CASE #14:

G.R. No. 146365             February 28, 2005

SIMPLICIO A. PALANCA, petitioner,
vs.
ULYSSIS GUIDES joined by her husband LORENZO GUIDES, Respondent.

DECISION

TINGA, J.:

For review are the Court of Appeals’ Decision dated 17 November 1999 and Resolution dated 15 November 2000 in
1  2 

CA-G.R. CV No. 56258, dismissing petitioner’s appeal and affirming the Decision of the Regional Trial Court of
3 

Bacolod City, Negros Occidental, Branch 42, in Civil Case No. 4721.

On 23 August 1983, petitioner Simplicio Palanca executed a Contract to Sell a parcel of land on installment with a
4 

certain Josefa A. Jopson for ₱11,250.00. In accordance with the contract, Jopson paid petitioner ₱1, 650.00 as her
5 

down payment, leaving a balance of ₱9, 600.00.

Sometime in December 1983, Jopson assigned and transferred all her rights and interests over the property in
question in favor of the respondent Ulyssis Guides (hereafter simply respondent). In the deed of transfer, respondent
6 

undertook to assume the balance of Jopson’s account and to pay the same in accordance with the terms and
conditions of the Contract to Sell. After reimbursing Jopson ₱1,650.00, respondent acquired possession of the lot and
7 

paid petitioner the stipulated amortizations which were in turn acknowledged by petitioner through receipts issued in
the name of respondent. 8

Believing that she had fully paid the purchase price of the lot, respondent verified the status of the lot with the Register
of Deeds, only to find out that title thereto was not in the name of the petitioner as it was covered by Transfer
Certificate of Title No. 105742 issued on 26 September 1978 in the name of a certain Carissa T. de Leon. Respondent
went to petitioner’s office to secure the title to the lot, but petitioner informed her that she could not as she still had
unpaid accounts. Thereafter, respondent, through a lawyer, sent a letter to petitioner demanding compliance with his
obligation and the release of the title in her name.  As petitioner did not heed her demands, respondent, joined by her
l^vvphi1.net

husband, filed a Complaint for specific performance with damages on 16 December 1987.
9 

Petitioner sought the dismissal of the complaint on the ground of respondent’s alleged failure to comply with the
mandatory requirement of Presidential Decree (P.D.) No. 1508, since the submitted certification referred to a different
10 

defendant, Oscar Rivera who was the manager of petitioner’s subdivision, and not petitioner himself. Opposing
11 

petitioner’s motion, respondent manifested that Rivera appeared in the barangay conference on behalf of petitioner as
its subdivision manager. Attached to the opposition was the affidavit of the barangay secretary who admitted that he
thought that Rivera should be the one named in the certification since he was the one who appeared at the hearing.
The same secretary likewise stated that the date "September 8, 1986" was a clerical error and should have appeared
as "September 8, 1987" instead. The trial court denied petitioner’s motion to dismiss, noting that the error in the
12 

designation of the parties was already corrected by the Lupon Secretary and that there was substantial compliance
with P.D. No. 1508. 13

Respondent alleged that she paid petitioner ₱14,880.00, which not only fully settled her obligation to him, but in fact
overpaid it by ₱3,620.00. In addition, she claimed that petitioner charged her devaluation charges and illegal interest. 14

On the other hand, petitioner claimed that the assignment of rights was subject to the condition that respondent shall
comply with whatever obligation which Jopson may have had under the contract to sell. He stated that he refused to
execute the document of sale in favor of respondent since the latter failed to comply with the said obligations and that
respondent had not paid him the complete amount under the contract. He claimed that respondent in fact still had an
15 

outstanding balance of ₱6,949.81, exclusive of charges for registration and documentation. 16

At the pre-trial in 1989, both parties admitted that Jopson assigned her rights over the property in favor of respondent
and respondent paid petitioner the subsequent monthly amortizations on installments. Petitioner likewise
acknowledged the payments made by respondent as stated in the statement of accounts initiated by its manager,
Oscar Rivera. From the inception of the case until the end of 1994, Atty. Renecito Novero exclusively represented
17 

petitioner.

After almost six years and several failed attempts to reach an amicable settlement between the parties, on 16 March
1995, the trial court called the case again for pre-trial. At the said pre-trial, Atty. Teodulo Cario entered his special
18 
appearance for petitioner, informing the trial court that Atty. Novero was unavailable. Finding that the crucial issue of
the case pertained only to the balance of the purchase price of the lot and upon motion of both counsels, the trial court
considered the pre-trial conference closed. 19

Presentation of respondent’s evidence commenced and terminated with Atty. Cario appearing for the petitioner.
Several hearings set for the reception of petitioner’s evidence were postponed at petitioner’s instance. At the last
scheduled hearing on 10 November 1995, none appeared for petitioner¾whether Atty. Novero, Atty. Cario or even
petitioner himself—with nary an explanation for their non- appearance, despite the fact that it was Atty. Cario who
sought the resetting of the hearing. The trial court, upon motion of respondent, considered petitioner to have waived
his right to present evidence and to have rested his case and accordingly declared the case submitted for decision. 20

Petitioner sought reconsideration of the Order dated 10 November 1995, claiming that Atty. Novero never knew of the
hearing on said date as Atty. Cario did not inform him about it, and that his secretary was in fact informed by a
personnel of the trial court that the hearing was reset to 05 December 1995. The motion was denied, with the trial
21 

court holding that there was due notice on Atty. Cario who himself had requested the resetting of the hearing to 10
November 1995. A second Motion for Reconsideration was likewise denied on 03 July 1996. With the case submitted
22  23 

for decision anew on 04 November 1996, the trial court rendered the challenged decision, the decretal portion of
which reads:

WHEREFORE, premises considered, the court thereby renders judgment in favor of the plaintiff and against the
defendant Simplicio A. Palanca, ordering him-

1. To execute in favor of plaintiff Ulyssis Guides and her husband, a Deed of Absolute Sale involving Lot 16-B,
Block 23, Pcs 15073 of the Bacolod Cadastre consisting of Two Hundred Twenty Five (225) square meters
and directing the same defendant to cause the issuance of Transfer Certificate of Title in favor of plaintiff
affecting the same lot;

2. To pay plaintiff the sum of Ten Thousand (₱10,000.00) Pesos as moral damages; the sum of Five
Thousand (₱5,000.00) Pesos as attorney’s fees and the amount of Two Thousand (₱2,000.00) Pesos as
exemplary damages;

3. To reimburse plaintiff the sum of Two Thousand Five Hundred Eighty (₱2,580.00) Pesos corresponding to
the amount paid in excess of the total purchase price of Lot 16-B;

4. To pay the expenses of this litigation.

SO ORDERED. 24

On 15 November 1996, petitioner filed his Notice of Appeal. In the Court of Appeals, petitioner claimed that the trial
25 

court erred in denying his right to present evidence in support of his cause; in dismissing the complaint a quo for
failure to comply with the required barangay conciliation; in considering that respondent overpaid or fully paid him; in
ordering him to pay respondent moral and exemplary damages and attorney’s fees; and in failing to consider certain
terms and conditions of the contract to sell which respondent did not comply with.

In its assailed Decision, the Court of Appeals held that petitioner was afforded due process, having been given the
opportunity to present and submit evidence in support of his defense. It agreed with the trial court that there was
substantial compliance with Sec. 6 of P.D. No. 1508 on barangay conciliation, and that the proper certification was
submitted by respondent. The appellate court also shared the findings of the trial court on the overpayment made by
respondent. It added that petitioner’s claim for payment of costs of transfer of title, registration and other expenses is
unfounded, noting at the same time that the overpayment made by respondent is enough to cover said expenses.
Thus, the Court of Appeals concluded that this last argument was a mere afterthought or subterfuge on the part of
petitioner.

His Motion for Reconsideration having been denied by the Court of Appeals, petitioner elevated the case to this Court
26 

through a Petition for Review on Certiorari.

Petitioner assigns the following errors:

ASSIGNMENT OF ERRORS

With utmost respect, it is submitted that in promulgating the questioned Decision, the Court of Appeals:
 I. Has decided a question of substance not in accord with law and applicable decisions of the Supreme Court
when it failed to consider that petitioner was unjustly denied of his right to present evidence in support of his
cause;

II. Has decided a question of substance not in accord with law and applicable decisions of the Supreme Court
when it did not dismiss the case for failure of the plaintiff/respondent to comply with Section 6, P.D. No. 1508;

III. Has decided a question of substance not in accord with law and applicable decision of the Supreme Court
when it sustained the trial court’s decision finding the therein respondent to have overpaid or fully paid therein
petitioner despite very clear evidence to the contrary and despite very clear provisions of their contract to sell,
the law between themselves which strongly negate such alleged overpayment;

IV. Has decided a question of substance not in accord with law and applicable decisions of the Supreme
Court when it sustained the decision of the trial court ordering therein petitioner to pay respondent moral and
exemplary damages as well as attorney’s fee notwithstanding the absence of any justification therefore;

V. Has decided a question of substance not in accord with law and applicable decisions of the Supreme Court
when it did not consider certain terms and conditions of the Contract to Sell, which is the law between the
parties, which therein respondent failed to comply as well as the terms and conditions which therein
respondent must first perform as prerequisite before herein petitioner may be required to transfer or facilitate
the transfer of title to the respondent. 27

In the present petition, petitioner insists that he was unjustly deprived of his right to present evidence in support of his
cause when the trial court considered him to have rested his case when he failed to appear during the 10 November
1995 hearing. Claiming that he did not receive any order/notice from the trial court informing him of the hearing,
petitioner capitalizes on the affidavit of his secretary who allegedly called the trial court to verify the schedule of
hearing, only to be misinformed by a personnel of the court that the hearing was reset to 05 December 1995. He faults
the trial court’s strict application of the rules against them, considering that it took the said court eight months to
resolve petitioner’s right to present evidence and about one year to render judgment on the case. He claims that had
the trial court allowed him another opportunity to present his evidence, it would have taken only one setting, and it
would not do any harm to the parties, much less to the court. Petitioner claims that the judgment rendered by the trial
28 

court solely on the basis of respondent’s evidence is technically a judgment on default that is discouraged in this
jurisdiction.
29 
1awphi1.nét

Petitioner further claims that the Court of Appeals and the trial court erred in ruling that respondent substantially
complied with the requirements of P.D. No. on barangay conciliation. He argues that the error in the original
certification could not simply be corrected by an affidavit whose affiant was not presented in court, a factor which
designates the affidavit as mere hearsay evidence which is bereft of any probative worth. 30

Petitioner also posits that in view of the clear terms of the contract which bound respondent, the trial court erred in
holding that respondent overpaid him. He points to the provision in the contract which states that failure on the part of
the vendee to pay three consecutive installments serves to forfeit her rights and interest in the property. Petitioner
states that when respondent came into the picture in 1984, ten (10) months had already passed since Jopson made
the down payment in 1983. Thus, petitioner claims that the money initially paid by Jopson was already considered
lost, gone and forfeited and cannot be credited to respondent. 31

Petitioner adds that under the contract, the vendee had to pay three percent (3%) monthly as service fee and penalty
based on the outstanding account. The ten-month delay in the payment of installments represent a total thirty percent
(30%) of the outstanding account, which, according to petitioner, respondent also assumed when she acquired the
rights and interests of Jopson in the subject property. 32

Petitioner mentions a devaluation charge of forty percent (40%) by virtue of the clause in the contract for proportionate
adjustment in case of inflation or fluctuation, which was allegedly never questioned by respondent. Anent the Court of
33 

Appeals’ observation that petitioner’s claim for payment of advance costs of transfer of title, registration,
documentation and other expenses as mere afterthought, petitioner counters that the charges were expressly
provided for in the contract.
34

Likewise raised as an issue is the aspect that while the Court of Appeals honored the rights of respondent in the
contract to sell, it closed its eyes to her corresponding obligations under the same contract. Further, petitioner points
to the Deed of Transfer of Rights and Interest With Assumption of Obligations entered into by respondent and Jopson,
35 

as well as the receipts issued by Jopson in favor of respondent, which in effect bound respondent to the terms and
conditions of the Contract to Sell originally entered into by Jopson and petitioner. According to petitioner, these
documents negate the observation of the Court of Appeals that "there is no room for the defendant Palanca to impose
charges and penalties (as proposed in the answer) in the absence of a formal agreement between Palanca and
Plaintiff to that effect."
36

Finally, petitioner maintains that the real reason which prevented the transfer of the property to respondent was the
latter’s failure to pay in full her obligations, not the fact that the subject lot was still registered in the name of Carissa T.
de Leon. In that regard, petitioner argues that he cannot be guilty of bad faith, as respondent cannot feign ignorance
of the existence of de Leon’s title to the property, the same being covered by a Torrens title which serves as a notice
to the whole world. If respondent did not inquire beforehand of the status of the land she was buying, she had none to
blame but herself as she "assumed with open hand the risks and adventures of the transaction." Thus, petitioner
37 

claims that the trial court’s award of moral and exemplary damages had no basis. As regards the grant of attorney’s
fees, petitioner claims that since he has not yet failed his part of the bargain, he is not obliged to pay attorney’s fees. 38

Respondent claims that by questioning the finding of the lower courts that there was overpayment, petitioner is raising
a factual issue which is beyond the ambit of a petition for review, more so that the decisions are based on
incontrovertible evidence. In addition, she submits that petitioner’s argument that Jopson forfeited her down payment
when she failed to religiously pay the installment is untenable, as petitioner did not make any demands for payment of
the installment arrears nor declare the payments already made as forfeited, as he in fact accepted all the subsequent
payments made by respondent. Respondent claims that this amounts to a waiver on petitioner’s part, assuming that
the provision regarding automatic forfeiture is valid. Respondent likewise states that petitioner was not able to
substantiate his claim of monetary inflation or fluctuation to justify an adjustment in the required payments. 39

Respondent maintains that petitioner acted in bad faith when he executed the Contract to Sell since he did not
indicate therein the title number nor include the technical description of the property, but merely identified it as Lot 16-
B. Aside from selling the property which was still in the name of another person, respondent continues, petitioner also
failed to cause the subdivision of the same property and thereby precluded transfer of title to respondent. 40

The Court is not convinced by petitioner’s arguments.

