Norkis showroom. The price of P7,500.00 was payable
by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan
Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to Nepales
for the price of the motorcycle payable by DBP upon release of his motorcycle loan. As security for the
loan, Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. Branch Manager
Labajo issued Norkis Sales Invoice No.
0120 (Exh. 1) showing that the contract of sale of the motorcycle had been perfected. Nepales
signed the sales invoice to signify his conformity with the terms of the sale. In the meantime, however,
the motorcycle remained in Norkis' possession.
On November 6, 1979, the motorcycle was registered in the Land Transportation

Commission in the name of Alberto Nepales. A registration certificate (Exh. 2) in his name was
issued by the Land Transportation Commission on November 6, 1979 (Exh. 2-b). The registration fees
were paid by him, evidenced by an official receipt, Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was
allegedly the agent of Alberto Nepales but the latter denies it (p. 15, t.s.n., August 2, 1984). The record
shows that Alberto and Julian Nepales presented the unit to DBP's AppraiserInvestigator Ernesto
Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch
(p. 12, Rollo). The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros
Occidental. An investigation conducted by the DBP revealed that the unit was being driven by
a certain Zacarias Payba at the time of the accident (p. 33, Rollo). The unit was a total wreck (p. 36,
t.s.n., August 2, 1984; p. 13, Rollo), was returned, and stored inside Norkis' warehouse. prLL

On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to
Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in March,
1980, Nepales paid the difference of P328 (p. 13, Rollo) and demanded the delivery of the motorcycle.
When Norkis could not deliver, he filed an action for specific performance with damages against Norkis
in the Regional Trial Court of Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch LVI,
where it was docketed as Civil Case No. 1272. He alleged that Norkis failed to deliver the motorcycle
which he purchased, thereby causing him damages.
Norkis answered that the motorcycle had already been delivered to private respondent before
the accident, hence, the risk of loss or damage had to be borne by him as owner of the unit.
After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling in
favor of private respondent (p. 28, Rollo) thus:
"WHEREFORE, judgment is rendered in favor of the plaintiff and against the

defendants. The defendants are ordered to pay solidarily to the plaintiff the present
value of the motorcycle which was totally destroyed, plus interest equivalent to
what the Kabankalan Sub-Branch of the Development Bank of the Philippines will
have to charge the plaintiff on his account, plus P50.00 per day from February 3,
1980 until full payment of the said present value of the motorcycle, plus P1,000.00
as exemplary damages, and costs of the litigation. In lieu of paying the present value
of the motorcycle, the defendants can deliver to the plaintiff a brand-new
motorcycle of the same brand, kind, and quality as the one which was totally
destroyed in their possession last February 3, 1980." (pp. 28-29, Rollo.)
On appeal, the Court of Appeals affirmed the appealed judgment on August 21, 1989, but
deleted the award of damages "in the amount of Fifty (P50.00) Pesos a day from February 3, 1980 until
payment of the present value of the damaged vehicle" (p. 35, Rollo). The Court of Appeals denied
Norkis' motion for reconsideration. Hence, this Petition for Review.
The principal issue in this case is who should bear the loss of the motorcycle. The answer to
this question would depend on whether there had already been a transfer of ownership of the
motorcycle to private respondent at the time it was destroyed.
Norkis' theory is that:
". . . After the contract of sale has been perfected (Art. 1475) and even
before delivery, that is, even before the ownership is transferred to the vendee, the
risk of loss is shifted from the vendor to the vendee. Under Art. 1262, the obligation
of the vendor to deliver a determinate thing becomes extinguished if the thing is lost
by fortuitous event (Art. 1174), that is, without the fault or fraud of the vendor and
before he has incurred delay (Art. 1165, par. 3). If the thing sold is generic, the loss
or destruction does not extinguish the obligation (Art. 1263). A thing is determinate
when it is particularly designated or physically segregated from all others of the
same class (Art. 1460). Thus, the vendor becomes released from his obligation to
deliver the determinate thing sold while the vendee's obligation to pay that price
subsists. If the vendee had paid the price in advance the vendor may retain the same.
The legal effect, therefore, is that the vendee assumes the risk of loss by fortuitous
event (Art. 1262) after the perfection of the contract to the time of delivery." (Civil
Code of the Philippines, Ambrosio Padilla, Vol. 5, 1987 Ed., p. 87.)
Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that there
was constructive delivery of the unit upon: (1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the
name of the private respondent and the affixing of his signature thereon; (2) the registration of the
vehicle on November 6, 1979 with the Land

Transportation Commission in private respondent's name (Exh. 2); and (3) the issuance of
official receipt (Exh. 3) for payment of registration fees (p. 33, Rollo).
That argument is not well taken. As pointed out by the private respondent, the issuance of a
sales invoice does not prove transfer of ownership of the thing sold to the buyer. An invoice is nothing
more than a detailed statement of the nature, quantity and cost of the thing sold and has been
considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378). cdphil
In all forms of delivery, it is necessary that the act of delivery whether constructive or actual,
be coupled with the intention of delivering the thing. The act, without the intention, is insufficient (De
Leon, Comments and Cases on Sales, 1978 Ed., citing Manresa, p. 94).
When the motorcycle was registered by Norkis in the name of private respondent, Norkis did
not intend yet to transfer the title or ownership to Nepales, but only to facilitate the execution of a
chattel mortgage in favor of the DBP for the release of the buyer's motorcycle loan. The Letter of
Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its favor of a chattel mortgage over
the purchased vehicle is a pre-requisite for the approval of the buyer's loan. If Norkis would not accede
to that arrangement, DBP would not approve private respondent's loan application and, consequently,
there would be no sale.
In other words, the critical factor in the different modes of effecting delivery, which gives legal
effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee.
Without that intention, there is no tradition (Abuan vs. Garcia, 14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held:
"The Code imposes upon the vendor the obligation to deliver the thing sold.
The thing is considered to be delivered when it is 'placed in the hands and possession
of the vendee.' (Civil Code, Art. 1462). It is true that the same article declares that
the execution of a public instrument is equivalent to the delivery of the thing which
is the object of the contract, but, in order that this symbolic delivery may produce
the effect of tradition, it is necessary that the vendor shall have had such
control over the thing sold that, at the moment of the sale, its material delivery
could have been made. It is not enough to confer upon the purchaser the
ownership and the right of possession. The thing sold must be placed in his control.
When there is no impediment whatever to prevent the thing sold passing into the
tenancy of the purchaser by the sole will of the vendor, symbolic delivery through
the execution of a public instrument is sufficient. But if, notwithstanding
the execution of the instrument, the purchaser cannot have the enjoyment
and material tenancy of the thing and make use of it himself or through another in
his name, because such tenancy and enjoyment are opposed by the interposition of
another will, then fiction yields to reality — the delivery has not been effected."
(Emphasis supplied.)
The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice
dated September 20, 1979 (Exh. B) and the registration of the vehicle in the name of plaintiff-appellee
(private respondent) with the Land Registration Commission (Exhibit C) was not to transfer to Nepales
the ownership and dominion over the motorcycle, but only to comply with the requirements of the
Development Bank of the Philippines for processing private respondent's motorcycle loan. On March
20, 1980, before private respondent's loan was released and before he even paid Norkis, the
motorcycle had already figured in an accident while driven by one Zacarias Payba. Payba was not shown
by Norkis to be a representative or relative of private respondent. The latter's supposed relative, who
allegedly took possession of the vehicle from Norkis did not explain how Payba got hold of the vehicle
on February 3, 1980. Norkis' claim that Julian Nepales was acting as Alberto's agent when he allegedly

took delivery of the motorcycle (p. 20, Appellants' Brief), is controverted by the latter. Alberto denied
having authorized Julian Nepales to get the motorcycle from Norkis Distributors or to enter into any
transaction with Norkis relative to said motorcycle. (p. 5, t.s.n., February 6, 1985). This circumstances
more than amply rebut the disputable presumption of delivery upon which Norkis anchors its defense
to Nepales' action (pp. 33-34, Rollo).
Article 1496 of the Civil Code which provides that "in the absence of an express assumption of
risk by the buyer, the things sold remain at seller's risk until the ownership thereof is transferred to the
buyer," is applicable to this case, for there was neither an actual nor constructive delivery of the thing
sold, hence, the risk of loss should be borne by the seller, Norkis, which was still the owner and
possessor of the motorcycle when it was wrecked. This is in accordance with the well-known doctrine
of res perit domino. cdphil
WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R.
No. 09149, we deny the petition for review and hereby affirm the appealed decision, with costs
against the petitioner.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

EN BANC
[G.R. No. L-2724. August 24, 1950.]
JOSE DE LEON, CECILIO DE LEON, ALBINA DE LEON, in their individual capacity, and
JOSE DE LEON and CECILIO DE LEON, as administrators of the intestate estate of Felix
de Leon, petitioner, vs. ASUNCION SORIANO, respondent.
Lorenzo Sumulong and Jose Santos, for petitioners.