Petitioner’s main contention is that he was denied due process. The Court notes that petitioner was scheduled to
present his evidence on 19 September 1995, but neither he nor his counsel appeared. The hearing was reset to 06
November 1995 and subsequently reset five (5) days later to 10 November. Contrary to petitioner’s protestations of
being unaware of the hearing, a careful review of the records of the case reveals that Atty. Cario, on behalf of Atty.
Novero, was present during the 06 November 1995 hearing. At the hearing, both parties agreed to the resetting of the
presentation of petitioner’s evidence to 10 November 1995. The same Atty. Cario who appeared at least twice before
the trial court for the petitioner signed the Minutes of the 06 November 1995 hearing. 41

Well-settled is the rule that the negligence of counsel binds the client. The Court agrees with the trial court that notice
to Atty. Cario is in fact notice to both petitioner and Atty. Novero in the light of the recorded fact that Atty. Cario had
actively participated in the presentation of petitioner’s evidence during the previous proceedings. No clearer proof of
notice can be had than the signature of Atty. Cario assenting to the resetting of the case. Indeed, neither he nor Atty.
Novero can feign ignorance of the said arrangement. As a lawyer, Atty. Cario is bound to exercise a marked degree of
diligence in attending to his client’s cause. After having been personally informed of the resetting, the circumstance—
whether true or contrived—that counsel’s secretary was misinformed of the hearing schedule cannot excuse
petitioner’s and counsel’s non-appearance.

The most basic tenet of due process is the right to be heard. A court denies a party due process if it renders its orders
without giving such party an opportunity to present its evidence. Thus, in the application of this principle, what is
42 

sought to be safeguarded against is not the lack of previous notice, but the denial of the opportunity to be heard. The
question is not whether petitioner succeeded in defending his interest, but whether he had the opportunity to present
his side. Petitioner was provided opportunities to present his case but these he utterly squandered.
43 

The Court is not unaware of the number of times hearings before the court a quo had been reset or transferred at the
instance of petitioner’s counsel. The case was filed in December 1987 and trial commenced only in 1995. With this
backdrop, it was taxing for the trial court to accede to requests for resetting and find that the very persons who caused
the same had the temerity not to appear on the requested date. If petitioner or his counsel did not appear at the trial
and did not inform the court of the reason for such failure, the trial court could not be expected to take the trouble of
setting another hearing dates for him. Both petitioner and his counsel gave the impression that he waived his right to
present evidence. While petitioner may have lost his right to present evidence, the Court is convinced that he was not
denied his day in court.

The Court likewise affirms the finding that there was substantial compliance with Sec. 6 of P.D. No. 1508, respondent
having been able to sufficiently explain the clerical errors in the certification to file action earlier submitted and to
submit the revised certification which bears the proper caption of the case. Petitioner’s attempt to make an issue by
distinguishing himself from his manager Oscar Rivera to show that the barangay reconciliation proceedings had not
been undertaken fails given the fact that Rivera appeared at the hearings in behalf and at the behest of petitioner who
was his subdivision manager.

Now as to the computation of the amount due petitioner.

Petitioner contends that the Court of Appeals and the trial court decided the case in disregard of the Contract to Sell.
The Court is not convinced. While there is no denying that respondent assumed the obligations embodied in the
contract when she bought the rights to the lot from Jopson, petitioner no longer had the right to demand enforcement
thereof.

Primarily preventing petitioner from recovering the amounts claimed from respondent is the effective waiver of these
charges. Assuming that said charges are due, petitioner waived the same when he accepted respondent’s payments
without qualification, without any specific demand for the individual charges he now seeks to recover. The same goes
true for the alleged forfeiture of the down payment made by Jopson. From its own Statement of Accounts & Payments
Made, petitioner credited to respondent’s account the ₱1,650.00 down payment paid by Jopson at the
44 

commencement of the contract. There is no indication that he informed respondent of the alleged forfeiture, much
more demanded the payment again of the amount previously paid by Jopson.

Art. 1235 of the Civil Code which provides that "[W]hen the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied
with," is in point.

Thus, when petitioner accepted respondent’s installment payments despite the alleged charges incurred by the latter,
and without any showing that he protested the irregularity of such payment, nor demanded the payment of the alleged
charges, respondent’s liability, if any for said charges, is deemed fully satisfied.

Petitioner anchors his claim of unpaid charges on the Statement of Accounts and Payments Made attached as Annex
"C" of respondent’s complaint. His reliance thereon is unwarranted. Annex "C" was respondent’s evidence, offered as
it was as Exhibit "K" to prove the amounts actually paid to petitioner. Considering that petitioner did not present any
evidence and was deemed to have waived his right to present evidence, Annex "C" can be considered by the Court
for the purpose that it was offered by respondent.

Likewise untenable is petitioner’s claim of adjustment of the balance in case of monetary inflation or fluctuation.
Petitioner was deemed to have waived his right to present evidence and thus was unable to adduce evidence of such
inflation or fluctuation. Moreover, even if there was such inflation or fluctuation, petitioner did not make a demand on
respondent for the satisfaction of the claim. 1awphi1.nét

The Court, however, finds that the trial court and the Court of Appeals erred in computing the overpayment made by
respondent. The Contract to Sell stipulates:

1. That upon the signing of this Agreement, the VENDEE shall pay the sum of ONE THOUSAND SIX
HUNDRED FIFTY ONLY ****** (₱ 1,650.00) PESOS, as downpayment, and the balance of NINE THOUSAND
SIX HUNDRED ONLY ***** (₱9,600.00) PESOS SHALL be payable in -120- equal monthly installments within
the first five (5) days of each and every succeeding calendar months at the office of the VENDOR in Bacolod
City without necessity of demand, together with the interest of ONE PERCENT (1%) monthly based on the
outstanding balance. The first installment shall be due and payable on Sept. 30, 1983, and on the same dates
monthly thereafter for the succeeding installments.
45

The trial court, as affirmed by the Court of Appeals, found respondent to have paid petitioner ₱12,180.00, or
₱2,580.00 more than the balance of ₱9,600.00 left unpaid by Jopson. While as discussed above, the penalty charges
can no longer be enforced by petitioner, respondent is still liable for the one percent (1%) monthly interest as stated in
the contract. As can be clearly seen, the said interest payment is imposed as part of the purchase price and not as a
penalty or surcharge. Thus, the said monthly interest should have been included in respondent’s initial amortization
and thereafter imposed on the remaining balance following each payment made, without need of a demand.

Thus, in addition to the remaining ₱9,600.00, respondent also had to pay ₱1,052.90, representing the one percent
(1%) interest on the outstanding balance after every payment made, for a total of ₱10,652.90. Considering that the
trial court found respondent to have paid petitioner ₱12,180.00, respondent overpaid petitioner ₱1,527.10, and not
46 

₱2,580.00 as found by the trial court. 47

In view of the strained relations between the parties precisely as a consequence of the present controversy, there is
no need and it is even impractical for the Court to address the issue of respondent’s obligation to pay in advance the
costs of transfer of title, registration, documentation and other expenses, as well as the ₱150.00 cost of release of title
to petitioner. Verily, most of the disputed items are still undetermined. Apart from ordering the refund of the
48 
overpayment, albeit in the reduced amount, the transfer of title to respondent may be accomplished by simply
compelling petitioner to execute in favor of respondent a Deed of Absolute Sale and to deliver the Owner’s Copy of
the Torrens title covering Lot 16-B, Block 23 Pcs-5078 of the Bacolod Cadastre, consisting of two hundred twenty-five
(225) square meters, together with all the pertinent documents needed to effect registration of the deed of sale and
issuance of a new title in the name of respondent. Needless to say, at that point respondent herself shall have to
attend to the process and pay the registration expenses.

On the matter of damages, the Court is in accord with the trial court’s findings. Petitioner’s assertion that the real
reason for the failure to transfer of the title was respondent’s incomplete payment holds no water. The Court finds that
the real reason for such delay was the fact that the land was still in the name of Carissa de Leon. Petitioner is
grasping at straws with his argument that there can be no finding of bad faith as the land was covered by
a Torrens title, which serves as a notice to the whole world. That petitioner sold the lot which was then still in the name
of another person, and in fact comprised an area bigger than that indicated in the contract to sell speaks of bad faith
on his part. Moreover, even assuming that respondent was aware of such a scenario prior to her assumption of the
contract, petitioner is still duty-bound to convey title to the land to respondent since the latter has already fully paid the
stipulated purchase price.

WHEREFORE, the petition is DENIED. The questioned decision and resolution of the Court of Appeals are
AFFIRMED with MODIFICATION. Petitioner is ordered to return the overpayment in the amount of ₱1,527.10 to
respondent.

costs against petitioner.

SO ORDERED.

CASE #15:

G.R. No. 121989             January 31, 2006

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,

vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION, Respondents.

DECISION

TINGA, J.:

In this Petition for Review on Certiorari, Philippine Commercial International Bank (PCIB) impugns the Decision1 of the
Court of Appeals dated 21 June 1995 finding it liable to Atlas Consolidated Mining and Development Corporation
(Atlas), as well as the Resolution2 dated 12 September 1995 denying its Motion for Reconsideration.3

The antecedents follow.

PCIB and, Manila Banking Corporation (MBC) were joint bidders in a foreclosure sale held on 20 December 1975 of
assorted mining machinery and equipment previously mortgaged to them by the Philippine Iron Mines, Inc. (PIM).

Four (4) years later, Atlas agreed to purchase some of these properties owned jointly at that time by PCIB and MBC.
The sale was evidenced by a Deed of Sale dated 8 February 1979, with the parties agreeing therein to an initial
downpayment of P12,000,000.00 and the balance of P18,000,000.00 payable in six (6) monthly installments. It was
also stipulated that the total purchase price would be finally adjusted to exclude items to be retained by the Bureau of
Mines. The contract contained provisions expressly warranting the following: (1) full and sufficient title to the
properties, (2) freeing the properties from all liens and encumbrances, (3) freeing Atlas from all claims and incidental
actions of the National Mines and Allied Workers Union (NAMAWU), and (4) full rights and capacity of the seller to
convey title to and effect peaceful delivery of the properties to Atlas.4

The NAMAWU claim stemmed from a labor dispute docketed as RB-VI-3322-75 of the National Labor Relations
Commission (NLRC), where it obtained a favorable judgment against PIM in the amount of P4,298,307.77. This award
was affirmed by the Court.5 After the judgment became final and executory, a writ of execution was duly issued.

In compliance with the contract, on 12 February 1979, Atlas issued Hongkong and Shanghai Bank Check No. 003842
in the amount of P12,000,000.00 as downpayment, payable to both PCIB and MBC.
In a letter-agreement6 dated 7 March 1979 between PCIB and MBC bearing the conformity of Atlas that was made a
supplement to the Deed of Sale, the final purchase price was adjusted to P29,630,000.00.

On the following day, PCIB and MBC wrote Atlas requesting that subsequent installment payments of the balance be
made in the following proportions: PCIB – 63.1579% and MBC - 36.8421%. The request was expressed through a
letter7 signed by Ruben G. Asedillo and Porfirio Q. Cabalu, Vice Presidents respectively of MBC and PCIB.

On 18 April 1979, Atlas paid to NAMAWU the amount of P4,298,307.77. This payment was made in compliance with
the writ of garnishment issued on the same date against Atlas to satisfy the final judgment in favor of NAMAWU and
against PIM.

PCIB and MBC filed on 23 April 1979 a petition for certiorari with this Court, seeking to annul and set aside the order
of garnishment and to enjoin Atlas from complying with it. The Court, in G.R. No. L-50402, dismissed the petition and
sustained Atlas’s rights as follows:

. . . Atlas had the right to receive the properties free from any lien and encumbrance, and when the garnishment was
served on it, it was perfectly in the right in slashing the P4,298,307.77 from the P30M it had to pay petitioners (PCIB,
MBC) in order to satisfy the long existing and vested right of the laborers of financially moribund PIM, without any
liability to petitioners for reimbursement thereof."8

In the meantime, Atlas had made six (6) monthly payments in 1979 totaling P13,696,692.22, of which P8,650,543.18
or 63.1579% was received by PCIB.

According to Atlas, apart from the downpayment of P12,000,000.00 and installment payments of P13,696,692.22, it
should be credited with its payment of P4,298,307.77 to NAMAWU as a consequence of the garnishment with which
the latter had secured together with corresponding P5,000.00 sheriff’s fee. Thus, Atlas claims to have paid a total
of P30,000,000.00, of which P370,000.00 was an overpayment. Following the payment allocations between PCIB and
MBI, Atlas claimed that PCIB should reimburse it to the tune of P233,684.23. When PCIB refused to pay, Atlas sued
PCIB to obtain reimbursement of the alleged overpayment.

On the other hand, PCIB contended that Atlas still owed it a total of P908,398.75. It also alleged that even before the
writ of garnishment was served on Atlas, the judgment in favor of NAMAWU had already been partially satisfied in the
amount of P601,260.00. On account of this earlier payment, PCIB argued that the total payments NAMAWU had
received exceeded what it was entitled to by reason of the final judgment and, therefore, Atlas could not credit the full
amount received by NAMAWU in satisfaction of the Atlas obligation to PCIB.

The trial court, in a Decision9 dated 29 November 1990, upheld PCIB’s position and ordered Atlas to pay P908,398.75,
plus interest at the legal rate from the time of demand until payment of said amount.10 It ruled:

After a thorough analysis and evaluation of the evidence thus far adduced and remaining unrebutted, the Court is
convinced that defendant only received the amount of P6,819,766.10, as its share out of the P12,000,000.00
downpayment, provided in the Deed of Sale, not P7,578,948.00 as claimed by plaintiff. The Court is furthermore
convinced that plaintiff erroneously paid the amount of P4,298,307.77 to NAMAWU which payment was made
pursuant to the writ of garnishment in NLRC Case No. RB-VI-3322-75. Before the service of the writ of garnishment
on April 18, 1979, the judgment in NLRC Case had already been satisfied in the amount of P601,260.00 on account of
several execution sales held on February 28, 1976 and October 20, 1976 and the remaining balance thereto at the
time of the service of the writ of garnishment on plaintiff was only P3,697,[047].77. Certainly, this is the only amount
which can be credited to plaintiff by defendant because 63.1579% of P3,697,047.77 is P2,334,977.74, according to
letter-request of defendant PCIB and MBC to plaintiff dated March 8, 1979. Instead of paying NAMAWU the amount
of P3,697,047.77 which is the correct amount, plaintiff paid the amount of P4,298,307.77.