Vicente J. Francisco, for respondent.
SYLLABUS
1.OBLIGATIONS AND CONTRACTS; DETERMINATE AND GENERIC THING,

DISTINGUISHED. — A determinate thing is a concrete particularized object indicated by its own
individuality, while a generic thing is one whose determination is con ned to that of its nature, to the
genus (genero) to which it pertains, such as a horse, a chair.
2. ID.; AGREEMENT TO DELIVER AMOUNT OF CROPS; WHEN FORTUITOUS CAUSE
DID NOT EXCUSED PERFORMANCE. — Except as to quality and quantity, the rst of which is itself
generic, the contract sets no bounds or limits to that palay to be paid, nor was there even any
stipulation that the cereal was to be the produced of any particular land. Any palay of the quality
stipulated regardless of origin or however acquired (lawfully) would be obligatory on the part of
the obligee to receive and would discharge the obligation. It seems therefore plain that the
alleged failure of crops through alleged fortuitous cause did not excuse performance.
DECISION
TUASON, J p:
This is an appeal by certiorari from a decision of the Court of Appeals a rming a judgment of
the Court of First Instance of Bulacan.
Jose de Leon, Cecilio de Leon and Albina de Leon, petitioners herein and defendants in the
court below, were natural children of Felix de Leon, deceased, while Asuncion Soriano, respondent
herein and plaintiff below, is his widow. In the administration and settlement of the decedent's
estate then pending in the Court of First Instance, the said widow, on the one hand, and the natural
children, on the other, reached on March 23, 1943 an agreement, approved by the probate court,
whereby the natural children obligated themselves, among other things, as follows:
"2. At the end of each agricultural year, by which shall be understood for the
purposes of this agreement the month of March of every year, the following amounts
of palay shall be given to the party of the FIRST PART (Asuncion Soriano) by the parties
of the SECOND PART (De Leons): in the month of March of the current year 1943; one
thousand two hundred (1,200) cavanes of palay (macan); in the month of March of
1944, one thousand four hundred (1,400) cavanes of palay (macan); in the month of
March 1945, one thousand ve hundred (1,500) cavanes of palay (macan); and in the
month of March of 1946 and every succeeding year thereafter, one thousand six
hundred (1,600) cavanes of palay (macan). Delivery of the palay shall be made in the
warehouse required by the government, or if there be none such, at the warehouse

to be selected by the party of the FIRST PART, in San Miguel, Bulacan, free from the
cost of hauling, transportation, and from any and all taxes or charges.
"It is expressly stipulated that this annual payment of palay shall cease upon
the death of the party of the FIRST PART and shall not be transmissible to her heirs or
to any other person, but during her lifetime this obligation for the annual payment of
the palay hereinabove mentioned shall constitute a rst lien upon all the rice lands of
the estate of Dr. Felix de Leon in San Miguel, Bulacan."
The defendants made deliveries to the plaintiff of 1,200 cavanes of palay in 1934,
700 in 1944, 200 in 1945, and another 200 in 1946, a total of 2,300 cavanes which was 3,400 cavanes
short of the 5,700 cavanes which should have been delivered up to and including 1946. It was to
recover this shortage or its value that this action was commenced.
For answer, the defendants averred that their failure to pay the exact quantities of palay
promised for 1944, 1945 and 1946 was due to "the Huk troubles in Central Luzon which rendered
impossible full compliance with the terms of the agreement;" and it was contended that "inasmuch
as the obligations of the defendants to deliver the full amount of the palay is depending upon the
produce as this is in the nature of an annuity, . . . the obligations of the defendants have been fully
ful lled by delivering in good faith all that could be possible under the circumstances."
The court gave judgment for the plaintiff for 3,400 cavanes of palay or its equivalent in cash,
which was found to be 24,900, and legal interest, As above stated, that judgment was affirmed by
the appellate court.
Article 1182 of the Civil Code which was in force at the time the agreement in question was
entered into, provides that "Any obligation which consists in the delivery of a determinate thing shall
be extinguished if such thing should be lost or destroyed without fault on the part of the debtor and
before he is in default. Inversely, the obligation is not extinguished if the thing that perishes is
indeterminate.
Manresa explains the distinction between determinate and generic thing in his comment on
article 1096 of the Civil Code of Spain, saying that the rst is a concrete, particularized object, indicated
by its own individuality, while a generic thing is one whose determination is con ned to that of its
nature, to the genus (genero) to which it pertains, such as a horse, a chair. These de nitions are in
accord with the popular meaning of the terms defined.
Except as to quality and quantity, the rst of which is itself generic, the contract sets no
bounds or limits to the palay to be paid, nor was there even any stipulation that the cereal was to be
the produce of any particular land. Any palay of the quality stipulated regardless of origin on however
acquired (lawfully) would be obligatory on the part of the obligee to receive and would discharge the
obligation. It seems therefore plain that the alleged failure of crops through alleged fortuitous cause
did not excuse performance.
As Escriche, in his Diccionario Razonado de Legislacion y Jurisprudencia, puts it, speaking of
the effects of the loss of a thing:
"Extingue la obligacion del deudor cuando la cosa debida es un cuerpo cierto
y determinado: pero si fuese generica o no estuviese determinada sino en cuanto a la
especie, como por ejemplo, una onza de oro, 50 panegas de trigo o 3 toneladas de
vino, siempre se perderia para el deudor, el cual, por consiguiente, no se libraria de la
deuda, ya que se supone que el genero por su naturaleza nunca parece, 'nun quan
genusperit', ya porque aunque se diga que parece ro puede parecer, sino para su
dueño, que es el deudor 'res domino suo perit'. (Libro 18 y su glosa 1.a Titulo 11,
Partida 5.a) And he gives this example:
"Si prestais, pues, a Pedro una onza de oro que luego le roban, tendra que
pagartela, porque su obligacion no consistia en haberte de dar aquella misma onza,
sino generalmente una onza."

In the case of Yu Tek & Co., vs. Gonzales (29 Phil., 384), it appeared that the plaintiff
advanced P3,000 to defendant in payment of 600 piculs of sugar. The contract in writing did not
specify that the sugar was to come from the crop on defendant's land which was destroyed. It was
held that the sugar to be sold not having been segregated, the sale was not perfected and the loss
of the crop, even though through force majeure did not extinguish defendant's obligation to deliver
the sugar.
In the more recent decision of this Court, in the case of Reyes vs. Caltex (Phil.) Inc. (47 Off.
Gaz., 1193; 84 Phil., 654), a question similar to that at bar arose. There, we ruled that the inability of
the lessee of a commercial property to pay the stipulated rent because of war and because the
premises had been occupied by Japanese forces did not affect the lessee's liability to ful ll its
commitments. Shifting to American authorities, we cited Pollard vs. Shaefer (1 Dall. [Pa.], 210), where
the Court said that, "since by the lease, the lessee was to have the advantage of casual pro ts of the
leased premises, he should run the hazard of casual losses during the term and not lay the whole
burden of them upon the lessor." This court went on to say:
"The general rule on performance of contracts is graphically set forth in
American treatises, which is also the rule, in our opinion, obtaining under the Civil
Code.
"Where a person by a contract charges himself with an obligation possible to

be performed, he must perform it, unless its performance is rendered impossible by
the act of God, by the law, or by the other party, it being the rule that in case the party
desires to be excused from performance in the event of contingencies arising, it is his
duty to provide therefor in his contract. Hence, performance is not excused by
subsequent' inability to perform, by unforeseen di culties, by unusual or unexpected
expenses, by danger, by inevitable accident, by the breaking of machinery, by strikes,
by sickness, by failure of a party to avail himself of the bene ts to be had under the
contract, by weather conditions, by nancial stringency, or by stagnation of business.
Neither is performance excused by the fact that the contract turns out to be hard and
improvident, unpro table or impracticable, ill advised, or even foolish, or less pro table,
or unexpectedly burdensome. (17 C. J. S. 946-948)."In the absence of a statute to the
contrary, conditions arising from a state of war in which the country is engaged, will
not ordinarily constitute an excuse for non-performance of contract; and impossibility
of performance arising from the acts of the legislature and the executive branch of
government in war time does not, without more, constitute an excuse for non-
performance. (17 C. J. S., 953, 954.)
"A few words are in order to straighten out the apparent confusion (of ideas)
that exists regarding the in uence of fortuitous events in contracts; when they excuse
performance and when not.
"In considering the effect of impossibility of performance on the rights of
the parties, it is necessary to keep in mind the distinction between: (1) Natural
impossibility preventing performance from the nature of the things and (2)
impossibility in fact, in the absence of inherent impossibility in the nature of the thing
stipulated to be performed. (17 C. J. S., 951.) In the words of one Court impossibility
must consist in the nature of thing to be done and not in the inability of the party to
do it. (City of Montpelier vs. National Surety Co., 122 A., 484; 97 Vt., Ill; 33 A. L. R.,
489.) As others have put it, to bring the case within the rule of impossibility, it must
appear that the thing to be done cannot by any means be accomplished, for if it is only
improbable or out of the power of the obligor, it is not in law deemed impossible. (17
C. J. S., 442). The rst class of impossibility goes to the consideration and renders the
contract void. The second, which is the class of impossibility that we have to do here,
does not. (17 C. J. S., 951, 952.)