The Court of Appeals reversed the lower court by ordering PCIB to pay Atlas the sum of P233,654.23, plus interest at
the legal rate from the date of the first demand on 3 September 1984, until fully paid, as well as the sum of P20,000.00
as attorney’s fees and costs of suit. The appellate court disposed of the case as follows:

A careful examination of the evidences presented in the case, though, evidently show that appellee PCIB has no
cause to blame appellant Atlas for its failure to receive what it maintains was a shortchange in the share of P12 Million
downpayment. It must be emphasized that at the time the downpayment check was paid, the Deed of Sale did not
mention any proportionate sharing of the proceeds thereof between PCIB and MBC implying a 50-50 sharing between
the two (2) sellers. The 63.1579% for PCIB and 36.8421% was only made known and relayed to Atlas in a letter dated
March 8, 1979 after the downpayment check of P12 Million had already been paid on February 12, 1979.
Furthermore, the initial check was paid and received by Porfirio O. Cabalu, Jr., Vice-President of defendant-appellee
PCIB. Apparently, after the check was deposited in the account of MBC, the latter issued its MBC Check No. 1652661
in the amount of P6,819,766.10 to PCIB, properly receipted under Official Receipt No. 466652 of PCIB. In other
words, what the appellee herein receipted was the share given to it by Manilabank. Whether the same was short of
what is legally entitled becomes an internal matter between MBC and PCIB, with Atlas having nothing to do with it.
Legally, Atlas had effectively paid the P12 Million downpayment to both PCIB and MBC.

As regard the second item, the propriety of the P4,298,307.77 paid by Atlas to NAMAWU and incidental amount
of P5,000.00 to the Sheriff by virtue of the Notice of Garnishment in the labor dispute NLRC Case No. RB-VI-331-75,
had already been judicially settled in the case of "PCIB and MBC versus NAMAWU-IMF, L-50402, August 1982, 115
SCRA 873." Said case is a Petition for Certiorari praying, inter-alia that the High Court orders [sic] the NLRC to stop
delivery of the check of P4,298,307.77 (same check in this case) of private respondent Atlas and/or to stop payment
to NAMAWU.

....

Rightfully so, with the above discussion and the conceded fact that Atlas made a P370,000.00 overpayment to PCIB
and MBC, said amount should be ordered returned. And since mathematically, 63.1579% of P370,000.00
is P233,684.23, appellee PCIB should be ordered to pay back Atlas said amount with interest at the legal rate, being a
forbearance of money, from the first demand until fully paid. Reasonable attorney’s [fees] of P20,000.00 is likewise
award[ed] to appellant Atlas for having been forced to litigate after its several prior lawful demands to collect from
PCIB the overpayment, were obstinately and unjustly refused.11 (Emphasis not ours.)

PCIB moved for a reconsideration of the decision but the same was denied by the Court of Appeals in a Resolution
dated 12 September 1995.

PCIB is now before us. The instant petition is anchored on two grounds, namely: (1) the Court of Appeals erred in
reversing the trial court by disturbing the latter’s factual findings and conclusions despite the absence of strong and
cogent reasons: and (2) the Court of Appeals erred in finding that Atlas had complied with its obligation to PCIB.12

Prefatorily, findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed on appeal to this
Court.13 A deviation from this rule, however, is justified where the findings of fact of the Court of Appeals contradict
those of the trial court.14 In the case at bar, the contradictory findings of the courts below necessitate our review of the
factual issues.

The controversy boils down into whether Atlas overpaid or underpaid PCIB. To resolve the conflicting claims, we must
dispose of two issues: whether PCIB should settle for only P6,819,766.10 which it received out of the P12,000,000.00
downpayment or it is entitled to more than that, specifically 63.1579% of the downpayment; and whether Atlas should
be fully credited for the amount of P4,298,307.77 it had paid to NAMAWU.

Let us briefly recall the pertinent antecedents to appreciate the issues in a better light. There is no dispute that the
total purchase price of the properties bought by Atlas was P29,630,000.00. Of this amount, PCIB claims that it is
entitled to receive from Atlas the total of P18,713,685.77 or 63.1579% of the purchase price, pursuant to the letter
dated 7 March 1979 of the P12,000,000.00 down payment made by Atlas to PCIB and MBC, and PCIB acknowledged
that it had received P6,819,766.10. PCIB also admitted having received P8,650,543.18 as its share from the
subsequent installment payments made by Atlas.

On the first issue, the Court of Appeals rejected PCIB’s claim that it should received 63.1579% of the downpayment. It
ruled in essence that PCIB cannot demand from Atlas more than what it got from MBC out of the downpayment
remitted by Atlas to both PCIB and MBC.

We uphold the appellate court on this issue.

This case concerns a joint obligation, which is defined as an obligation where there is a concurrence of several
creditors, or of several debtors, or of several debtors, or of several creditors and debtors, by virtue of which each of
the creditors has a right to demand, and each of the debtors is bound to render, compliance with his proportionate part
of the prestation which constitutes the object of the

obligation.15 Article 120816 of the Civil Code mandates the equal sharing of creditors in the payment of debt in the
absence of any law or stipulation to the contrary.

PCIB is adamant in claiming that it only received P6,819,766.10 as its share in the downpayment. To prove its
allegation, PCIB presented its own receipt17 wherein it was clearly stated that PCIB received from Atlas the amount
of P6,819,766.10.
It is beyond dispute that Atlas issued Hongkong Shanghai Bank Check No. 003842 in the sum of P12,000,000.00 with
PCIB and MBC as joint payees as downpayment of the purchase price on 12 February 1979. The check was received
by Porfirio Cabalu, Jr., a PCIB Vice-President. As admitted by the parties during trial, the check was afterwards
deposited in the account of MBC.18 Therefore, it is reasonable to conclude that the amount received by PCIB, as
evidenced by the receipt, was given to it by MBC. The appellate court arrived at the same conclusion, to wit:

Apparently, after the check was deposited in the account of MBC, the latter issued its MBC Check No. 1652661 in the
amount of P6,819,766.10 to PCIB, properly receipted under Official Receipt No. 466652 of PCIB. In other words, what
the appellee herein receipted was the share given to it by Manilabank.

Undeniably, there was yet no agreement as of that date concerning the corresponding share of each creditor. It was
only on 8 March 1979 when PCIB communicated to Atlas the percentage of payments to be remitted to PCIB and
MBC. Before said date, Atlas could be secure in the thought that the matter of sharing was best left to the creditors to
decide.

Thus, we agree with the appellate court’s conclusion that whatever deficiency PCIB is entitled from
the P12,000,000.00 down payment had become an internal matter between it and MBC.19 The obligation was deemed
fulfilled to the extent of P12,000,000.00 on the part of Atlas when the check was received by a representative of PCIB
and eventually deposited in the account of MBC.

On the second issue, PCIB posits that Atlas cannot be credited with the payment of the full amount of P4,298,307.77
because the remaining outstanding balance with respect to the NAMAWU judgment claim at the time of the service of
the writ of garnishment on Atlas was only P3,697,047.77. Atlas, on the other hand, insists that the creditable payment
to NAMAWU was P4,298,307.77, as upheld by the Supreme Court in NAMAWU v. PCIB. Accordingly, it is this amount
which should be the basis in extracting the 63.1579% share of PCIB, which amounts to P2,714,720.92 and
not P2,334,977.74 as erroneously asserted by PCIB.20

The appellate court upheld the position of Atlas on the second issue. We reverse the appellate court.

While the original amount sought to be garnished was P4,298,307.77, the partial payment of P601,260.00 naturally
reduced it to P3,697,047.77. Clearly, Atlas overpaid NAMAWU. It will be recalled that upon receipt of the writ of
garnishment, Atlas immediately paid NAMAWU, without making any investigation or consultation with PCIB.

Article 1236 of the Civil Code applies in this instance. It provides that whoever pays for another may demand from the
debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor.

PCIB is the debtor in this case, it having purchased along with MBC legally garnished properties, while Atlas is the
third person who paid the obligation of the debtor without the latter’s knowledge and consent. Since Atlas readily paid
NAMAWU without the knowledge and consent of PCIB, Atlas may only recover from PCIB or, more precisely charge
to PCIB, only the amount of payment which has benefited the latter.

Generally, the third person who paid another’s debt is entitled to recover the full amount he had paid. The law,
however, limits his recovery to the amount by which the debtor has been benefited, if the debtor has no knowledge of,
or has expressed his opposition to such payment. Where the defenses that could have been set up by the debtor
against the creditor were existing and perfected, a payment by a third person without the knowledge of the debtor
cannot obligate the

debtor to such third person to an amount more than what he could have been compelled by the creditor to pay. Thus,
if the debt has been remitted, paid, compensated or prescribed, a payment by a third person would constitute a
payment of what is not due; his remedy would be against the person who received the payment under such
conditions, and not against the debtor who did not benefit from the payment.21

The trial court correctly ruled that the overpayment amounting to P601,260.00 should be recovered from NAMAWU.
The remedy of Atlas in this case would be to proceed, not against PCIB, but against NAMAWU who was paid in
excess, applying the principle that no person can unjustly enrich himself at the expense of another.22

Having established that there has been partial satisfaction of the judgment in the amount of P601,260.00, the
remaining obligation of PCIB in the judgment account stood at P2,334,977.74. Consequently, this is the only amount
which must be credited to Atlas.

As it stands, the total payments by Atlas amounted to only P29,398,739.99. Therefore, Atlas must settle P231,260.00,
the balance of the purchase price, of which PCIB is entitled to receive P146,058.96 as its proportionate share.
WHEREFORE, based on the foregoing, the petition is GRANTED in PART. The Decision of the Court of Appeals is
REVERSED and SET ASIDE and in lieu thereof Atlas is ORDERED to pay PCIB the sum of P146,058.96, with legal
interest commencing from the time of first demand on 22 August 1985.

No costs.

SO ORDERED.

CASE #16:

G.R. No. 135657       January 17, 2001

JOSE V. LAGON, petitioner,
vs.
HOOVEN COMALCO INDUSTRIES, INC., respondent.

BELLOSILLO, J.:

This petition for review on certiorari seeks to set aside the Decision of the Court of Appeals of 28 April 1997 which in
turn set aside the decision of the Regional Trial Court of Davao City and ordered petitioner Jose V. Lagon to pay
respondent Hooven Comalco Industries, Inc. (HOOVEN) the amount of P 69,329.00 with interest at twelve percent
(12%) per annum computed from the filing of the complaint until fully paid, plus attorney's fees and costs,1 as well as
the Resolution of the appellate court denying reconsideration thereof.2

Petitioner Jose V. Lagon is a businessman and owner of a commercial building in Tacurong, Sultan Kudarat.
Respondent HOOVEN on the other hand is a domestic corporation known to be the biggest manufacturer and installer
of aluminum materials in the country with branch office at E. Quirino Avenue, Davao City.

Sometime in April 1981 Lagon and HOOVEN entered into two (2) contracts, both denominated Proposal, whereby for
a total consideration of P104,870.00 HOOVEN agreed to sell and install various aluminum materials in Lagon's
commercial building in Tacurong, Sultan Kudarat.3 Upon execution of the contracts, Lagon paid HOOVEN P48,00.00
in advance.4

On 24 February 1987 respondent HOOVEN commenced an action for sum of money with damages and attorney's
fees against petitioner Lagon before the Regional Trial Court of Davao City. HOOVEN alleged in its complaint that on
different occasions, it delivered and installed several construction materials in the commercial building of Lagon
pursuant to their contracts; that the total cost of the labor and materials amounted to P117,329.00 out of which
P69,329.00 remained unpaid even after the completion of the project; and, despite repeated demands, Lagon failed
and refused to liquidate his indebtedness. HOOVEN also prayed for attorney's fees and litigation expenses, and in
support thereof, presented its OIC, Alberto Villanueva, and its employee, Ernesto Argente, and other witnesses, as
well as several documentary evidence consisting mainly of the two (2) proposals, invoices and delivery receipts. 1âwphi1.nêt

Lagon, in his answer, denied liability and averred that HOOVEN was the party guilty of breach of contract by failing to
deliver and install some of the materials specified in the proposals; that as a consequence he was compelled to
procure the undelivered materials from other sources; that as regards the materials duly delivered and installed by
HOOVEN, they were fully paid. He counterclaimed for actual, moral, exemplary, temperate and nominal damages, as
well as for attorney's fees and expenses of litigation.

On 9 October 1987, upon request of both parties, the trial court conducted an ocular inspection of Lagon's commercial
building to determine whether the items alleged in the complaint and appearing in the invoices and delivery receipts
had been delivered and installed on the premises. The result of the ocular inspection was -

1) with respect to the items covered by Exhibit "A" and submarkings that there are only seventeen (17) light
diffusers, 13 in the ceiling of the ground and 4 on the mezzanine (Ocular Inspection, TSN, pp. 5 to 6); 2) on
Exhibit "B" and submarkings, there are only twenty-three (23) light aluminum boxes, 14 aluminum boxes in the
ceiling of the mezzanine and 9 on the ceiling of the ground floor (Ocular Inspection, TSN, p. 7); 3) on Exhibit
"C-1," the items are missing in the area where they were supposed to be installed; 4) on Exhibit "C-2,"
admitted by defendant Lagon when he stated that "I will admit that these were installed by the plaintiff but I do
not know exactly the materials, but I really accept that these were installed sometime in 1981, before the
occupation of the DBP. But I have paid that already in 1981. I could not identify the materials delivered in 1981
because I do not know the exact names of those materials." (Ocular Inspection, TSN, p. 12); 5) on Exhibit "C-
2," the glasses are not tinted but plain white; on Exhibit "C-3," the materials cannot be formed (sic) in the
place where they are supposed to be (Ocular Inspection, TSN, p.7); 6) Exhibit "D" and "D-1," that the
 materials were supplied by plaintiff but they did not install them. It was the defendant who caused the
installation thereof (Ocular Inspection, TSN, p. 13.); and 7) Exhibit "E-1," as NU- Main and Cross-Runners and
supplied by plaintiff but plaintiff did not install. They had it installed (Ocular Inspection, TSN, p. 14).