"For illustration, where the entire product of a manufacturer was taken by the
government under orders pursuant to a commandeering statute during the World
War, it was held that such action excused non-performance of a contract to supply
civilian trade. (40 S. Ct., 5; 252 U. S., 493; 64 Law. ed., 1031.) Another example: where
a party obligates himself to deliver certain (determinate) things and the things perish
through war or in a shipwreck performance is excused, the destruction operating as a
rescission or dissolution of the covenant. But if the promisor is unable to deliver the
goods promised and his inability arises, not from their destruction but from, say, his
inability to raise money to buy them due to sickness, typhoons, or the like, his liability
is not discharged. In the rst case, the doing of the thing which the obligor nds
impossible is the foundation of the undertaking. (C. J. S., 951, note.) In the second, the
impossibility partakes of the nature of the risk which the promisor took within the
limits of his undertaking of being able to perform. (C. J. S., supra, 946, note). It is a
contingency which he could have taken due precaution to guard against in the
contract.
"Summoning the above principles to our aid, and by way of hypothesis, the
defendant-appellee here would be relieved from the obligation to pay rent if the
subject matter of the lease, were this possible had disappeared, for the personal
occupation of the premises is the foundation of the contract, the consideration that
induced it (lessee) to enter into the agreement. But a mere trespass with which the
landlord had nothing to do is a casual disturbance not going to the essence of the
undertaking. It is a collateral incident which might have been provided for by a proper
stipulation."
See also Lacson et al. vs. Diaz, supra, p. 150.

The decision of the Court of Appeals is a rmed with costs against the petitioners and
appellants.
Moran, C.J., Ozaeta, Pablo, Bengzon, Montemayor and Reyes, JJ., concur.

EN BANC
[G.R. No. L-23559. October 4, 1971.]
AURELIO G. BRIONES, plaintiff-appellee, vs. PRIMITIVO P. CAMMAYO, ET

AL., defendants-appellants.
Carlos J . Antiporda for plaintiff-

appellees. M.A. Cammayo for
defendant-appellants.
SYLLABUS
1. CIVIL LAW; USURY LAW; CONCEPT EXPLAINED. — The Usury Law penalizes
any person or corporation who, for any loan or renewal thereof or forbearance, shall
collect or receive a higher rate or greater sum or value than is allowed by law, and
provides further that, in such case, the debtor may recover the whole interest,
commission, premiums, penalties and surcharges paid or delivered, with costs and
attorney's fees, in an appropriate action against his creditor, within two (2) years
after such payment or delivery (Section 6, Act 2655, as amended by Acts 3291 and
3998).
DVI
2. ID.; ID.; IN USURIOUS LOANS, CREDITOR CAN COLLECT ACTUAL LOAN
PLUS LEGAL INTEREST THEREON. — Construing the above provision, We held in Go

Chioco vs. Martinez, 45 Phil. 256 that even if the contract of loan is declared usurious
the creditor is entitled to collect the money actually loaned and legal interest due
thereon. In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared
that, in any event, the debtor in a usurious contract of loan should pay the creditor
the amount which he justly owes him.
3. ID.; ID.; ID.; CREDITOR CANNOT RECOVER INTEREST IN EXCESS OF
LAWFUL RATES. — Under Act 2655 a usurious contract is void; that the creditor had
no right of action to recover the interest in excess of the lawful rate; but that this did
not mean that the debtor may keep the principal received by him as loan — thus
unjustly enriching himself to the damage of the creditor.
4. ID.; ID.; CAPITAL OF CREDITOR NOT FORFEITED IN FAVOR OF DEBTOR IN
USURIOUS CONTRACTS. — The Usury Law, by its letter and spirit, did not deprive the
lender of his right to recover from the borrower the money actually loaned to and
enjoyed by the latter. This Court went further to say that the Usury Law did not
provide for the forfeiture of the capital in favor of the debtor in usurious contracts,

and that while the forfeiture might appear to be convenient as a drastic measure to
eradicate the evil of usury, the legal question involved should not be resolved on the
basis of convenience. When a contract is found to be tainted with usury "the only
right of the respondent (creditor) . . . was merely to collect the amount of the loan,
plus interest due thereon.
DVII
5. ID.; ID.; CONTRACT OF LOAN WITH USURIOUS INTEREST, DIVISIBLE;
PRINCIPAL DEBT AS CAUSE OF CONTRACT STANDS DESPITE ILLEGALITY OF

INTEREST. — A contract of loan with usurious interest consists of principal and
accessory stipulations; the principal one is to pay the debt; the accessory stipulation
is to pay interest thereon. And said two stipulations are divisible in the sense that the
former can still stand without the latter. Article 1273, Civil Code, attests to this: "The
renunciation of the principal debt shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force. In simple loan with stipulation of
usurious interest, the prestation of the debtor to pay the principal debt, which is the
cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as
to the prestation to pay the stipulated interest; hence, being separable, the latter
only should be deemed void, since it is the only one that is illegal.
DVIII
6. ID.; ID.; NO CONFLICT BETWEEN ARTICLE 1413 OF NEW CIVIL CODE AND
USURY LAW. — Neither is there a con ict between the New Civil Code and the Usury
Law. Under the latter, Section 6, any person who for a loan shall have paid a higher
rate or greater sum or value than is allowed in said law, may recover the whole
interest paid. The New Civil Code, in Article 1413 states: "Interest paid in excess of
the interest allowed by the usury laws may be recovered by the debtor, with interest
thereon from the date of payment." Article 1413, in speaking of "interest paid in
excess of the interest allowed by the usury laws" means the whole usurious interest;
that is, in a loan of P1,000.00, with interest of 20% per annum or P200.00 for one
year, if the borrower pays said P200.00, the whole P200.00 is the usurious interest,
not just that part thereof in excess of the interest allowed by law. It is in this case that
the law does not allow division. The whole stipulation as to interest is void, since
payment of said interest is illegal. The only change effected therefore, by Article
1413, New Civil Code, is not to provide for the recovery of the interest paid in excess
of that allowed by law, which the Usury Law already provided for, but to add that the
same can be recovered "with interest thereon from the date of payment."
7. ID.; ID.; USURER ALSO SUBJECT TO CRIMINAL PROSECUTION. — Under the
Usury Law there is already provision for adequate punishment for the usurer, namely,
criminal prosecution where, if convicted, he may be sentenced to pay a ne of not less
than P50.00 nor more than P500.00, or imprisonment of not less than 30 days nor

more than one year, or both, in the discretion of the court. He may further be
sentenced to return the entire sum received as interest, with subsidiary
imprisonment in case of non-payment thereof. It is, of course, to be assumed that
this last penalty may be imposed only if the return of the entire sum received as
interest had not yet been the subject of judgment in a civil action involving the
usurious contract of loan.
BARREDO, J., concurring:
1. CIVIL LAW; USURY LAW; COLLECTION OF EXCESSIVE INTEREST, NULL AND
VOID IN USURIOUS LOANS. — What the law proscribes and declares null and void is
not the lending of money, but only the collection of excessive interest. There is
nothing morally wrong in allowing a money-lender to get back the money he has
loaned because, after all, the borrower has used the same for his own needs, and it
is only fair that he should not be enriched at the expense of another. And this, to my
mind, is obvious from the language of Article 1957 of the Civil Code.
DIX
2. ID.; ID.; PORTION OF CONTRACT OF LOAN CIRCUMVENTING LAWS
AGAINST USURY, VOID. — Properly construed, the phrase "contracts and