In due course the trial court rendered a decision partly on the basis of the result of the ocular inspection finding that
the total actual deliveries and installations made by HOOVEN cost P 87,140.00. Deducting therefrom P 48,000.00
which Lagon paid in advance upon execution of their contracts with no further payments appearing to have been
made thereafter, only P 39,140.00 remained unpaid and where Lagon incurred in delay. The trial court also awarded
HOOVEN P 3,255.00 as attorney's fees, but sustained Lagon's counterclaims and awarded him P26,120.00 as actual
damages representing the value of the undelivered and uninstalled materials, and P30,000.00 as attorney's fees in
addition to litigation expenses of P 45,534.50. According to the court a quo5 –

As a result of the partial breach of contract on plaintiff's (Hooven Comalco) part, the defendant is entitled to
actual damages only to the extent of the undelivered materials and undone labor or to the amount of
P26,120.00. This P26,120.00 will be partially offsetted (sic) to the P 39,140.00 unpaid balance of the
defendant (Lagon), so that the difference that remain (sic) payable to plaintiff is P13,020.00. Evidence is
insufficient to show that bad faith existed in the filing of the instant complaint for collection against the
defendant. Plaintiff's obstinate conduct in prosecuting its claim spending for litigation expenses and for its
lawyers negate the existence of bad faith. The fact alone that the findings of fact show an unpaid account of
the defendant is proof that the complaint is not completely unfounded though evidence shows also that
plaintiff is guilty of partial breach of contract by reason of failure to completely deliver and install the materials
defendant ordered pursuant to the contract so that plaintiff is liable for damages. As plaintiff acted in good faith
in the filing of the instant complaint in the belief that it has a valid cause of action against the defendant to
enforce its claim, engaging a lawyer to prosecute it, plaintiff is entitled to a reasonable attorney's fees
equivalent to 25% of the collectible amount of P13,020.00 or the amount of P3,225.00. Defendant's claim of
attorney's fees in the amount of P152,629.15 is in the opinion of the court clearly unreasonable and
unconscionable considering the nature of the action and the amount involved. The court has the power to
reduce it to render it reasonable and conscionable whether the contract for attorney's fees is written or oral.
The attorney's fees is fixed at P30,000.00. The defendant presented evidence of litigation expenses incurred
in the course of the trial for plane fare of its lawyer in coming to Davao City from Manila from 1987 up to July
1990 in the total amount of P34,730.50 as evidenced by Exhibit "11" to "11-E." The records show that the
defendant's counsel came to Davao City from Manila to attend eleven (11) hearings of the case and the plane
fare from 1987 up to August, 1989 is P2,524.50 and from August 1989 to June 1990 is P3,007.50. Hotel
expenses of defendant's counsel at the Maguindanao Hotel where he was billeted everytime he came to
Davao City to attend the trial amounted to P11,824.00 as evidenced by Exhibit "17," the certification issued by
the said hotel management. So that the total amount of the actual damage suffered by defendant is
P45,534.50. Said amount of P45,534.50 is partially offsetted (sic) by the amount of P13,020.00 representing
the unpaid obligation of the defendant to the plaintiff so that the plaintiff is still liable to pay the defendant the
difference in the amount of P32,514.50.

Both parties appealed to the Court of Appeals. In its Decision of 28 April 1997, the appellate court set aside the
judgment of the trial court and resolved the case in favor of HOOVEN. It held that the trial court erred in relying solely
on the results of the ocular inspection since the delivery and installation of the materials in question started as early as
1981, while the ocular inspection was conducted only in 1987 or six (6) years later, after the entire mezzanine was
altered and the whole building renovated. The appellate court also stressed that the testimonies of HOOVEN's
witnesses were straightforward, categorical and supported by documentary evidence of the disputed transactions, and
that all Lagon could offer was a mere denial, uncorroborated and self-serving statements regarding his transactions
with HOOVEN. The decretal portion of the assailed decision of the Court of Appeals reads -

ACCORDINGLY, finding the decision of August 26, 1991 appealed from afflicted by reversible errors, the
same is hereby SET ASIDE, and a new one entered ordering the defendant-appellant (Lagon) to pay plaintiff-
appellant (Hooven Comalco):

The amount of P69,329.00 plus interest of 12% per annum computed from the date of the filing of the
complaint, until fully paid.

Fifteen percent (15%) of the amount due, as and by way of attorney's fees.

Defendant-appellant to pay costs.

Petitioner's motion for reconsideration having been denied he now hopes to secure relief from this Court by
contending that: (a) The Court of Appeals erred in holding that the trial court could not rely on the results of the ocular
inspection conducted on his commercial building in Tacurong, Sultan Kudarat; and, (b) The assailed decision of the
appellate court is based on speculations and contrary to the evidence adduced during the trial.
The arguments in the petition ultimately boil down to the sole issue of whether all the materials specified in the
contracts had been delivered and installed by respondent in petitioner's commercial building in Tacurong, Sultan
Kudarat. The question is basically factual involving as it does an evaluation of the conflicting evidence presented by
the contending parties, including the existence and relevance of specific surrounding circumstances, to determine the
truth or falsity of alleged facts.

While factual issues are not within the province of this Court, as it is not a trier of facts and is not required to examine
or contrast the oral and documentary evidence de novo,6 nevertheless, the Court has the authority to review and, in
proper cases, reverse the factual findings of lower courts in these instances: (a) when the findings of fact of the trial
court are in conflict with those of the appellate court; (b) when the judgment of the appellate court is based on
misapprehension of facts; and, (c) when the appellate court manifestly overlooked certain relevant facts which, if
properly considered, would justify a different conclusion.7 This case falls squarely within the foregoing exceptions.

Before delving into the merits of this case, we find it necessary to describe and detail the nature and contents of the
vital documentary exhibits upon which respondent HOOVEN based its claims, thus -

Exhibit "F" - Undated Proposal:

I. For the supply of materials and installation of suspended aluminum ceiling runners:

Area: 2,290 sq. ft.

Materials: NU- Main & Cross runners

NU-5 Perimeter mouldings

Aluminum straps stiffeners G.I. wire hangers

Blind Rivets and Screws P14,110.00

Labor charge 4,230.00

18,440.00

II. One (1) set: 65 x 68 YP aluminum cladding 1,150.00

P19,590.00

Delivery and Installation charge 1,860.00

P21,450.00

Exhibit "F-1" – Proposal dated 3 April 1981

"Hooven" Aluminum Casement Windows Anolok Finish Manually Operated, with 6.0
mm Bronzepane Tinted Glass

Five (5) sets: 65" x 126-1/2" (w/ transom)

One (1) set: 65" x 126-1/2" (w/ AC provision)

Two (2) sets: 39-1/2" x 125-1/2" -do-

One (1) set: 39-1/2" x 87" -do-

One (1) set: 39-1/2" x 223" -do-

One (1) set: 65" x 57-1/2" (w/ transom)

One (1) set: 65" x 4" -do-

P42,530.00

"Hooven" Aluminum Entrances and Fixed Windows Anolok Finish, with 6.0 mm
Bronzepane Tinted Glass

One (1) set: 100-1/2" x 76-1/2", double sash, double acting swing door, with
transom.

Two (2) sets: 80" x 278", fixed panels 21,740.00

"Hooven" Aluminum Sliding Windows Fabricated From SD-Sections, Anolok Finish,

with 6.0 mm Bronzepane Tinted Glass

One (1) set: 54 x 191

One (1) set: 45 x 302 11,650.00

75,920.00

Add: Delivery and Installation charge 7,500.00

P83,420.00

Exhibit "A" – Invoice No. 11094 dated 29 December 1982

Eighty Six (86) Pieces, 2.0 mm Hishilite Diffusers P3,440.00

Exhibit "B" – Invoice No. 11095 dated 29 December 1982

Forty-Three Pieces: For the Supply and Installation of Light Boxes

Fabricated from GA. 032 Aluminum Plain Sheet

Delivery and Installers' subsistence P5,718.50

Exhibit "C" – Invoice No. 14349 dated 29 December 1984

Five (5) sets 1.651m 3.213m Hooven Aluminum Casement windows, Anolok finish,
manually operated with 6.0 Bronzepane tinted glass.

One (1) set 1.651 m 3.367m - do - with a/c provision

Two (2) sets 1.00 m 3.188m - do - - do -

One (1) set 1.00 m 2.210 m - do - - do -

One (1) set 1.00 m 5.664 m - do - - do -

One (1) set 1.651m 1.461 m - do - - do - with transom

One (1) set 1.651m 1.880 m - do - with transom

One (1) set 1.651m 1.524 m - do - - do -

One (1) set 2.553m 1.943 m Hooven aluminum double sash, double acting
swing door, with transom, with 6.0 mm Bronze-
pane tinted glass.

Two (2) sets 2.032m 7.061 m Fixed windows, Anolok finish.

One (1) set .737 m 7.061 m Aluminum tubulars with aluminum YP-100
cladding, Anolok finish.

One (1) set 1.143m 4.851m Hooven aluminum sliding windows fabricated
from SD sections, Anolok finish, with 6.0 mm
Bronzepane tinted glass, with 1.88 m tubular
posts.

One (1) set 1.143m 7.671m - do - P75,291.83

4% tax 3,011.67
 78,303.50

Delivery & Subs. 7,500.00

P85,803.50

Exhibit "D" – Invoice No. 14265 dated 29 September 1984

For the supply of materials and installation of aluminum P5,310.00

stucco embossed sheet on spiral staircase

Exhibit "E" – Invoice No. 14264 dated 29 November 1984

For the supply of materials and installation of suspended aluminum ceiling system.

Materials: NU-4 main and cross runners

NU-5 perimeter mouldings

GI wire hangers

Alum strap stiffeners

Blind rivets and screws P17,057.00

Exhibit "A-1" – Delivery Receipt dated 9 June 1981

Twenty (20) pieces Light boxes fabricated from P4,340.00

aluminum sheets Forty (40) pieces 2.0 mm x 24" x 24"
Hishilite Diffusers Lump sum cost including discount and
Delivery and Installer Subsistence

Exhibit "A-2" – Delivery Receipt dated 8 August 1981

Twenty (20) pieces Light boxes fabricated from .032"

aluminum plain sheet

Twenty Seven (27) 2.0 mm x 24" x 24" Hishilite Diffusers

Add: Delivery & Installers Subsistence P180.00

Exhibit "A-3" – Delivery Receipt, dated 8 December 1981

19 pcs. 2.0 mm x 2" x2" Hishilite Diffusers P40.00

Exhibit "B-1" – Delivery Receipt dated 25 June 1981

Additional three (3) pcs. Light boxes fabricated from . P140.00

032 Aluminum sheets

Exhibit "C-1" – Delivery Receipt dated 25 August 1983

To change alum tubular frames for sliding windows (item 10 & 11) from 45" L x to 94"
x 74."

To change width of one (1) set: item 1 from 126-1/2 to 132-1/2.

To add: one (1) set 65"H x 60" aluminum casement windows with 6.0 mm tinted glass.

To extend alum tubulars of fixed windows on 2nd floor by P8,640.00

29"L and installation of YP-aluminum cladding

Exhibit "C-2" – Delivery Receipt dated 25 August 1983

Hooven Alum Casement Windows Anolok Finish

Manually Operated with 6.0 mm Bronzepane Tinted
Glass:
Five (5) sets: 65" x 126-1/2" with transom

One (1) set: 65" x 126-1/2 with AC provision

Two (2) sets: 39-1/2 x 125-1/2 - do -

One (1) set: 39-1/2" x 87" - do -

One (1) set: 39-1/2" x 223" - do -

One (1) set: 65" x 57-1/2" with transom

One (1) set: 65" x 74" - do -

P42,530.00

Hooven Alum Entrances & Fixed Windows Anolok Finish with 6.0 mm Bronzepane
Tinted Glass:

One (1) set: 100-1/2 x 76- double sash, double

1/2, acting swing door, with
transom

Two (2) sets: 80" x 278" fixed panels P21,740.00

Exhibit "C-3" – Delivery Receipt dated 25 August 1983

Hoven Alum Sliding Windows Fabricated from SD Sections Anolok Finish with 6.0 mm
Bronzepane Tinted Glass:

One (1) set: 45" x 191"

One (1) set: 45" x 302" P11,650.00

Add: Delivery and Installation 7,500.00

Less: 7% Discount 6,256.50

P77,163.50

Exhibit "D-1" – Delivery Receipt dated 25 August 1983

For the supply of materials and installation of aluminum stucco embossed sheet on
spiral staircase:

One (1) set 32" H x 304" WL P5,310.00

Exhibit "E-1" – Delivery Receipt dated 25 August 1983

NU- main and cross runners

NU-5 Perimeter mouldings

G.I. Wire Hangers

Aluminum straps stiffeners

Blind rivets and screws P17,057.00

We have carefully and diligently considered the foregoing exhibits and we are fully convinced that the mass of
documentary evidence adduced by respondent suffers from patent irregularities and material inconsistencies on their
faces, raising serious questions requiring cogent explanations. These flaws inevitably deplete the weight of its
evidence, with the result that for lack of the requisite quantum of evidence, respondent dismally failed in the lower
court to discharge its burden necessary to prevail in this case.
Firstly, the quantity of materials and the amounts stated in the delivery receipts do not tally with those in the invoices
covering them, notwithstanding that, according to HOOVEN OIC Alberto Villanueva, the invoices were based merely
on the delivery receipts.8 For instance, only eleven (11) items were listed in Exhs. "C-2" and "C-3" with a total worth of
P77,163.50. But in Exh. "C," which was the invoice for Exhs. "C-2" and "C-3," there were thirteen (13) items
enumerated for a total worth of P85,803.50. If Exh. "C" is supposed to be based on Exhs. "C-2" and "C-3," we cannot
understand the apparent discrepancy in the items listed in those documents when they all referred to the same
materials.

Secondly, the total value of the materials as reflected in all the invoices is P117,329.00 while under the delivery
receipts it is only P112,870.50, or a difference of P4,458.00. Moreover, the materials listed in the two (2) Proposals,
upon which HOOVEN based its claims, is only for the total sum of P104,870.00. Curiously then, why would the
materials supposedly delivered by HOOVEN be more than what was contracted and purchased by Lagon? This
circumstance underscores the need to reexamine the strength, if not weakness, of respondent's cause.

Thirdly, under the Proposals HOOVEN bound itself to invoice the materials "when complete and ready for shipment."
Oddly, the records show that the invoices were prepared several years after the materials were allegedly delivered
and installed completely on petitioner's building. Alberto Villanueva testified that their project with petitioner was
completed sometime in August 1981 and that thereafter no further installation was done in the building.9 But the
disputed invoices marked Exhs. "A" and "B" were prepared only on 29 December 1982; Exhs. "C" and "D" were
prepared only on 29 December 1984; and, Exh. "E" was prepared only on 29 November 1984. As for the delivery
receipts, Exhs. "C-1," "C-2," "C-3" and "E-1" were prepared only on 25 August 1983 or two (2) years after the
completion of the project, while Exh. "A-3" was prepared only on 8 December 1981 or some four (4) months after the
date of completion.

Even more strange is the fact that HOOVEN instituted the present action for collection of sum of money against Lagon
only on 24 February 1987, or more than five (5) years after the supposed completion of the project. Indeed, it is
contrary to common experience that a creditor would take its own sweet time in collecting its credit, more so in this
case when the amount involved is not miniscule but substantial.

Fourthly, the demand letter of 25 August 198310 sent to petitioner by respondent further betrays the falsity of its claims
-

Dear Mr. Lagon:

The bearer, Mr. Fermin Piñero, is an authorized representative of this company. He will arrange for your
acceptance of the complete aluminum and glass installation we have undertaken for your building. He has
with him the delivery receipts for your signature so with a statement of account showing your balance. Kindly
favor us with a partial payment to cover our operation costs. Also kindly relay to him all other installations you
wish us to undertake.