stipulations" in this provision does not contemplate the totality of the contract of
loan but only the portion thereof that is "intended to circumvent the laws against
usury," and that necessarily is no more than any term, "cloak or device" which results
in the collection of interest in excess of the rate allowed by law. In fact, the same
provision expressly provides that inspite of the nullity it ordains, "the borrower may
recover in accordance with the laws on usury."
3. ID.; ID.; NO CONFLICT BETWEEN PROVISION OF USURY LAW AND
ARTICLES 1413 AND 1957 OF CIVIL CODE. — Even as the Civil Code yields to the Usury
Law in Articles 1957 and 1413, in reality there is no con ict between these laws specify
only the remedies in favor of the borrower, they impliedly deny to the lender any
remedy to recover the principal of the loan is, I submit, a non sequitor. It appears to
me more logical to construe the provisions allowing the borrower to recover all the
interest he has paid, as Article 1413 of the Civil Code and Section 6 of the Usury Law
have been construed together to mean in Angel Jose vs. Chelda Enterprises, cited in
the main opinion, as indicating that the borrower may not recover from the lender
the amount he has paid as payment of his principal debt, and conversely, that the
lender may collect the same if it has not been paid by the borrower.
RUIZ CASTRO, J., dissenting:
1. CIVIL LAW; USURY LAW; ENTIRE CONTRACT OF LOAN WITH
EXCESSIVE
INTEREST, VOID. — Beyond the area of debate is the principle that in a contract of
loan of a sum of money, the cause, with respect to the lender is generally the

borrower's prestation to return the same amount. It is my view, however, that in a
contract which is tainted with usury, that is, with a stipulation (whether written or
unwritten) to any usurious interest, the prestation to pay such interest is an integral
part of the cause of the contract. It is also the controlling cause, for a usurer lends his
money not just to have it returned but indeed to acquire inordinate gain. Article 1957,
which is a new provision in the Civil Code, provides as follows: "Contracts and
stipulations, under any cloak or device whatever, intended to circumvent the laws
against usury shall be void. The borrower may recover in accordance with the law on
usury." This article which declares the contract itself — not merely the stipulation to
pay usurious interest — void, necessarily regards the prestation to pay such usurious
interest as no integral part of the cause, making it illegal.
2. ID.; ID.; ARTICLE 1957 OF CIVIL CODE DECLARES USURIOUS LOAN
VOID
AS TO THE LOAN AND AS TO THE USURIOUS INTEREST; EL HOGAR CASE, CITED. —
While the old law, according to El Hogar, considered the usurious loan valid as to the
loan and void as the usurious interest, the new law, in Article 1957 of the new Civil
Code, declares the usurious loan void as to the loan and void as to the usurious
interest. What is the reason for the new law? In my view, it is none other than its
intention to regard the usurious interest as an integral part of the cause, thus making
it illegal; otherwise, the new law would be devoid of reason. Any interpretation that
divests the new law of reason, that declares the usurious contract void and in the
same breath permits recovery of the principal of the loan — which was the same
result under the old law, as well as under El Hogar that considered the usurious
contract valid as to the loan — renders Article 1957 of the new Civil Code meaningless
and pointless.
3. ID.; ID.; ID.; SECOND PARAGRAPH THEREOF, EXCEPTION TO
GENERAL RULE; DEBTOR MAY RECOVER AMOUNT PAID AS USURIOUS
INTEREST. — As an
exception to the general rule in Article 1411, the debtor is allowed in accordance with
the Usury Law to recover the amount he has paid as usurious interest. Thus, Article
1413 explicitly authorizes that "Interest paid in excess of the interest allowed by the
usury laws may be recovered by the debtor, with interest thereon from the date of
payment." But the lender is not allowed to recover the principal, because no such
exception is made; hence, he falls within the general rule stated in Article 1411.
4. ID.; ID.; USURIOUS AGREEMENTS, CONTRARY TO PUBLIC POLICY.

— In Asturias, et al. vs. Court of Appeals (9 SCRA 131), the Supreme Court,
speaking through Mr. Jesus Barrera, stressed that: "A contract designed to
hide a usurious agreement not only violates the law but contravenes public
policy. Such a contract can not be countenanced and is therefore illegal and
void form its inception."

5. ID.; ID.; ARTICLE 1957 OF CIVIL CODE OMITTED RIGHT OF LENDER
TO RECOVER PRINCIPAL OF LOAN. — When the Commission formulated
Article 1957, knowing that under El Hogar the usurer may recover the
principal of the loan, it omitted a rmance of the right of the lender to recover
the principal, and instead emphasized that "the borrower may recover in
accordance with the laws on usury."
DX DECISION
DIZON, J : p
On February 22, 1962, Aurelio G. Briones led an action in the Municipal Court
of Manila against Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed
Cammayo, to recover from them, jointly and severally, the amount of P1,500.00, plus
damages, attorney's fees and costs of suit. The defendants answered the complaint
with speci c denials and the following special defenses and compulsory counterclaim:
"x
xx xxx xxx; By way of —
SPECIAL DEFENSES
Defendants allege:
4. Defendants executed the real estate mortgage, Annex 'A' of
the complaint, as security for the loan of P1,200.00 given to defendant
Primitivo P. Cammayo upon the usurious agreement that defendant pays to
the plaintiff and that the plaintiff reserve and secure, as in fact plaintiff
reserved and secured himself, out of the alleged loan of P1,500.00 as
interest the sum of P300.00 for one year;
5. That although the mortgage contract, Annex 'A' was executed
for securing the payment of P1,500.00 for a period of one year, without
interest, the truth and the real fact is that plaintiff delivered to the
defendant Primitivo P.
Cammayo only the sum of P1,200.00 and withheld the sum of P300.00
which was intended as advance interest for one year;
6. That on account of said loan of P1,200.00, defendant Primitivo
P. Cammayo paid to the plaintiff during the period from October 1955 to
July 1956 the total sum of P330.00 which plaintiff, illegally and unlawfully
refuse to acknowledge as part payment of the account but as in interest of
the said loan for an extension of another term of one year;
7. That said contract of loan entered into between plaintiff and
defendant Primitivo P. Cammayo is a usurious contract and is contrary to

law, morals, good customs, public order or public policy and is, therefore,
inexistent and void from the beginning (Art. 1407 Civil Code);
And as —
COMPULSORY COUNTERCLAIM
Defendants replead all their allegations in the preceding paragraphs;
8. That plaintiff, by taking and receiving interest in excess of that
allowed by law, with full intention to violate the law, at the expense of the
defendants, committed a agrant violation of Act 2655, otherwise known as
the Usury Law, causing the defendants damages and attorney's fees, the
amount of which will be proven at the trial;
9. That this is the second time this same case is led before this
court, the rst having been previously led and docketed in this court as Civil
Case No. 75845 (Branch VII) and the same was dismissed by the Court of
First Instance of Manila on July 13, 1961 in Civil Case No. 43121 (Branch
XVII) and for repeatedly bringing this case to the court, harassing and
persecuting defendants in that manner, defendants have suffered mental
anguish and anxiety for which they should be compensated for moral
damages."
On September 7, 1962, Briones led an unveri ed reply in which he merely

denied the allegations of the counterclaim. Thereupon the defendants moved for the
rendition of a summary judgment on the ground that, upon the record, there was no
genuine issue of fact between the parties. The Municipal Court granted the motion
and rendered judgment sentencing the defendants to pay the plaintiff the sum of
P1,500.00, with interests thereon at the legal rate from February 22, 1962, plus the
sum of P150.00 as attorney's fees. From this judgment, the defendants appealed to
the Court of First Instance of Manila where, according to the appealed decision,
"defendant has asked for summary judgment and plaintiff has agreed to the same."
(Record on Appeal p. 21). Having found the motion for summary judgment to be in
order, the court then, proceeded to render judgment as follows:
"Judgment is, therefore, rendered, ordering Defendant to pay
plaintiff the sum of P1,180.00 with interest thereon at the legal rate from
October 16, 1962 until fully paid. This judgment represents Defendant's
debt of P1,500.00 less usurious interest of P120.00 and the additional sum
of P200.00 as attorney's fees or a total deduction of P320.00. Plaintiff shall
pay the costs."
In the present appeal defendants claim that the trial court erred in sentencing
them to pay the principal of the loan notwithstanding its nding that the same was
tainted with usury, and erred likewise in not dismissing the case.
It is not now disputed that the contract of loan in question was tainted with
usury. The only questions to be resolved, therefore, are rstly, whether the creditor is

entitled to collect from the debtor the amount representing the principal obligation;
secondly, in the a rmative, if he is entitled to collect interests thereon, and if so, at
what rate.
The Usury Law penalizes any person or corporation who, for any loan or
renewal thereof or forbearance, shall collect or receive a higher rate or greater sum
or value than is allowed by law, and provides further that, in such case, the debtor
may recover the whole interest, commissions, premiums, penalties and surcharges
paid or delivered, with costs and attorney's fees, in an appropriate action against his
creditor, within two (2) years after such payment or delivery (Section 6, Act 2655, as
amended by Acts 3291 and 3998).
Construing the above provision, We held in Go Chioco vs. Martinez, 45 Phil. 256
that even if the contract of loan is declared usurious the creditor is entitled to collect
the money actually loaned and the legal interest due thereon.
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared
that, in any event, the debtor in a usurious contract of loan should pay the creditor
the amount which he justly owes him, citing in support of this ruling its previous
decisions in Go Chioco Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs.
Duque Valgona, 44 Phil. 739.
In all the above cited cases it was recognized and held that under Act 2655 a
usurious contract is void; that the creditor had no right of action to recover the
interest in excess of the lawful rate; but that this did not mean that the debtor may
keep the principal received by him as loan — thus unjustly enriching himself to the
damage of the creditor.
Then in Lopez and Javelona vs. El Hogar Filipino, 47 249, We also held that the
standing jurisprudence of this Court on the question under consideration was clearly
to the effect that the Usury Law, by its letter and spirit, did not deprive the lender of
his right to recover from the borrower the money actually loaned to and enjoyed by
the latter, This Court went further to say that the Usury Law did not provide for the
forfeiture of the capital in favor of the debtor in usurious contracts, and that while
the forfeiture might appear to be convenient as a drastic measure to eradicate the
evil of usury, the legal question involved should not be resolved on the basis of
convenience.
Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919
and Pascua vs. Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter
We expressly held that when a contract is found to be tainted with usury "the only
right of the respondent (creditor) . . . was merely to collect the amount of the loan,
plus interest due thereon."
The view has been expressed, however, that the ruling thus consistently
adhered to should now be abandoned because Article 1957 of the new Civil Code —
a subsequent law — provides that contracts and stipulations, under any cloak or
device whatever, intended to circumvent the laws against usury, shall be void, and

that in such cases "the borrower may recover in accordance with the laws on usury."
From this the conclusion is drawn that the whole contract is void and that, therefore,
the creditor has no right to recover — not even his capital.
The meaning and scope of our ruling in the cases mentioned heretofore is
clearly stated, and the view referred to in the preceding paragraph is adequately
answered, in Angel Jose, etc. vs. Chelda Enterprises, et al. (L-25704, April 24, 1968).
On the question of whether a creditor in a usurious contract may or may not recover
the principal of the loan, and, in the a rmative, whether or not he may also recover
interest thereon at the legal rate, We said the following:
"xxx xxx xxx.
The court found that there remained due from defendants an
unpaid principal amount of P20,287.50; that plaintiff charged usurious
interests, of which P1,048.15 had actually been deducted in advance by
plaintiff from the loan that said amount of P1,048.15 should therefore be
deducted from the unpaid principal of P20,287.50, leaving a balance of
P19,247.35 still payable to the plaintiff. Said court held that
notwithstanding the usurious interests charged, plaintiff is not barred from
collecting the principal of the loan or its balance of P19,247.35.
Accordingly, it stated in the dispositive portion of the decision, thus:
"WHEREFORE, judgment is hereby rendered, ordering the
defendant partnership to pay to the plaintiff the amount of
P19,247.35, with legal interest thereon from May 29, 1964 until paid,
plus an additional sum of P2,000.00 as damages for attorney's fee;
and, in case the assets of defendant partnership be insu cient to
satisfy this judgment in full, ordering the defendant David Syjueco to
pay to the plaintiff one-half (1/2) of the unsatisfied portion of this
judgment.
"With costs against the defendants."

Appealing directly to Us, defendants raise two questions of law: (1)
In a loan with usurious interest, may the creditor recover the principal of
the loan? (2)
Should attorney's fees be awarded in plaintiff's favor?"
"Great reliance is made by appellants on Art. 1411 of the New Civil
Code which states:
"ART. 1411. When the nullity proceeds from the illegality of the
cause or object of the contract, and the act constituted a criminal offense,
both parties being in pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the provisions of the Penal
Code relative to the disposal of effects or instruments of a crime shall be
applicable to the things or the price of the contract."

"This rule shall be applicable when only one of the parties is guilty;
but the innocent one may claim what he has given, and shall not be bound
to comply with his promise."
Since, according to the appellants, a usurious loan is void due to
illegality of cause or object, the rule of pari delicto expressed in Article 1411,
supra, applies, so that neither party can bring action against each other.
Said rule, however, appellants add, is modi ed as to the borrower, by
express provision of the law (Art. 1413, New Civil Code), allowing the
borrower to recover interest paid in excess of the interest allowed by the
Usury Law. As to the lender, no exception is made to the rule; hence, he
cannot recover on the contract. So — they continue — the New Civil Code
provisions must be upheld as against the Usury Law, under which a loan
with usurious interest is not totally void, because of Article 1961 of the New
Civil Code, that: "Usurious contracts shall be governed by the Usury Law and
other special laws, so far as they are not inconsistent with this Code."
(Emphasis ours.)
We do not agree with such reasoning. Article 1411 of the New Civil
Code is not new; it is the same as Article 1305 of the Old Civil Code.
Therefore, said provision is no warrant for departing from previous
interpretation that, as provided in the Usury Law (Act No. 2655, as
amended), a loan with usurious interest is not totally void only as to the
interest.
True, as stated in Article 1411 of the New Civil Code, the rule of pari
delicto applies where a contract's nullity proceeds from illegality of the
cause or object of said contract.
However, appellants fail to consider that a contract of loan with
usurious interest consists of principal and accessory stipulations; the
principal one is to pay the debt; the accessory stipulation is to pay interest
thereon.
And said two stipulations are divisible in the sense that the former can still
stand without the latter. Article 1273, Civil Code, attests to this: "The
renunciation of the principal debt shall extinguish the accessory obligations;
but the waiver of the latter shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to
payment of interest likewise renders a nullity the legal terms as to payments
of the principal debt. Article 1420 of the New Civil Code provides in this
regard: "In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of
the debtor to pay the principal debt, which is the cause of the contract
(Article 1350, Civil Code), is not illegal. The illegality lies only as to the

prestation to pay the stipulated interest; hence, being separable, the latter
only should be deemed void, since it is the only one that is illegal.
Neither is there a con ict between the New Civil Code and the Usury
Law. Under the latter, in Sec. 6, any person who for a loan shall have paid a
higher rate or greater sum or value than is allowed in said law, may recover
the whole interest paid. The New Civil Code, in Article 1413 states: "Interest
paid in excess of the interest allowed by the usury laws may be recovered
by the debtor, with interest thereon from the date of payment." Article
1413, in speaking of "interest paid in excess of the interest allowed by the
usury laws" means the whole usurious interest: that is, in a loan of P1,000,
with interest of 20% per annum or P200 for one year, if the borrower pays
said P200, the whole P200 is the usurious interest, not just that part thereof
in excess of the interest allowed by law. It is in this case that the law does
not allow division. The whole stipulation as to interest is void, since
payment of said interest is illegal. The only change effected, therefore, by
Article 1413, New Civil Code, is not to provide for the recovery of the
interest paid in excess of that allowed by law, which the Usury Law already
provided for, but to add that the same can he recovered "with interest
thereon from the date of payment."
The foregoing interpretation is reached with the philosophy of usury
legislation in mind; to discourage stipulations on usurious interest, said
stipulations are treated as wholly void, so that the loan becomes one
without stipulation as to payment of interest. It should not, however, be
interpreted to mean forfeiture even of the principal, for this would unjustly
enrich the borrower at the expense of the lender. Furthermore, penal
sanctions are available against a usurious lender, as a further deterrence to
usury.
The principal debt remaining without stipulation for payment of
interest can thus be recovered by judicial action. And in case of such
demand, and the debtor incurs in delay, the debt earns interest from the
date of the demand (in this case from the ling of the complaint). Such
interest is not due to stipulation, for there was none, the same being void.
Rather, it is due to the general provision of law that in obligations to pay
money, where the debtor incurs in delay, he has to pay interest by way of
damages (Art. 2209, Civil Code). The court a quo therefore, did not err in
ordering defendants to pay the principal debt with interest thereon at the
legal rate, from the date of filing of the complaint."
In answer to the contention that the forfeiture of the principal of the usurious
loan is necessary to punish the usurer, We say this: Under the Usury Law there is
already provision for adequate punishment for the usurer, namely, criminal
prosecution where, if convicted, he may be sentenced to pay a ne of not less than
P50 nor more than P500, or imprisonment of not less than 30 days nor more than
one year, or both, in the discretion of the court. He may further be sentenced to
return the entire sum received as interest, with subsidiary imprisonment in case of