Hoping for your favorable action, we shall remain.

Very Truly Yours,

Hooven Comalco Industries, Inc.

Davao Branch

(Sgd.) Alberto P. Villanueva

If, as claimed by HOOVEN, all the materials were completely delivered and installed in petitioner's building as early as
August 1981, why then would it demand partial payment only two (2) years later? This circumstance is very significant
especially considering that under the Proposals the terms of payment should be 50% down "and the balance to be
paid in full" upon completion. Moreover, it is surprising that the partial payment demanded was only "to cover
operation costs." As correctly observed by petitioner, demand for payment of operation costs is typical of a still on-
going project where the contractor needs funds to defray his expenses. If there was complete installation, why would
respondent demand payment for operation costs only? Why not enforce the whole amount of indebtedness? All these
clearly suggest that there was no full and complete delivery and installation of materials ordered by petitioner.

Fifthly, all the delivery receipts did not appear to have been signed by petitioner or his duly authorized representative
acknowledging receipt of the materials listed therein. A closer examination of the receipts clearly showed that the
deliveries were made to a certain Jose Rubin, claimed to be petitioner's driver, Armando Lagon, and a certain
bookkeeper. Unfortunately for HOOVEN, the identities of these persons were never been established, and there is no
way of determining now whether they were indeed authorized representatives of petitioner. Paragraph 3 of
each Proposal is explicit on this point -
 3. x x x the seller's responsibility ends with delivery of the merchandise to carrier in good condition, to buyer,
or to buyer's authorized "Receiver/Depository" named on the face of this proposal (underscoring supplied).

As above specifically stated, deliveries must be made to the buyer or his duly authorized representative named in the
contracts. In other words, unless the buyer specifically designated someone to receive the delivery of materials and
his name is written on the Proposals opposite the words "Authorized Receiver/Depository," the seller is under
obligation to deliver to the buyer only and to no other person; otherwise, the delivery would be invalid and the seller
would not be discharged from liability. In the present case, petitioner did not name any person in the Proposals who
would receive the deliveries in his behalf, which meant that HOOVEN was bound to deliver exclusively to petitioner.

Sixthly, it is also obvious from the contested delivery receipts that some important details were not supplied or were
left in blank, i.e., truck numbers, persons who delivered the materials, invoice and s. o. numbers. The persons who
delivered the materials were potential witnesses who could shed light on the circumstances surrounding the alleged
deliveries of the materials to petitioner. Moreover, it could have been easier for HOOVEN to pinpoint responsibility to
any of its employees for the non-delivery of the materials.

We are not unaware of the slipshod manner of preparing receipts, order slips and invoices, which unfortunately has
become a common business practice of traders and businessmen. In most cases, these commercial forms are not
always fully accomplished to contain all the necessary information describing the whole business transaction. The
sales clerks merely indicate a description and the price of each item sold without bothering to fill up all the available
spaces in the particular receipt or invoice, and without proper regard for any legal repercussion for such neglect.
Certainly, it would not hurt if businessmen and traders would strive to make the receipts and invoices they issue
complete, as far as practicable, in material particulars. These documents are not mere scraps of paper bereft of
probative value but vital pieces of evidence of commercial transactions. They are written memorials of the details of
the consummation of contracts.

Given this pathetic state of respondent's evidence, how could it be said that respondent had satisfactorily proved its
case? Essentially, respondent has the burden of establishing its affirmative allegations of complete delivery and
installation of the materials, and petitioner's failure to pay therefor. In this regard, its evidence on its discharge of that
duty is grossly anemic. We emphasize that litigations cannot be properly resolved by suppositions, deductions, or
even presumptions, with no basis in evidence, for the truth must have to be determined by the hard rules of
admissibility and proof.

The Court of Appeals however faulted the trial court for supposedly relying solely on the results of the ocular
inspection on the premises, which were not conclusive since the inspection was conducted several years after the
disputed materials were allegedly installed therein.

We disagree. The ocular inspection was made by the judge himself, at the request of both petitioner and respondent,
for the exclusive purpose of determining whether the materials subject of this case were actually delivered and
installed. There is therefore no basis to give little evidentiary value on the results of the ocular inspection, as the Court
of Appeals would, and charge the trial court with error for relying thereon. It is now rather late for any of the parties to
disclaim them, especially when they are not in his or its favor. Furthermore, a cursory reading of the decision of the
court a quo will at once show that it was not premised solely on the results of the ocular inspection but was likewise
predicated on other evidence presented by the parties and well-considered facts and circumstances discussed by the
trial court in its ratio decidendi. We cannot ignore the factual findings of the trial court, which must carry great weight in
the evaluation of evidentiary facts, and in the absence of any indication showing grave error committed by trial court,
the appellate court is bound to respect such findings of fact. 1âwphi1.nêt

We hasten to add however that petitioner is not entirely free from any liability to respondent. Petitioner admitted the
delivery of materials under Exhs. "A" and its submarkings, "B" and its submarkings, "D," "D-1" and "E." With respect to
Exh. "C-2," petitioner acknowledged his obligation under the first heading, Items Nos. 3, 4 and 5, and the second
heading, and denied the rest. Consequently, he should be made liable therefor in the total amount of P58,786.65.
From this amount, petitioner's down payment of P48,000.00 should be deducted.

It is insisted by petitioner in his appeal brief filed before the Court of Appeals that the second item under the second
heading of Exh. "C-2" should be excluded in the computation since he never admitted liability therefor.

We are not persuaded. The transcript of stenographic notes shows that during the ocular inspection counsel for
respondent manifested in effect that petitioner admitted the delivery and installation of the second item in his building,
and petitioner did not interpose any objection to respondent's manifestation -

ATTY. QUIÑONES: We would like to make of record that defendant (Lagon) admits that plaintiff (Hooven
Comalco) delivered and installed Item No. 1 under the second column of Exhibit "C-2" which is the front door
of the ground floor.
 ATTY. RICO: Defendant however adds that these were installed in 1981 and had already paid for the said
item.

ATTY. QUIÑONES: I would like to make of record also that defendant admits the delivery and installation of
Item No. 2 under the second column of Exhibit "C-2" as having been delivered and installed by the plaintiff in
1981 with the qualification, however, that he had already paid the same.

COURT: Are you stating that all these installed items on the ground floor were all paid by you?

MR. LAGON: Yes, Your Honor.11

Petitioner cannot now be heard to complain against its inclusion in the computation of his liability since his silence
virtually amounted to acquiescence. The silence of one of the contracting parties and his failure to protest against the
claims of the other party, when he is chargeable with the duty to do so, strongly suggest an admission of the veracity
and validity of the other party's claims.

In sum, petitioner's total liability to respondent may be computed as follows:

(1) Items under Exh. "A," consisting of 17 light diffusers at P40.00 P 680.00
each

(2) Items under Exh. "B," consisting of 23 light boxes at P40.00 each 3,220.00

(3) Third, fourth and fifth items under the first heading of Exh. "C-2" 14,176.65
which on the basis of their measurements constitute only 1/3 of the
total costs of materials listed therein

(4) Items under the second heading of Exh. "C-2" 21,740.00

(5) Items under Exhs. "D" and "D-1" 4,860.00

(6) Items under Exh. "E-1" 14,110.00 P58,786.65

Less: Stipulated 7% discount 4,408.99

P54,377.66

Less: Advance payment made by petitioner to Hooven Comalco 48,000.00

Unpaid Balance of petitioner P6,377.66

Notwithstanding the breach of contract by respondent in failing to deliver and install in the premises of petitioner all the
stipulated materials, we nevertheless accede to the right of respondent to recover the unpaid balance from petitioner
for the materials actually delivered.

The next point of inquiry is the propriety of awarding damages, attorney's fees and litigation expenses.

We are not in accord with the trial court's ruling that petitioner is entitled to actual damages to the extent of the
undelivered materials and undone labor in the amount of P26,120.00. There is no proof that petitioner already paid for
the value of the undelivered and uninstalled materials to respondent. Therefore, petitioner may not be deemed to have
suffered any such damage. We have declared in no uncertain terms that actual or compensatory damages cannot be
presumed but must be proved with reasonable degree of certainty.12 A court cannot rely on speculations, conjectures
or guesswork as to the fact of damage but must depend upon competent proof that they have indeed been suffered by
the injured party and on the basis of the best evidence obtainable as to the actual amount thereof.13 It must point out
specific facts that could provide the gauge for measuring whatever compensatory or actual damages were borne.

But we agree with petitioner that he is entitled to moral damages. HOOVEN's bad faith lies not so much on its breach
of contract - as there was no showing that its failure to comply with its part of the bargain was motivated by ill will or
done with fraudulent intent - but rather on its appalling temerity to sue petitioner for payment of an alleged unpaid
balance of the purchase price notwithstanding knowledge of its failure to make complete delivery and installation of all
the materials under their contracts. It is immaterial that, after the trial, petitioner was found to be liable to respondent to
the extent of P6,377.66. Petitioner's right to withhold full payment of the purchase price prior to the delivery and
installation of all the merchandise cannot be denied since under the contracts the balance of the purchase price
became due and demandable only upon the completion of the project. Consequently, the resulting social humiliation
and damage to petitioner's reputation as a respected businessman in the community, occasioned by the filing of this
suit provide sufficient grounds for the award of P50,000.00 as moral damages.

Moreover, considering the fact that petitioner was drawn into this litigation by respondent and was compelled to hire
an attorney to protect and defend his interest, and taking into account the work done by said attorney throughout the
proceedings, as reflected in the record, we deem it just and equitable to award attorney's fees for petitioner in the
amount of P30,000.00.14 In addition, we agree with the trial court that petitioner is entitled to recover P46,554.50 as
actual damages including litigation expenses as this amount is sufficiently supported by the evidence.15

WHEREFORE, the assailed Decision of the Court of Appeals dated 28 April 1997 is MODIFIED. Petitioner Jose V.
Lagon is ordered to pay respondent Hooven Comalco Industries, Inc., P6,377.66 representing the value of the unpaid
materials admittedly delivered to him. On the other hand, respondent is ordered to pay petitioner P50,000.00 as moral
damages, P30,000.00 as attorney's fees and P46,554.50 as actual damages and litigation expenses.

SO ORDERED.

CASE #17:

G.R. No. 104612 May 10, 1994

BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND TRUST CO.), petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents.

Leonen, Ramirez & Associates for petitioner.

Constante A. Ancheta for private respondents.

DAVIDE, JR., J.:

The petitioner urges us to review and set aside the amended Decision  of 6 March 1992 of respondent Court of
1

Appeals in CA- G.R. CV No. 25739 which modified the Decision of 15 November 1990 of Branch 19 of the Regional
Trial Court (RTC) of Manila in Civil Case No. 87-42967, entitled Bank of the Philippine Islands (successor-in-interest
of Commercial Bank and Trust Company) versus Eastern Plywood Corporation and Benigno D. Lim. The Court of
Appeals had affirmed the dismissal of the complaint but had granted the defendants' counterclaim for P331,261.44
which represents the outstanding balance of their account with the plaintiff.

As culled from the records and the pleadings of the parties, the following facts were duly established:

Private respondents Eastern Plywood Corporation (Eastern) and

Benigno D. Lim (Lim), an officer and stockholder of Eastern, held at least one joint bank account ("and/or" account)
with the Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest of petitioner Bank of the Philippine
Islands (BPI). Sometime in March 1975, a joint checking account ("and" account) with Lim in the amount of
P120,000.00 was opened by Mariano Velasco with funds withdrawn from the account of Eastern and/or Lim. Various
amounts were later deposited or withdrawn from the joint account of Velasco and Lim. The money therein was placed
in the money market.

Velasco died on 7 April 1977. At the time of his death, the outstanding balance of the account stood at P662,522.87.
On 5 May 1977, by virtue of an Indemnity Undertaking executed by Lim for himself and as President and General
Manager of Eastern,   one-half of this amount was provisionally released and transferred to one of the bank accounts
2

of Eastern with CBTC.  3

Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as "Additional Working Capital,"
evidenced by the "Disclosure Statement on Loan/Credit Transaction" (Disclosure Statement) signed by CBTC through
its branch manager, Ceferino Jimenez, and Eastern, through Lim, as its President and General Manager.   The loan
4

was payable on demand with interest at 14%  per annum.

For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00 payable on demand to the
order of CBTC with interest at 14% per annum.   The note was signed by Lim both in his own capacity and as
5
President and General Manager of Eastern. No reference to any security for the loan appears on the note. In the
Disclosure Statement, the box with the printed word "UNSECURED" was marked with "X" — meaning unsecured,
while the line with the words "this loan is wholly/partly secured by" is followed by the typewritten words "Hold-Out on a
1:1 on C/A No. 2310-001-42," which refers to the joint account of Velasco and Lim with a balance of P331,261.44.

In addition, Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," also dated 18 August
1978,   wherein it was stated that "as security for the Loan [Lim and Eastern] have offered [CBTC] and the latter
6

accepts a holdout on said [Current Account No. 2310-011-42 in the joint names of Lim and Velasco] to the full extent
of their alleged interests therein as these may appear as a result of final and definitive judicial action or a settlement
between and among the contesting parties thereto."   Paragraph 02 of the Agreement provides as follows:
7

Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust [CBTC], when and if their alleged
interests in the Account Balance shall have been established with finality, ample and sufficient power
as shall be necessary to retain said Account Balance and enable Comtrust to apply the Account
Balance for the purpose of liquidating the Loan in respect of principal and/or accrued interest.

And paragraph 05 thereof reads:

The acceptance of this holdout shall not impair the right of Comtrust to declare the loan payable on
demand at any time, nor shall the existence hereof and the non-resolution of the dispute between the
contending parties in respect of entitlement to the Account Balance, preclude Comtrust from instituting
an action for recovery against Eastply and/or Mr. Lim in the event the Loan is declared due and
payable and Eastply and/or Mr. Lim shall default in payment of all obligations and liabilities
thereunder.

In the meantime, a case for the settlement of Velasco's estate was filed with Branch 152 of the RTC of Pasig, entitled
"In re Intestate Estate of Mariano Velasco," and docketed as Sp. Proc. No. 8959. In the said case, the whole balance
of P331,261.44 in the aforesaid joint account of Velasco and Lim was being claimed as part of Velasco's estate. On 9
September 1986, the intestate court granted the urgent motion of the heirs of Velasco to withdraw the deposit under
the joint account of Lim and Velasco and authorized the heirs to divide among themselves the amount withdrawn.  8

Sometime in 1980, CBTC was merged with BPI.   On 2 December 1987, BPI filed with the RTC of Manila a complaint
9

against Lim and Eastern demanding payment of the promissory note for P73,000.00. The complaint was docketed as
Civil Case No. 87- 42967 and was raffled to Branch 19 of the said court, then presided over by Judge Wenceslao M.
Polo. Defendants Lim and Eastern, in turn, filed a counterclaim against BPI for the return of the balance in the
disputed account subject of the Holdout Agreement and the interests thereon after deducting the amount due on the
promissory note.

After due proceedings, the trial court rendered its decision on

15 November 1990 dismissing the complaint because BPI failed to make out its case. Furthermore, it ruled that "the
promissory note in question is subject to the 'hold-out' agreement,"   and that based on this agreement, "it was the
10

duty of plaintiff Bank [BPI] to debit the account of the defendants under the promissory note to set off the loan even
though the same has no fixed maturity."   As to the defendants' counterclaim, the trial court, recognizing the fact that
11

the entire amount in question had been withdrawn by Velasco's heirs pursuant to the order of the intestate court in Sp.
Proc. No. 8959, denied it because the "said claim cannot be awarded without disturbing the resolution" of the intestate
court. 
12

Both parties appealed from the said decision to the Court of Appeals. Their appeal was docketed as CA-G.R. CV No.
25739.

On 23 January 1991, the Court of Appeals rendered a decision affirming the decision of the trial court. It, however,
failed to rule on the defendants' (private respondents') partial appeal from the trial court's denial of their counterclaim.
Upon their motion for reconsideration, the Court of Appeals promulgated on 6 March 1992 an Amended
Decision   wherein it ruled that the settlement of Velasco's estate had nothing to do with the claim of the defendants
13

for the return of the balance of their account with CBTC/BPI as they were not privy to that case, and that the
defendants, as depositors of CBTC/BPI, are the latter's creditors; hence, CBTC/BPI should have protected the
defendants' interest in Sp. Proc. No. 8959 when the said account was claimed by Velasco's estate. It then ordered BPI
"to pay defendants the amount of P331,261.44 representing the outstanding balance in the bank account of
defendants."  14

On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout Agreement in question was subject to a
suspensive condition stated therein, viz., that the "P331,261.44 shall become a security for respondent Lim's
promissory note only if respondents' Lim and Eastern Plywood Corporation's interests to that amount are established
as a result of a final and definitive judicial action or a settlement between and among the contesting parties
thereto."   Hence, BPI asserts, the Court of Appeals erred in affirming the trial court's decision dismissing the
15

complaint on the ground that it was the duty of CBTC to debit the account of the defendants to set off the amount of
P73,000.00 covered by the promissory note.

Private respondents Eastern and Lim dispute the "suspensive condition" argument of the petitioner. They interpret the
findings of both the trial and appellate courts that the money deposited in the joint account of Velasco and Lim came
from Eastern and Lim's own account as a finding that the money deposited in the joint account of Lim and Velasco
"rightfully belong[ed] to Eastern Plywood Corporation and/or Benigno Lim." And because the latter are the rightful
owners of the money in question, the suspensive condition does not find any application in this case and the bank had
the duty to set off this deposit with the loan. They add that the ruling of the lower court that they own the disputed
amount is the final and definitive judicial action required by the Holdout Agreement; hence, the petitioner can only hold
the amount of P73,000.00 representing the security required for the note and must return the rest.  16

The petitioner filed a Reply to the aforesaid Comment. The private respondents filed a Rejoinder thereto.

We gave due course to the petition and required the parties to submit simultaneously their memoranda.

The key issues in this case are whether BPI can demand payment of the loan of P73,000.00 despite the existence of
the Holdout Agreement and whether BPI is still liable to the private respondents on the account subject of the Holdout
Agreement after its withdrawal by the heirs of Velasco.

The collection suit of BPI is based on the promissory note for P73,000.00. On its face, the note is an unconditional
promise to pay the said amount, and as stated by the respondent Court of Appeals, "[t]here is no question that the
promissory note is a negotiable instrument."   It further correctly ruled that BPI was not a holder in due course
17

because the note was not indorsed to BPI by the payee, CBTC. Only a negotiation by indorsement could have
operated as a valid transfer to make BPI a holder in due course. It acquired the note from CBTC by the contract of
merger or sale between the two banks. BPI, therefore, took the note subject to the Holdout Agreement.

We disagree, however, with the Court of Appeals in its interpretation of the Holdout Agreement. It is clear from
paragraph 02 thereof that CBTC, or BPI as its successor-in-interest, had every right to demand that Eastern and Lim
settle their liability under the promissory note. It cannot be compelled to retain and apply the deposit in Lim and
Velasco's joint account to the payment of the note. What the agreement conferred on CBTC was a  power, not a duty.
Generally, a bank is under no duty or obligation to make the application.   To apply the deposit to the payment of a
18

loan is a privilege, a right of set-off which the bank has the option to exercise. 
19

Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement, CBTC was not in any
way precluded from demanding payment from Eastern and from instituting an action to recover payment of the loan.
What it provides is an alternative, not an exclusive, method of enforcing its claim on the note. When it demanded
payment of the debt directly from Eastern and Lim, BPI had opted not to exercise its right to apply part of the deposit
subject of the Holdout Agreement to the payment of the promissory note for P73,000.00. Its suit for the enforcement of
the note was then in order and it was error for the trial court to dismiss it on the theory that it was set off by an
equivalent portion in C/A No. 2310-001-42 which BPI should have debited. The Court of Appeals also erred in
affirming such dismissal.

The "suspensive condition" theory of the petitioner is, therefore, untenable.

The Court of Appeals correctly decided on the counterclaim. The counterclaim of Eastern and Lim for the return of the
P331,261.44   was equivalent to a demand that they be allowed to withdraw their deposit with the bank. Article 1980
20

of the Civil Code expressly provides that "[f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan." In Serrano vs. Central Bank of the
Philippines,   we held that bank deposits are in the nature of irregular deposits; they are really loans because they
21

earn interest. The relationship then between a depositor and a bank is one of creditor and debtor. The deposit under
the questioned account was an ordinary bank deposit; hence, it was payable on demand of the depositor.  22

The account was proved and established to belong to Eastern even if it was deposited in the names of Lim and
Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or to demand payment thereof. BPI
cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the
whole balance of the account. The petitioner should not have allowed such withdrawal because it had admitted in the
Holdout Agreement the questioned ownership of the money deposited in the account. As early as 12 May 1979, CBTC
was notified by the Corporate Secretary of Eastern that the deposit in the joint account of Velasco and Lim was being
claimed by them and that one-half was being claimed by the heirs of Velasco. 23

Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs of Velasco to withdraw the account.
BPI was not specifically ordered to release the account to the said heirs; hence, it was under no judicial compulsion to
do so. The authorization given to the heirs of Velasco cannot be construed as a final determination or adjudication that
the account belonged to Velasco. We have ruled that when the ownership of a particular property is disputed, the
determination by a probate court of whether that property is included in the estate of a deceased is merely provisional
in character and cannot be the subject of execution.  24

Because the ownership of the deposit remained undetermined, BPI, as the debtor with respect thereto, had no right to
pay to persons other than those in whose favor the obligation was constituted or whose right or authority to receive
payment is indisputable. The payment of the money deposited with BPI that will extinguish its obligation to the
creditor-depositor is payment to the person of the creditor or to one authorized by him or by the law to receive
it.   Payment made by the debtor to the wrong party does not extinguish the obligation as to the creditor who is without
25

fault or negligence, even if the debtor acted in utmost good faith and by mistake as to the person of the creditor, or
through error induced by fraud of a third person.   The payment then by BPI to the heirs of Velasco, even if done in
26

good faith, did not extinguish its obligation to the true depositor, Eastern.

In the light of the above findings, the dismissal of the petitioner's complaint is reversed and set aside. The award on
the counterclaim is sustained subject to a modification of the interest.

WHEREFORE, the instant petition is partly GRANTED. The challenged amended decision in CA-G.R. CV No. 25735
is hereby MODIFIED. As modified:

(1) Private respondents are ordered to pay the petitioner the promissory note for P73,000.00 with
interest at:

(a) 14%  per annum on the principal, computed from

18 August 1978 until payment;

(b) 12%  per annum on the interest which had accrued up to the date of the filing of
the complaint, computed from that date until payment pursuant to Article 2212 of the
Civil Code.

(2) The award of P331,264.44 in favor of the private respondents shall bear interest at the rate of
12%  per annum computed from the filing of the counterclaim.

No pronouncement as to costs.

SO ORDERED.

CASE #18:

G.R. No. 175021               June 15, 2011

REPUBLIC OF THE PHILIPPINES, represented by the Chief of the Philippine National Police, Petitioner,
vs.
THI THU THUY T. DE GUZMAN, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari1 filed by Republic of the Philippines, as represented by the Chief of the
Philippine National Police (PNP), of the September 27, 2006 Decision2 of the Court of Appeals in CA-G.R. CV No.
80623, which affirmed with modification the September 8, 2003 Decision3 of the Regional Trial Court (RTC), Branch
222, of Quezon City in Civil Case No. Q99-37717.

Respondent is the proprietress of Montaguz General Merchandise (MGM),4 a contractor accredited by the PNP for the
supply of office and construction materials and equipment, and for the delivery of various services such as printing
and rental, repair of various equipment, and renovation of buildings, facilities, vehicles, tires, and spare parts.5

On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition and Issue Voucher6 for the
acquisition of various building materials amounting to Two Million Two Hundred Eighty-Eight Thousand Five Hundred
Sixty-Two Pesos and Sixty Centavos (₱2,288,562.60) for the construction of a four-storey condominium building with
roof deck at Camp Crame, Quezon City.7
Respondent averred that on December 11, 1995, MGM and petitioner, represented by the PNP, through its chief,
executed a Contract of Agreement8 (the Contract) wherein MGM, for the price of ₱2,288,562.60, undertook to procure
and deliver to the PNP the construction materials itemized in the purchase order9 attached to the Contract.
Respondent claimed that after the PNP Chief approved the Contract and purchase order,10 MGM, on March 1, 1996,
proceeded with the delivery of the construction materials, as evidenced by Delivery Receipt Nos. 151-153,11 Sales
Invoice Nos. 038 and 041,12 and the "Report of Public Property Purchase"13 issued by the PNP’s Receiving and
Accounting Officers to their Internal Auditor Chief. Respondent asseverated that following the PNP’s inspection of the
delivered materials on March 4, 1996,14 the PNP issued two Disbursement Vouchers; one in the amount of
₱2,226,147.26 in favor of MGM,15 and the other, 16 in the amount of ₱62,415.34, representing the three percent (3%)
withholding tax, in favor of the Bureau of Internal Revenue (BIR).17

On November 5, 1997, the respondent, through counsel, sent a letter dated October 20, 199718 to the PNP,
demanding the payment of ₱2,288,562.60 for the construction materials MGM procured for the PNP under their
December 1995 Contract.

On November 17, 1997, the PNP, through its Officer-in-Charge, replied19 to respondent’s counsel, informing her of the
payment made to MGM via Land Bank of the Philippines (LBP) Check No. 0000530631, 20 as evidenced by Receipt
No. 001, 21 issued by the respondent to the PNP on April 23, 1996.22

On November 26, 1997, respondent, through counsel, responded by reiterating her demand23 and denying having ever
received the LBP check, personally or through an authorized person. She also claimed that Receipt No. 001, a copy of
which was attached to the PNP’s November 17, 1997 letter, could not support the PNP’s claim of payment as the
aforesaid receipt belonged to Montaguz Builders, her other company, which was also doing business with the PNP,
and not to MGM, with which the contract was made.

On May 5, 1999, respondent filed a Complaint for Sum of Money against the petitioner, represented by the Chief of
the PNP, before the RTC, Branch 222 of Quezon City.24 This was docketed as Civil Case No. Q99-37717.

The petitioner filed a Motion to Dismiss25 on July 5, 1999, on the ground that the claim or demand set forth in
respondent’s complaint had already been paid or extinguished,26 as evidenced by LBP Check No. 0000530631 dated
April 18, 1996, issued by the PNP to MGM, and Receipt No. 001, which the respondent correspondingly issued to the
PNP. The petitioner also argued that aside from the fact that the respondent, in her October 20, 1997 letter,
demanded the incorrect amount since it included the withholding tax paid to the BIR, her delay in making such
demand "[did] not speak well of the worthiness of the cause she espouse[d]."27

Respondent opposed petitioner’s motion to dismiss in her July 12, 1999 Opposition28and September 10, 1999
Supplemental Opposition to Motion to Dismiss.29 Respondent posited that Receipt No. 001, which the petitioner
claimed was issued by MGM upon respondent’s receipt of the LBP check, was, first, under the business name
"Montaguz Builders," an entity separate from MGM. Next, petitioner’s allegation that she received the LBP check on
April 19, 1996 was belied by the fact that Receipt No. 001, which was supposedly issued for the check, was dated four
days later, or April 23, 1996. Moreover, respondent averred, the PNP’s own Checking Account Section Logbook or the
Warrant Register, showed that it was one Edgardo Cruz (Cruz) who signed for the check due to MGM, 30 contrary to
her usual practice of personally receiving and signing for checks payable to her companies.

After conducting hearings on the Motion to Dismiss, the RTC issued an Order31 on May 4, 2001, denying the
petitioner’s motion for lack of merit. The petitioner thereafter filed its Answer,32 wherein it restated the same allegations
in its Motion to Dismiss.

Trial on the merits followed the pre-trial conference, which was terminated on June 25, 2002 when the parties failed to
arrive at an amicable settlement.33

On September 3, 2002, shortly after respondent was sworn in as a witness, and after her counsel formally offered her
testimony in evidence, Atty. Norman Bueno, petitioner’s counsel at that time, made the following stipulations in open
court:

Atty. Bueno (To Court)

Your Honor, in order to expedite the trial, we will admit that this witness was contracted to deliver the construction
supplies or materials. We will admit that she complied, that she actually delivered the materials. We will admit that
Land Bank Corporation check was issued although we will not admit that the check was not released to her, as [a]
matter of fact, we have the copy of the check. We will admit that Warrant Register indicated that the check was
released although we will not admit that the check was not received by the [respondent].

Court (To Atty. Albano)

So, the issues here are whether or not the [respondent] received the check for the payment of the construction
materials or supplies and who received the same. That is all.

Atty. Albano (To Court)

Yes, your Honor.

Court (To Atty. Albano)

I think we have an abbreviated testimony here. Proceed.34 (Emphasis ours.)

The stipulations made by the petitioner through Atty. Bueno were in consonance with the admissions it had previously
made, also through Atty. Bueno, in its Answer,35 and pre-trial brief36:

Answer:

IX

It ADMITS the allegation in paragraph 9 of the Complaint that [respondent] delivered to the PNP Engineering Service
the construction materials. It also ADMITS the existence of Receipt Nos. 151, 152 and 153 alleged in the same
paragraph, copies of which are attached to the Complaint as Annexes "G," "G-1" and "G-2."37 (Emphasis ours.)