non-payment thereof. It is, of course, to be assumed that this last penalty may be
imposed only if the return of the entire sum received as interest had not yet been
the subject of judgment in a civil action involving the usurious contract of loan.
In arriving at the above conclusion We also considered our decision in Mulet
vs. The People of the Philippines (73 Phil. p. 60), but found that the same does not
apply to the present case. The facts therein involved were as follows:
"On July 25, 1929, Alejandra Rubillos and Espectacion Rubillos
secured from petitioner Miguel Mulet a loan of P550, payable within 5 years
at 30 per cent interest per annum. In the deed of mortgage executed by the
Rubillos as a security; the sum of P1,375 was made to appear as the capital
of the loan. This amount obviously represented the actual loan of P550 and
the total interest of P825 computed at 30 per cent per annum for 5 years.
Within four years of following the execution of the mortgage, the debtors
made partial payments aggregating P278.27, on account of interest.
Thereafter, the debtors paid the whole capital of P550, due to petitioner's
promise to condone the unpaid interest upon payment of such capital. But
to their surprise, petitioner informed them that they were still indebted in
the sum of P546.73 which represented the balance of the usurious interest.
And in consideration of this amount, petitioner pressed upon the debtors
to execute in October, 1933, in his favor, a deed of sale with pacto de retro
of a parcel of land, in substitution of the original mortgage which was
cancelled. From the date of the execution of the new deed up to 1936,
petitioner received, as his share of the products of the land, the total sum
of P480. Prosecuted on November 18, 1936, for the violation of the Usury
Law, petitioner was convicted by the trial court, and on appeal, the
judgment was armed by the Court of Appeals. The instant petition for
certiorari is directed at that portion of the decision of the appellate court
ordering petitioner to return to the offended parties the sum of P373.27,
representing interests received by him in excess of that allowed by law."
It was Mulet's claim that, as the amount of P373.27 had been paid more than
two years prior to the ling of the complaint for usury against him, its return could no
longer be ordered in accordance with the prescriptive period provided therefor in
Section 6 of the Usury Law. Said amount was made up of the usurious interest
amounting to P278.27 paid to Mulet, in cash, and the sum of P480.00 paid to him in
kind, from the total of which two amounts 14% interest allowed by law — amounting
to P385.00 — was deducted. Our decision was that Mulet should return the amount
of P480.00 which represented the value of the produce of the land sold to him under
pacto de retro which, with the unpaid balance of the usurious interest, was the
consideration of the transaction — meaning the pacto de retro sale. This Court then
said:
". . . . This last amount is not usurious interest on the capital of the
loan but the value of the produce of the land sold to petitioner under pacto
de retro, with the unpaid balance of the usurious interest (P546.73) as the
consideration of the transaction. This consideration, because contrary to

law, is illicit, and the contract which results therefrom, null and void. (Art.
1275, Civil Code). And, under the provisions of article 1305, in connection
with article 1303, of the Civil Code, when the nullity of a contract arises
from the illegality of the consideration which in itself constitutes a felony,
the guilty party shall be subject to criminal proceeding while the innocent
party may recover whatever he has given, including the fruits thereof ."
(emphasis supplied)
It is clear, therefore, that in the Mulet case, the principal of the obligation had
been fully paid by the debtor to the creditor; that the latter was not sentenced to pay
it back to the former, and that what this Court declared recoverable by the debtor
were only the usurious interest paid as well as the fruits of the property sold under
pacto de retro.
IN VIEW OF THE FOREGOING, the decision appealed from is modified in the
sense that appellee may recover from appellant the principal of the loan (P1,180.00)
only, with interest thereon at the legal rate of 6% per annum from the date of the
ling of the complaint. With costs.
Makalintal, Zaldivar, Teehankee, Villamor and Makasiar, JJ ., concur.

Angel Jose Warehousing Co., Inc. vs. Chelda Enterprises (23 SCRA 119)
G.R. No. L-25704 April 24, 1968
ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee,

vs.
CHELDA ENTERPRISES and DAVID SYJUECO, defendants-appellants.
Luis A. Guerrero for plaintiff-appellee.

Burgos and Sarte for defendants-appellants.
BENGZON, J.P., J.:
FACTS
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against
the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for recovery of
alleged unpaid loans in the total amount of P20,880.00, with legal interest from the filing of
the complaint, plus attorney’s fees of P5,000.00. Alleging that post dated checks issued by
defendants to pay said account were dishonored, that defendants’ industrial partner,
Chellaram I. Mohinani, had left the country, and that defendants have removed or disposed of
their property, or are about to do so, with intent to defraud their creditors, preliminary
attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff in the total amount
of P26,500.00, of which P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff
charged and deducted from the loan usurious interests thereon, at rates of 2% and 2.5% per
month, and, consequently, plaintiff has no cause of action against defendants and should not
be permitted to recover under the law. A counterclaim for P2,000.00 attorney’s fees was
interposed.
Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes criminal offense, both parties being in pari delicto, they shall have no
action against each other, and both shall be prosecuted. Moreover, the provisions of the
Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to
the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may
claim what he has given, and shall not be bound to comply with his promise.

Since, according to the appellants, a usurious loan is void due to illegality of cause or object,
the rule of pari delicto expressed in Article 1411, supra, applies, so that neither party can bring
action against each other. Said rule, however, appellants add, is modified as to the borrower,
by express provision of the law (Art. 1413, New Civil Code), allowing the borrower to recover
interest paid in excess of the interest allowed by the Usury Law. As to the lender, no exception
is made to the rule; hence, he cannot recover on the contract. So — they continue — the New
Civil Code provisions must be upheld as against the Usury Law, under which a loan with
usurious interest is not totally void, because of Article 1961 of the New Civil Code, that:
“Usurious contracts shall be governed by the Usury Law and other special laws, so far as they
are not inconsistent with this Code.” (Emphasis ours.)
ISSUE
Whether or not the illegal terms as to payment of interest likewise renders a nullity the legal
terms as to payments of the principal debt.
HELD
Article 1420 of the New Civil Code provides in this regard: “In case of a divisible contract, if the
illegal terms can be separated from the legal ones, the latter may be enforced.”
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The
illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the
latter only should be deemed void, since it is the only one that is illegal.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9421 July 24, 1915
L.L. HILL, plaintiff-appellant,

vs.
MAXIMINA CH. VELOSO, ET AL., defendants-appellees.
Martin M. Levering for appellant.

P.E. del Rosario for appellee.
ARELLANO, C.J.:
On December 30, 1910, Maximina Ch. Veloso, the wife of Manuel M. Tio Cuana, and Domingo Franco, the
first named with the consent of her husband, executed and signed a document of the following tenor:
For value of the goods we have received in La Cooperativa Filipina we promise to pay jointly and severally
to Michael & Co., S. en C., or its order, in the municipality of Cebu, the sum of six thousand three hundred
and nineteen pesos and thirty-three centavos (6,319.33), in the manner hereinafter set forth, with interest
on such part of said principal as may remain unpaid at the end of each month at the rate of one and a half
per cent per month until the principal shall have been completely paid. The said sum of six thousand three
hundred and nineteen pesos and thirty-three centavos (P6,319.33) shall be paid at the rate of five hundred
pesos (P500) monthly on or before the 15th day of each month, and the interest shall also be paid
monthly. In case said monthly payments are not made in the manner that we have promised hereinabove,
then all the unpaid principal shall become immediately demandable, at the option of the owner of this
promissory note. In case suit be brought for the collection of the amount of this promissory note or any
part thereof, we bind ourselves jointly and severally to pay an additional and reasonable sum as fees of the
plaintiff's attorney in said suit.
(Sgd.) MAXIMINA CH. VELOSO.

DOMINGO FRANCO.
I consent to my wife, Maximina Ch. Veloso, signing the foregoing document.
(SGD.) MANUEL M. TIO CUANA.
Cebu, P.I., December 30, 1910.
This promissory note was indorsed to L.L. Hill on January 12, 1911. The following indorsement appears on
the back:
JANUARY 12, 1911.
Pay to the order of L.L. Hill.
E. MICHAEL, S. en C .
By E. MICHAEL, Gerente.