Pre-trial Brief:

III

ADMISSIONS

3.1. Facts and/or documents admitted

For brevity, [petitioner] admit[s] only the allegations in [respondent’s] Complaint and the annexes thereto that were
admitted in the Answer.38 (Emphases ours.)

With the issue then confined to whether respondent was paid or not, the RTC proceeded with the trial.

Respondent, in her testimony, narrated that on April 18, 1996, she went to the PNP Finance Center to claim a check
due to one of her companies, Montaguz Builders. As the PNP required the issuance of an official receipt upon
claiming its checks, respondent, in preparation for the PNP check she expected, already signed Montaguz Builders
Official Receipt No. 001, albeit the details were still blank. However, upon arriving at the PNP Finance Center,
respondent was told that the check was still with the LBP, which could not yet release it. Respondent then left for the
Engineering Services Office to see Captain Rama, along with Receipt No. 001, which she had not yet
issued.39 Respondent claimed that after some time, she left her belongings, including her receipt booklet, at a bench in
Captain Rama’s office when she went around the Engineering Office to talk to some other people.40 She reasoned that
since she was already familiar and comfortable with the people in the PNPES Office, she felt no need to ask anyone
to look after her belongings, as it was her "normal practice"41 to leave her belongings in one of the offices there. The
next day, respondent alleged that when she returned for the check due to Montaguz Builders that she was not able to
claim the day before, she discovered for the first time that Receipt No. 001, which was meant for that check, was
missing. Since she would not be able to claim her check without issuing a receipt, she just informed the releaser of the
missing receipt and issued Receipt No. 002 in its place.42 After a few months, respondent inquired with the PNP
Finance Center about the payment due to MGM under the Contract of December 1995 and was surprised to find out
that the check payable to MGM had already been released. Upon making some inquiries, respondent learned that the
check, payable to MGM, in the amount of ₱2,226,147.26, was received by Cruz, who signed the PNP’s Warrant
Register. Respondent admitted to knowing Cruz, as he was connected with Highland Enterprises, a fellow PNP-
accredited contractor. However, she denied ever having authorized Cruz or Highland Enterprises to receive or claim
any of the checks due to MGM or Montaguz Builders.43 When asked why she had not filed a case against Cruz or
Herminio Reyes, the owner of Highland Enterprises, considering the admitted fact that Cruz claimed the check due to
her, respondent declared that there was no reason for her to confront them as it was the PNP’s fault that the check
was released to the wrong person. Thus, it was the PNP’s problem to find out where the money had gone, while her
course of action was to go after the PNP, as the party involved in the Contract.44

On April 29, 2003, petitioner presented Ms. Jesusa Magtira, who was then the "check releaser"45 of the PNP, to prove
that the respondent received the LBP check due to MGM, and that respondent herself gave the check to Cruz.46 Ms.
Magtira testified that on April 23, 1996, she released the LBP check payable to the order of MGM, in the amount of
₱2,226,147.26, to the respondent herein, whom she identified in open court. She claimed that when she released the
check to respondent, she also handed her a voucher, and a logbook also known as the Warrant Register, for
signing.47 When asked why Cruz was allowed to sign for the check, Ms. Magtira explained that this was allowed since
the respondent already gave her the official receipt for the check, and it was respondent herself who gave the logbook
to Cruz for signing.48

The petitioner next presented Edgardo Cruz for the purpose of proving that the payment respondent was claiming
rightfully belonged to Highland Enterprises. Cruz testified that Highland Enterprises had been an accredited contractor
of the PNP since 1975. In 1995, Cruz claimed that the PNPES was tasked to construct "by administration" a
condominium building. This meant that the PNPES had to do all the work, from the canvassing of the materials to the
construction of the building. The PNPES allegedly lacked the funds to do this and so asked for Highland Enterprises’s
help.49 In a meeting with its accredited contractors, the PNPES asked if the other contractors would agree to the use of
their business name50 for a two percent (2%) commission of the purchase order price to avoid the impression that
Highland Enterprises was monopolizing the supply of labor and materials to the PNP.51 Cruz alleged that on April 23,
1996, he and the respondent went to the PNP Finance Center to claim the LBP check due to MGM. Cruz said that the
respondent handed him the already signed Receipt No. 001, which he filled up. He claimed that the respondent knew
that the LBP check was really meant for Highland Enterprises as she had already been paid her 2% commission for
the use of her business name in the concerned transaction.52

On September 8, 2003, the RTC rendered its Decision, the dispositive of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondent] and against [petitioner]
ordering the latter to pay [respondent] the following sums:

(1) ₱2,226,147.26 representing the principal sum plus interest at 14% per annum from April 18, 1996 until the
same shall have been fully paid;

(2) 20% of the sum to be collected as attorney’s fees; and,

(3) Costs of suit.53

The RTC declared that while Cruz’s testimony seemed to offer a plausible explanation on how and why the LBP check
ended up with him, the petitioner, already admitted in its Answer, and Pre-trial Brief, that MGM, did in fact deliver the
construction materials worth ₱2,288,562.60 to the PNP. The RTC also pointed out the fact that the petitioner made the
same admissions in open court to expedite the trial, leaving only one issue to be resolved: whether the respondent
had been paid or not. Since this was the only issue, the RTC said that it had no choice but to go back to the
documents and the "documentary evidence clearly indicates that the check subject of this case was never received by
[respondent]."54 In addition, the PNP’s own Warrant Register showed that it was Edgardo Cruz who received the LBP
check, and Receipt No. 001 submitted by the petitioner to support its claim was not issued by MGM, but by Montaguz
Builders, a different entity. Finally, the RTC held that Cruz’s testimony, which appeared to be an afterthought to cover
up the PNP’s blunder, were irreconcilable with the petitioner’s earlier declarations and admissions, hence, not credit-
worthy.

The petitioner appealed this decision to the Court of Appeals, which affirmed with modification the RTC’s ruling on
September 27, 2006:

WHEREFORE, the decision appealed from is AFFIRMED with the MODIFICATION that the 14% interest per annum
imposed on the principal amount is ordered reduced to 12%, computed from November 16, 1997 until fully paid. The
order for the payment of attorney’s fees and costs of the suit is DELETED.55

The Court of Appeals, in deciding against the petitioner, held that the petitioner’s admissions and declarations, made
in various stages of the proceedings are express admissions, which cannot be overcome by allegations of
respondent’s implied admissions. Moreover, petitioner cannot controvert its own admissions and it is estopped from
denying that it had a contract with MGM, which MGM duly complied with. The Court of Appeals agreed with the RTC
that the real issue for determination was whether the petitioner was able to discharge its contractual obligation with the
respondent. The Court of Appeals held that while the PNP’s own Warrant Register disclosed that the payment due to
MGM was received by Cruz, on behalf of Highland Enterprises, the PNP’s contract was clearly with MGM, and not
with Highland Enterprises. Thus, in order to extinguish its obligation, the petitioner should have directed its payment to
MGM unless MGM authorized a third person to accept payment on its behalf.

The petitioner is now before this Court, praying for the reversal of the lower courts’ decisions on the ground that "the
Court of Appeals committed a serious error in law by affirming the decision of the trial court."56

THE COURT’S RULING:

This case stemmed from a contract executed between the respondent and the petitioner. While the petitioner, in
proclaiming that the respondent’s claim had already been extinguished, initially insisted on having fulfilled its
contractual obligation, it now contends that the contract it executed with the respondent is actually a fictitious contract
to conceal the fact that only one contractor will be supplying all the materials and labor for the PNP condominium
project.

Both the RTC and the Court of Appeals upheld the validity of the contract between the petitioner and the respondent
on the strength of the documentary evidence presented and offered in Court and on petitioner’s own stipulations and
admissions during various stages of the proceedings.

It is worthy to note that while this petition was filed under Rule 45 of the Rules of Court, the assertions and arguments
advanced herein are those that will necessarily require this Court to re-evaluate the evidence on record.

It is a well-settled rule that in a petition for review under Rule 45, only questions of law may be raised by the parties
and passed upon by this Court.57

This Court has, on many occasions, distinguished between a question of law and a question of fact. We held that
when there is doubt as to what the law is on a certain state of facts, then it is a question of law; but when the doubt
arises as to the truth or falsity of the alleged facts, then it is a question of fact.58 "Simply put, when there is no dispute
as to fact, the question of whether or not the conclusion drawn therefrom is correct, is a question of law."59 To elucidate
further, this Court, in Hko Ah Pao v. Ting60 said:

One test to determine if there exists a question of fact or law in a given case is whether the Court can resolve the
issue that was raised without having to review or evaluate the evidence, in which case, it is a question of law;
otherwise, it will be a question of fact. Thus, the petition must not involve the calibration of the probative value of the
evidence presented. In addition, the facts of the case must be undisputed, and the only issue that should be left for the
Court to decide is whether or not the conclusion drawn by the CA from a certain set of facts was
appropriate.61 (Emphases ours.)

In this case, the circumstances surrounding the controversial LBP check are central to the issue before us, the
resolution of which, will require a perusal of the entire records of the case including the transcribed testimonies of the
witnesses. Since this is an appeal via certiorari, questions of fact are not reviewable. As a rule, the findings of fact of
the Court of Appeals are final and conclusive62 and this Court will only review them under the following recognized
exceptions: (1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is a grave
abuse of discretion; (3) when the finding is grounded entirely on speculations, surmises or conjectures; (4) when the
judgment of the Court of Appeals is based on misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of
the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are
based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence and are contradicted by the evidence on record.63

Although petitioner’s sole ground to support this petition was stated in such a manner as to impress upon this Court
that the Court of Appeals committed an error in law, what the petitioner actually wants us to do is to review and re-
examine the factual findings of both the RTC and the Court of Appeals.

Since the petitioner has not shown this Court that this case falls under any of the enumerated exceptions to the rule,
we are constrained to uphold the facts as established by both the RTC and the Court of Appeals, and, consequently,
the conclusions reached in the appealed decision.

Nonetheless, even if we were to exercise utmost liberality and veer away from the rule, the records will show that the
petitioner had failed to establish its case by a preponderance of evidence.64 Section 1, Rule 133 of the Revised Rules
of Court provides the guidelines in determining preponderance of evidence:

SECTION 1. Preponderance of evidence, how determined.— In civil cases, the party having the burden of proof must
establish his case by a preponderance of evidence. In determining where the preponderance or superior weight of
evidence on the issues involved lies, the court may consider all the facts and circumstances of the case, the
witnesses’ manner of testifying, their intelligence, their means and opportunity of knowing the facts to which they are
testifying, the nature of the facts to which they testify, the probability or improbability of their testimony, their interest or
want of interest, and also their personal credibility so far as the same may legitimately appear upon the trial. The court
may also consider the number of witnesses, though the preponderance is not necessarily with the greater number.

Expounding on the concept of preponderance of evidence, this Court in Encinas v. National Bookstore, Inc.,65 held:
"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually
considered to be synonymous with the term "greater weight of the evidence" or "greater weight of the credible
evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is
evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.66

The petitioner avers that the Court of Appeals should not have relied "heavily, if not solely"67 on the admissions made
by petitioner’s former counsel, thereby losing sight of the "secret agreement" between the respondent and Highland
Enterprises, which explains why all the documentary evidence were in respondent’s name.68

The petitioner relies mainly on Cruz’s testimony to support its allegations. Not only did it not present any other witness
to corroborate Cruz, but it also failed to present any documentation to confirm its story. It is doubtful that the petitioner
or the contractors would enter into any "secret agreement" involving millions of pesos based purely on verbal
affirmations. Meanwhile, the respondent not only presented all the documentary evidence to prove her claims, even
the petitioner repeatedly admitted that respondent had fully complied with her contractual obligations.

The petitioner argued that the Court of Appeals should have appreciated the clear and adequate testimony of Cruz,
and should have given it utmost weight and credit especially since his testimony was a "judicial admission against
interest – a primary evidence which should have been accorded full evidentiary value."69

The trial court’s appreciation of the witnesses’ testimonies is entitled to the highest respect since it was in a better
position to assess their credibility.70 The RTC held Cruz’s testimony to be "not credit worthy"71 for being irreconcilable
with petitioner’s earlier admissions. Contrary to petitioner’s contentions, Cruz’s testimony cannot be considered as a
judicial admission against his interest as he is neither a party to the case nor was his admission against his own
interest, but actually against either the petitioner’s or the respondent’s interest. Petitioner’s statements on the other
hand, were deliberate, clear, and unequivocal and were made in the course of judicial proceedings; thus, they qualify
as judicial admissions.72 In Alfelor v. Halasan,73 this Court held that:

A party who judicially admits a fact cannot later challenge that fact as judicial admissions are a waiver of proof;
production of evidence is dispensed with. A judicial admission also removes an admitted fact from the field of
controversy. Consequently, an admission made in the pleadings cannot be controverted by the party making such
admission and are conclusive as to such party, and all proofs to the contrary or inconsistent therewith should be
ignored, whether objection is interposed by the party or not. The allegations, statements or admissions contained in a
pleading are conclusive as against the pleader. A party cannot subsequently take a position contrary of or inconsistent
with what was pleaded.74

The petitioner admitted to the existence and validity of the Contract of Agreement executed between the PNP and
MGM, as represented by the respondent, on December 11, 1995. It likewise admitted that respondent delivered the
construction materials subject of the Contract, not once, but several times during the course of the proceedings. The
only matter petitioner assailed was respondent’s allegation that she had not yet been paid. If Cruz’s testimony were
true, the petitioner should have put respondent in her place the moment she sent a letter to the PNP, demanding
payment for the construction materials she had allegedly delivered. Instead, the petitioner replied that it had already
paid respondent as evidenced by the LBP check and the receipt she supposedly issued. This line of defense
continued on, with the petitioner assailing only the respondent’s claim of nonpayment, and not the rest of respondent’s
claims, in its motion to dismiss, its answer, its pre-trial brief, and even in open court during the respondent’s testimony.
Section 4, Rule 129 of the Rules of Court states:

SECTION 4. Judicial Admissions.–An admission, verbal or written, made by a party in the course of the proceedings
in the same case, does not require proof. The admission may be contradicted only by showing that it was made
through palpable mistake or that no such admission was made.

Petitioner’s admissions were proven to have been made in various stages of the proceedings, and since the petitioner
has not shown us that they were made through palpable mistake, they are conclusive as to the petitioner. Hence, the
only question to be resolved is whether the respondent was paid under the December 1995 Contract of Agreement.