Two thousand pesos have been paid on this note — that is, four installments of P500 each on February 10,
March 16, April 16, and May 22, 1911, respectively.
On July 5, 1911, L.L. Hill brought the present suit to recover the following sums: P4,319.33, with interest
thereon at the rate of 1 ½ per cent per month from July 1, 1911, until said sum should be entirely paid;
P473.18 as interest on the principal of said note from December 30 to June 30, 1911; P1,000 as fees for
plaintiff's attorney in this suit and for the costs of the proceedings against the defendants, Maximina Ch.
Veloso and Manuel Martinez Tio Cuana.
Defendants, in answer to the complaint, alleged as a special defense that "about the middle of December,
1910, the deceased Domingo Franco, who was their son-in-law, had stated to them that attorney Martin
M. Levering, in his capacity as guardian of the minor children of Potenciano Chiong Velos, had suggested to
the said Franco the necessity of the defendants' executing in Levering's behalf a document in which it
should be set forth that the defendants would pay to Levering, in his capacity of guardian of said minors,
the sum of P8,000 which defendants had borrowed from Damasa Ricablanca, the former guardian of these
minors, in view of the fact that the court had removed this latter from office and appointed said attorney
in her stead; that, by reason of this statement by Levering to Franco, and having, as they did have,
confidence in said decedent, Domingo Franco, on account of his being a member of their family,
defendants were willing to execute in behalf of the said attorney, Levering, a document that should be set
forth the sum owed by them to the wards represented by Levering; that, consequently, said Domingo
Franco had defendants said paper would be filled out inside his office by recording on the sheet the
obligation contracted by them in behalf of said wards; that defendants did in fact sign the said paper for
the purpose indicated, and, up to the death of said Domingo Franco, which occurred in May of the present
year (1911) confided in his good faith and in the belief that the paper which they had signed had been duly
filled out with the obligation contracted by them in behalf of said wards and had been delivered to
attorney Martin M. Levering as guardian of said minors, but that after the said Franco died they learned
that at no time had he ever delivered to said attorney any document whatever signed by defendants; that
they believed that the paper which said deceased had them sign for the alleged purpose aforementioned
was filled out with a totally different obligation from that which they had been made to believe would be
set forth therein. Defendants therefore alleged that, as they had had no transaction whatever with
Michael & Co., S. en C., nor with the plaintiff, and as they had not received any kind of goods whatever
from said firm, and it appearing that they, together with the deceased Domingo Franco, seemingly signed
the promissory note, plaintiff's Exhibit A, all these reasons induced them to believe, and they so alleged,
that the said deceased, without their consent, utilized the aforementioned paper for the execution of said
promissory note. Defendants further alleged that at no time did they intended to execute any promissory
note in behalf of Michael & Co., S. en C.; that it was false that Michael & Co. delivered goods to them in La
Cooperativa Filipina; and that, of their own free will, they did not execute any document whatever in
behalf of the creditor mentioned in said promissory note."
Evidence was adduced by the parties, after which the Court of First Instance of Cebu, who tried the case,
rendered judgment absolving defendants from the complaint, with their costs.
Plaintiff appealed, and his appeal having been heard and the evidence reviewed, it appears:
That the trial court sustained defendants' special defense in all its parts, making it the principal ground for
his judgment, to wit, that defendants' signatures on the promissory note were obtained by means of the
fraud alleged in their answer to the complaint and that defendants at the trial explicitly acknowledged
their signatures. The defendant Maximina Ch. Veloso testified that her son-in-law, Domingo Franco, had
her sign the document in blank; that when she did so contained no writing; and that if he made her sign it,
and if she did sign it, it was because Franco had told her that Levering compelled her to execute a
document in his behalf "for the minor children of Damasa Ricablanca," her sister-in-law and widow of
Potenciano Ch. Veloso, who had deposited with her P8,000 belonging to her minor children to whom
witness acknowledged herself to be indebted in the said sum of P8,000.

Assuming this to be true, by the recognition of the signature of this promissory note, the document
became completely effective, unless there be proof of some exception permitted by law. Were there such
an exception, the maker was the person obliged to proved it and, in the present case, that person is the
defendant; and the latter has presented absolutely no proof of the mistake by reason of which she says
she signed the promissory note, nor of the fraud or deceit she charges to her son-in-law, Domingo Franco,
now deceased. Far from it, something else was shown to have been proven by her own testimony and
acts. On her being cross-questioned as to whether it was true that, as she says, she signed the promissory
note in blank thinking that she was signing an obligation in behalf of Levering as guardian of the estate
belonging to the minor children of her deceased brother, she replied that it was, that she had been told by
the said Domingo Franco that it was such an obligation, and so she was willing to sign it, because "it was
really a debt."
From this testimony of Maximina Ch. Veloso and from her written answer, it appears that in December,
1910, she signed in blank the promissory note now in question; that she signed it in the belief that the
obligation which it would contain would be that of acknowledging her debt of P8,000 in favor of the minor
children of Damasa Ricablanca and of paying it to Levering, who at that time was the guardian of then said
minors; that for this reason, in her written answer of August 4, 1911, she set up that special defense of
error and deceit, when she saw that the obligation contained in the document signed in blank was a
promissory note made out to Michael & Co. for P6,319 and some centavos.
It appears that Levering, as guardian of the minor children of Damasa Ricablanca, commenced proceedings
on November 1, 1911, to recover the P8,000 owed by the defendant Maximina Ch. Veloso, and that the
latter, on January 15, 1912, answered the complaint stating that her debt was owing to Damasa Ricablanca
herself in her own right, but not her capacity of guardian of her minor children. (Record, pp. 34 and 36.)
If she said this in 1912, it cannot be maintained that in 1910, on being required to recognize and pay the
debt of P8,000, she consented to sign a document in blank recognizing the debt and binding herself to pay
it to Levering as the then guardian of the minor children of Damasa Ricablanca. What would have been
natural and logical is that then, as in 1912, she would have refused to execute said obligation in writing in
favor of Levering, as she did reject it on January 18, 1912, since she did not consider herself to be in debt
to the minors, but to their mother.
This being shown by the record, the allegation of that other fact, entirely contradicted at trial by the same
person, cannot be considered as proof of the error and deceit alleged in this action.
It is likewise proven in this case that during the trial, after the defendant Veloso had acknowledged the
debt owing the minors represented by Levering, she was cross-questioned as to why she had denied it in
1912 when she was sued for its payment; she replied that possibly demand had been made upon her for
payment, but that she did not remember, and on being cross-questioned as to whether she remembered
that judgment had been rendered against her, she replied that she did and that she had been informed of
it by her own attorney.
This is the only thing in the record which may be opposed to the truth and presumption of truly offered by
the contents of a document freely and willingly signed.
This is not proof, much less preponderant proof, that can outweigh the contents of the promissory note
that is the basis of the complaint; on the contrary, it is conclusive proof of the falsity of the other cause of
debt alleged in the special defense.
But even granted that no such proofs existed in the case; even granted that it was proven at trial that
Domingo Franco acted in the manner stated in the answer and in the defendant Maximina Ch. Veloso's
testimony, yet even so, the deceit and error alleged could not annul the consent of the contracting parties
to the promissory note, nor exempt this defendant from the obligation incurred. The deceit, in order that

it may annul the consent, must be that which the law defines as a cause. "There is deceit when by words
or insidious machinations on the part of one of the contracting parties, the other is induced to execute a
contract which without them he would not have made." (Civ. Code, art. 1269.)
Domingo Franco is not one of the contracting parties who may have deceitfully induced
the other contracting party, Michael & Co., to execute the contract. The one and the other contracting
parties, to whom the law refers, are the active and the passive subjects of the obligation, the party of the
first part and the part of the second part who execute the contract. The active subject and party of the
first part of the promissory note in question is Michael & Co., and the passive subject and the party of the
second part are Maximina Ch. Veloso and Domingo Franco; two, or be they more, who are one single
subject, one single party. Domingo Franco is not one contracting party with regard to Maximina Ch. Veloso
as the other contracting party. They both are but one single contracting party in contractual relation with,
or as against, Michael & Co. Domingo Franco, like any other person who might have been able to to induce
Maximina Ch. Veloso to act in the manner she is said to have done, under the influence of deceit, would
be, for this purpose, but a third person. There would then not be deceit on the part of the one of the
contracting parties exercised upon the other contracting party, but deceit practiced by a third person.
"In accordance with the text of the Code, which coincides with that of other foreign codes, deceit by a
third person does not in general annul consent, and in support of this opinion it is alleged that, in such a
case, the two contracting parties act in good faith, (on the hypothesis set forth, Michael & Co., and
Maximina Ch. Veloso); that there is no reason for making one of the parties suffer for the consequences of
the act of a third person in whom the other contracting party may have reposed an imprudent confidence.
Notwithstanding these reasons, the deceit caused by a third person may produce effects and, in some
cases, bring about the nullification of the contract. This will happen when the third person causes the
deceit in connivance with, or at least with the knowledge, without protest, of the favored contracting
party: the most probable suppositions, in which the latter cannot be considered exempt from the
responsibility. Moreover, and even without the attendance of that circumstance, the deceit caused by a
third person might lead the contracting party upon whom it was practiced into error, and as such, though
it be not deceit, may vitiate consent. In any case, this deceit may give rise to more or less extensive and
serious responsibility on the part of the third person, and a corresponding right of action for the
contracting party prejudiced" (in the present hypothesis, Maximina Ch. Veloso against Domingo Franco). (8
Manresa, 659, 2d Ed.)
With respect to the true cause of the debt or cause of the contract, it is not necessary to set forth any
consideration whatever, because, as the deceit and error alleged cannot be estimated, it is of no
importance whether the La Cooperativa Filipina, whose goods were the cause of the debt, exclusively
belonged to one or the other of the debtors, the obligation of debt and payment being joint. But if any
consideration with respect to this error alleged on appeal were necessary, it would be that the evidence
against the finding contained in the judgment appealed from is very conclusive. Isabelo Alburo, a witness
for the defense and manager of La Cooperativa Filipina, testified that the goods furnished by Michael were
received in the store La Cooperativa Filipina; that he signed the bills for collection; that the bill-heads bore
the printed legend "La Cooperativa Filipina de Maximina Ch. Veloso;" and that all the forms, books and
accounts were printed in the same manner. The municipal treasurer exhibited the registry books and
testified that the license for that establishment was issued in the name of Maximina Ch. Veloso, and the
appellee herself testified that she was aware that it was conducted in her name.
The third assignment of error should be considered like the foregoing two. The statement is in all respects
inadmissible that the promissory note in question is absolutely null and void, not merely annulable, and
that is such cases the Supreme Court has decided that no rights can be acquired by a person who obtains a
promissory note by indorsement, in support of which averment the decisions in the cases of Palma vs.
Cañizares (1 Phil. Rep., 602) andLichauco vs. Martinez (6 Phil. Rep., 594) are cited.

In neither of these decisions is such a doctrine set up The syllabus in the first case says: "A promissory note
which represents a gambling debt and is therefore unenforceable in the hands of the payee, obtains no
greater validity in the hands of an assignee in the absence of showing that the debtor has consented to
and approved of the assignment."
And that of the second case:" Money lost at a prohibited game cannot be recovered, though the loser
deliver to the winner his note for the amount lost.
An assignee of such note who took it after it became due has no more rights than assignor.
Both of these decisions deal with a promissory note for a sum of money lost at a prohibited game; and, in
the case at bar, we have not to do with a promissory note of this nature. "The promissory note in question
— says the trial court — was indorsed to L.L. Hill on January 12, 1911. The note had then already become
due, although the date specified in the note for the payment of the first amount of P500 of the principal
had not yet arrived." (Bill of ex., p. 13.).
If the date for the payment of the first amount of P500 had not yet arrived, it follows that the note had not
yet fallen due, because it could have no other due date than that of the first installment, and this fact was
finally recognized by the court in another order wherein he says: "It appears that the court erred in that
part of his order where he held that the promissory note in question fell due on the date of its conveyance
by indorsement to L.L. Hill." (Bill of ex., p. 16.)
So that, neither by reason of the indorsement, nor by reason of its object, is the promissory note null, or
annulable, and the aforecited decisions are absolutely inapplicable to the case at bar.
The absolution of the defendants from the complaint being unsupported by any grounds of fact or law, it
devolves upon this court to set forth the conclusions of fact and law on which this decision rests.
The defendants' signatures on the promissory note herein concerned were identified at the trial.
These signatures were written and the obligation was contracted, without error or deceit.
There is no evidence whatever that Michael & Co. threatened to bring suit against Domingo Franco unless
Maximina Ch. Veloso signed with Domingo Franco a promissory note for the said sum.
The facts constituting the consideration for the contract contained in the promissory note are fully proven
(though proof was not necessary, as a presumption of law, not destroyed by any evidence whatever to the
contrary, lies in its favor), because it has been fully proven that the goods, the consideration for the debt,
were received in the La Cooperativa Filipina. It was likely fully proven that the La Cooperativa
Filipina belonged to the defendant, with or without Domingo Franco having a share therein, and that the
goods came from Michael & Co.
There is nothing to support the finding that the sale of the goods by Michael & Co. was a sale to Domingo
Franco only. There is no proof whatever that Levering, as the guardian of the minor children of Potenciano
Veloso, had required Maximina Veloso in December, 1910, to sign a document recognizing her debt to said
minors, nor that Domingo Franco acted, for this purpose, as the defendants' attorney and adviser. With
regard to the defendants' debt of P8,000 to the minor children of Potenciano Veloso and Damasa
Ricablanca, the instrument attesting this debt, executed by the defendants in favor of Damasa Ricablanca
was who then the guardian of said minors, had already existed since June 30, 1907, and appears on page
34 of the record.
The facts alleged in the special defense can not in any wise be held to be proven, as above demonstrated
in our examination of the parol evidence adduced in this case, and, besides, because of this other

consideration: If, as stated in the special defense, "Domingo Franco, who was a son-in-law of the
defendants, had told them that attorney Martin M. Levering, in his capacity as guardian of the minor
children of Potenciano Ch. Veloso, had suggested to Franco the necessity of the defendants' executing an
instrument setting out that they would pay to the said Attorney Martin M. Levering, in his capacity of
guardian of said minors, the sum of P8,000 which defendants had borrowed from Damasa Ricablanca, the
former guardian of said minors;" and if, as held by the trial court in his judgment, Domingo Franco had
then acted as defendants' attorney and adviser, there is nothing in the record to show why Domingo
Franco had to sign such an instrument attesting a debt to the minors, as the principal obligor, when the
creditor required no one but the defendants to sign such a document; nor was it shown why, on such a
supposition, Manuel Martinez did not have to sign the instrument except merely to authorize his wife, by
his permission as her husband, to sign it, when in the special defense it is admitted that the document in
question contains an acknowledgment of the debt of P8,000 "which the defendants had borrowed from
Damasa Ricablanca."
The alleged error Cannot be sustained. There is no other signed document than the promissory note
presented with the intention, on its being signed, of securing the payment of the goods sold to the La
Cooperativa Filipina.
That is what the document says, and its contents must be accepted, pursuant to section 297 of Act No.
190 (Code of Civil Procedure).
The remainder of the principal owing, P4,319.33, must be paid. Payment must also be made of the
covenanted interest at the rate of 1½ per cent per month from July 1, 1911, until the whole of the said
sum be completely paid; and, finally the P1,000 stipulated in the contract as fees for the plaintiff's attorney
in this case must be paid.
With respect to the P473.18, interest on the principal of said promissory note from December 30, 1910, to
June 30, 1911, this amount cannot be recovered, because, in conformity with article 1110 of the Civil
Code, a receipt from the creditor for the principal, that contains no stipulation regarding interest,
extinguishes the obligation of the debtor with regard thereot; and the receipts issued by the International
Bank show that no reservation whatever was made with respect to the interest on the P2,000 paid on
account.
The judgment appealed from is reversed. Twenty days after notification of this decision, let judgment be
entered against the defendant Maximina Ch. Veloso ordering the payment of P4,319, with the stipulated
interest thereon at the rate of 1½ per cent per month from July 1, 1911, and of P1,000 as attorney's fees,
with costs of first instance, without special finding as to the costs of this second instance, it is so ordered.
Torres, Johnson, Carson, Trent, and Araullo, JJ., concur.

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EN BANC

[G.R. No. 76965. March 11, 1994.]

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CD Technologies Asia, Inc. © 2018 cdasiaonline.com

Consequently, the Secretary of Justice designated a State Prosecutor to conduct a

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WHEREFORE, there being no grave abuse of discretion committed by respondent

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[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF

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

The appealed judgment, which is brief, is hereunder quoted in full:jgc:chanrobles.com.ph

"SO ORDERED."cralaw virtua1aw library

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CD Technologies Asia, Inc. © 2018 cdasiaonline.com

Barredo, J., did not take part.

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[G.R. No. L-55372. May 31, 1989.]

Raymundo A. Armovit for petitioner.

1. CIVIL LAW; OBLIGATIONS; EXTINGUISHMENT OF OBLIGATIONS; UPWARD

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CD Technologies Asia, Inc. © 2018 cdasiaonline.com

In case an extraordinary in ation or de ation of the currency stipulated

By extraordinary in ation or de ation of currency is understood to be any

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

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JESUS V. OCCEÑA and EFIGENIA C. OCCEÑA , petitioners, vs. HON. RAMON V.

Occeña Law Office for petitioners.

Serrano, Diokno & Serrano for respondents.

Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the

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"ART. 1267. When the service has become so di cult as to be manifestly

The petition must be granted.

"The general rule is that impossibility of performance releases the obligor.

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Makasiar, Muñoz Palma, Concepcion, Jr. and Martin, JJ., concur.

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[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD

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

CD Technologies Asia, Inc. © 2018 cdasiaonline.com

The appealed judgment, which is brief, is hereunder quoted in full:jgc:chanrobles.com.ph

"SO ORDERED."cralaw virtua1aw library

CD Technologies Asia, Inc. © 2018 cdasiaonline.com

CD Technologies Asia, Inc. © 2018 cdasiaonline.com

Barredo, J., did not take part.

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[G.R. No. 106063. November 21, 1996.]

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC.,

De Borja, Medialdea, Ata Bello, Guevarra & Serapio for respondent.