The RTC and the Court of Appeals correctly ruled that the petitioner’s obligation has not been extinguished. The
petitioner’s obligation consists of payment of a sum of money. In order for petitioner’s payment to be effective in
extinguishing its obligation, it must be made to the proper person. Article 1240 of the Civil Code states:

Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor
in interest, or any person authorized to receive it.

In Cembrano v. City of Butuan,75 this Court elucidated on how payment will effectively extinguish an obligation, to wit:
Payment made by the debtor to the person of the creditor or to one authorized by him or by the law to receive it
extinguishes the obligation. When payment is made to the wrong party, however, the obligation is not extinguished as
to the creditor who is without fault or negligence even if the debtor acted in utmost good faith and by mistake as to the
person of the creditor or through error induced by fraud of a third person.

In general, a payment in order to be effective to discharge an obligation, must be made to the proper person. Thus,
payment must be made to the obligee himself or to an agent having authority, express or implied, to receive the
particular payment. Payment made to one having apparent authority to receive the money will, as a rule, be treated as
though actual authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized to
act for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer authorized by law to
accept it will, therefore, satisfy the debt.76

The respondent was able to establish that the LBP check was not received by her or by her authorized personnel. The
PNP’s own records show that it was claimed and signed for by Cruz, who is openly known as being connected to
Highland Enterprises, another contractor. Hence, absent any showing that the respondent agreed to the payment of
the contract price to another person, or that she authorized Cruz to claim the check on her behalf, the payment, to be
effective must be made to her.77

The petitioner also challenged the RTC’s findings, on the ground that it "overlooked material fact and circumstance of
significant weight and substance."78 Invoking the doctrine of adoptive admission, the petitioner pointed out that the
respondent’s inaction towards Cruz, whom she has known to have claimed her check as early as 1996, should be
taken against her. Finally, the petitioner contends that Cruz’s testimony should be taken against respondent as well,
under Rule 130, Sec. 32 of the Revised Rules on Evidence, since she has not presented any "controverting evidence
x x x notwithstanding that she personally heard it."79

The respondent has explained her inaction towards Cruz and Highland Enterprises. Both the RTC and the Court of
Appeals have found her explanation sufficient and this Court finds no cogent reason to overturn the assessment by
the trial court and the Court of Appeals of the respondent’s testimony. It may be recalled that the respondent argued
that since it was the PNP who owed her money, her actions should be directed towards the PNP and not Cruz or
Highland Enterprises, against whom she has no adequate proof.80 Respondent has also adequately explained her
delay in filing an action against the petitioner, particularly that she did not want to prejudice her other pending
transactions with the PNP.81

The petitioner claims that the RTC "overlooked material fact and circumstance of significant weight and
substance,"82 but it ignores all the documentary evidence, and even its own admissions, which are evidence of the
greater weight and substance, that support the conclusions reached by both the RTC and the Court of Appeals.

We agree with the Court of Appeals that the RTC erred in the interest rate and other monetary sums awarded to
respondent as baseless. However, we must further modify the interest rate imposed by the Court of Appeals pursuant
to the rule laid down in Eastern Shipping Lines, Inc. v. Court of Appeals83:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code
govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12%  per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.84

Since the obligation herein is for the payment of a sum of money, the legal interest rate to be imposed, under Article
2209 of the Civil Code is six percent (6%) per annum:

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.

Following the guidelines above, the legal interest of 6% per annum is to be imposed from November 16, 1997, the
date of the last demand, and 12% in lieu of 6% from the date this decision becomes final until fully paid. lawphi1

Petitioner’s allegations of sham dealings involving our own government agencies are potentially disturbing and
alarming. If Cruz’s testimony were true, this should be a lesson to the PNP not to dabble in spurious transactions.
Obviously, if it can afford to give a 2% commission to other contractors for the mere use of their business names, then
the petitioner is disbursing more money than it normally would in a legitimate transaction. It is recommended that the
proper agency investigate this matter and hold the involved personnel accountable to avoid any similar occurrence in
the future.

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in C.A. G.R. CV No. 80623
dated September 27, 2006 is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT
(6%) per annum on the amount of ₱2,226,147.26, computed from the date of the last demand or on November 16,
1997. A TWELVE PERCENT (12%) per annum interest in lieu of SIX PERCENT (6%) shall be imposed on such
amount upon finality of this decision until the payment thereof.

SO ORDERED.

CASE #19:

G.R. No. 106648 June 17, 1999

AUDIO ELECTRIC CO., INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and NICOLAS MADOLID, respondents.

GONZAGA-REYES, J.:

In this special civil action for certiorari, petitioner seeks the annulment of the resolution 1 dated March 24, 1992, of the National
Labor Relations Commission in NLRC NCR-CA No. 001034-90 and the Order 2 dated July 31, 1992, denying petitioner's motion for
reconsideration dated April 22, 1992.

The facts of the case as summarized by Labor Arbiter Cresencio R. Iniego in his decision rendered on November 15, 1990 in
NLRC-NCR Case No. -00-08-03906-89, and which are quoted in the questioned Resolution dated March 24, 1992 of the public
respondent are as follows:

From the position paper and affidavit corroborated by oral testimony, it appears that complainant was employed by respondent
Audion Electric Company on June 30, 1976 as fabricator and continuously rendered service assigned in different offices or
projects as helper electrician, stockman and timekeeper. He as rendered thirteen (13) years of continuous, loyal and dedicated
service with a clean record. On August 3, complainant was surprised to receive a letter informing him that he will be considered
terminated after the turnover of materials, including respondents, tools and equipment not later than August 15, 1989.

Complainant claims that he was dismissed without justifiable cause and due process and that his dismissed was done in bad faith
which renders the dismissal illegal. For this reason, he claims that he is entitled to reinstatement with full backwages. He also
claims that he is entitled to moral and exemplary damages. He includes payment of his overtime pay, project allowance,
minimum wage increase adjustment, proportionate 13th month pay and attorney's fees.

On its part, respondent merely relied on its unverified letter-communication signed by its project manager, dated September 25,
1989, the contents of which are as follows:
Your Honor:

Apropos to the complaints filed by NICOLAS MADOLID with your honorable office are as stated and corresponding allegation as
our defense to said complaints.

A. ILLEGAL DISMISSAL — There is no course (sic) to complain since employment contract signed by complainant with respondent
is co-terminus with the project. . . .

B. UNPAID WAGES — Admitting that salary payment was delayed due to late remittance of collection from respondent's
Japanese prime contractor but nonetheless settled with complainant as evidenced by signed Payroll Slips by complainant. . . .

C. NON-PAYMENT OF 13TH MONTH PAY — As earlier admitted, there was a relative delay in the remittance of collection
payment from our Japanese prime contractor but respondent knowing the economic predecament (sic) of complainant has seen
to it that respondent be satisfied without awaiting for remittance of 13th month from its Japanese contractor, attached is a . . .

In full satisfaction of the enumerated complaints made by complainant NICOLAS MADOLID against respondent THE AUDION
ELECTRIC CO., INC., we pray that charges against respondent be withdrawn and dropped. 3

On November 15, 1990, Labor Arbiter Cresencio R. Iniego rendered a decision, the dispositive portion states:

WHEREFORE, judgment is hereby rendered ordering respondent Audion Electric Co., Inc. and/or Robert S. Coran, Manager:

1. to reinstate complaint Nicolas Madolid to his former position with full backwages from the date of his dismissal on August 15,
1989 up to the signing of this decision without loss of seniority rights in the amount of P34,710.00;

2. to pay complainant his overtime pay for the period March 16 to April 3, 1989 in the amount of P765.63;

3. to pay complainant his project allowances as follows:

April 16, 1989 to April 30, 1989 P30.00

May 1 to May 15, 1989 P45.00

May 16 to May 31, 1989 P30.00

June 1 to June 15, 1989 P45.00

June 16 to June 30, 1989 P30.00

July 1 to July 15, 1989 P30.00

July 16 to July 31, 1989 P45.00

4. to pay complainant the minimum wage increase adjustment from August 1 to 14, 1989 in the amount of P256.50;

5. to pay complainant his proportionate 13th month pay from January to May 1988 in the amount of P700.00;

6. to pay complainant moral and exemplary damages in the amount of P20,000.00; and

7. to pay attorney's fees equivalent to 10% of the total award of complainant. 4

Petitioner appealed to the National Labor Relations Commission which rendered the questioned Resolution dated March 24,
1992 dismissing the appeal.

The motion for reconsideration filed by petitioner was denied by the NLRC in its Order dated July 31, 1992.

Petitioner is now before us raising the following issues:

THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION IN AFFIRMING THE DECISION OF THE LABOR
ARBITER DIRECTING THE REINSTATEMENT OF THE PRIVATE RESPONDENT TO HIS FORMER POSITION WITHOUT LOSS OF
SENIORITY RIGHTS AND WITH BACKWAGES AMOUNTING TO P34,710.00 NOTWITHSTANDING THE FACT THAT THE PRIVATE
RESPONDENT WAS MERELY A PROJECT EMPLOYEE.
II

THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION WHEN IT AWARDED THE CLAIM FOR OVERTIME
PAY TO PRIVATE RESPONDENT WHEN NO OVERTIME WORK WAS RENDERED.

III

THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION WHEN IT AWARDED THE CLAIMS OF PRIVATE
RESPONDENT FOR PROJECT ALLOWANCES, MINIMUM WAGE INCREASE ADJUSTMENT AND PROPORTIONATE 13TH MONTH PAY
WITHOUT ANY EVIDENCE TO PROVE THE SAME.

IV

THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION WHEN IT DENIED PETITIONER'S CLAIM THAT IT
WAS DENIED DUE PROCESS.

THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION WHEN IT DID NOT TOUCH UPON MUCH LESS
DISCUSS THE PETITIONER'S ASSIGNMENTS OF ERRORS IN ITS APPEAL.

IV

THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION IN AWARDING MORAL AND EXEMPLARY DAMAGES
IN THE AMOUNT OF P20,000 AS WELL AS ATTORNEY'S FEES CONSIDERING THAT THE SAME ARE WITHOUT FACTUAL AND LEGAL
BASIS. 5

The core issues presented before us are (a) whether the respondent NLRC committed grave abuse of discretion amounting to
lack or excess of jurisdiction when it ruled that private respondent was a regular employee and not a project employee, (b)
whether petitioner was denied due process when all the money claims of private respondent, i.e. overtime pay, project
allowances, salary differential proportionate 13th month pay, moral and exemplary damages as well as attorney's fees, were
granted.

Petitioner contends that as an electrical contractor, its business depends on contracts it may obtain from private and
government establishments, hence the duration of the of the employment of its work force is not permanent but co-terminus
with the project to which they are assigned; that the conclusion reached by the respondent court that private respondent was a
regular employee of petitioner was merely based on mere allegations of private respondent since the Labor Arbiter did not
considered the letter-communication filed by petitioner through its project manager for the reason that it was not under oath;
that although private respondent's employment records showed that he was hired by petitioner as fabricator, helper/electrician,
stockman and timekeeper in its various projects from 1976 to August 14, 1989, the same employment record showed a gap in
his employment service be reason of completion of a particular project, hence, private respondent would be re-assigned to
other on-going projects of the petitioner or be laid off if there is no available project; that private respondent is a project worker
whose employment is co-terminus with the completion of project, regardless of the number of projects in which he had worked
as provided under Policy Instruction No. 20 of the Labor Department defining project employees as those employed in
connection with a particular construction project. Petitioner relies on the rulings laid in Sandoval Shipyard
Inc. vs. NLRC 6 and Cartagenas vs. Romago Electric Co., Inc. 7 where this court declared the employment of project employees as
co-terminus with the completion of the project for which they were hired.

Well-settled is the rule that the findings of the NLRC, except when there is grave abuse of discretion, are practically conclusive
on this Court. It is only when the NLRC's findings are bereft of any substantial support from the records that the Court may step
in and proceed to make its own independent evaluation of the facts . 8 We see no reason to deviate from the rule.

In finding that private respondent was a regular employee of petitioner and not a mere project employee, the respondent
Commission held:

Firstly, respondent's assigning complainant to its various projects did not make complainant a project worker. As found by the
Labor Arbiter, "it appears that complainant was employed by respondent . . . as fabricator and or projects as helper electrician,
stockman and timekeeper." Simply put, complainant was a regular non-project worker. 9
Private respondent's employment status was established by the Certification of Employment dated April 10, 1989 issued by
petitioner which certified that private respondent is a bonafide employee of the petitioner from June 30, 1976 up to the time
the certification was issued on April 10, 1989. The same certificate of employment showed that private respondent's exposure
to their field of operation was as fabricator, helper/electrician, stockman/timekeeper. This proves that private respondent was
regularly and continuously employed by petitioner in various job assignments from 1976 to 1989, for a total of 13 years. The
alleged gap in employment service cited by petitioner does not defeat private respondent's regular status as he was rehired for
many more projects without interruption and performed functions which vital, necessary and indispenasble to the usual
business of petitioner.

We have held that where the employment of project employees is extended long after the supposed project has been finished,
the employees are removed from the scope of project employees and considered regular employees. 10 Private respondent had
presented substantial evidence to support his position, while petitioner merely presented an unverified position paper merely
stating therein that private respondent has no cause to complain since the employment contract signed by private respondent
with petitioner was co-terminus with the project. Notably, petitioner failed to present such employment contract for a specific
project signed by private respondent that would show that his employment with the petitioner was for the duration of a
particular project. Moreover, notwithstanding petitioner's claim in its reply that in taking interest in the welfare of its workers,
petitioner would strive to provide them with more continuous work by successively employing its workers, in this case, private
respondent, petitioner failed to present any report of termination. Petitioner should submitted or failed as many reports of
termination as were construction projects actually finished, considering that private respondent had been hired since 1976. The
failure of petitioner to submit reports of termination supports the claim of private respondent that he was indeed a regular
employee.

Policy Instruction No. 20 of the Department of Labor is explicit that employers of project employees are exempted from the
clearance requirement but not from the submission of termination report. This court has consistently held that failure of the
employer to file termination reports after every project completion with the nearest public employment office is an indication
that private respondent was not and is not a project employee. 11 Department Order No. 19 superseding Policy Instruction No.
20 expressly provides that the report of termination is one of the indications of project employment. 12

As stated earlier, the rule in our jurisdiction is that findings of facts of the NLRC affirming those of the Labor Arbiter are entitled
to great weight and will not be disturbed if they are supported by substantial evidence. 13 Substantial evidence is an amount of
relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. 14 We find no grave abuse of
discretion committed by NLRC in finding that private respondent was not a project employee.

Our ruling in the case of Sandoval Shipyard vs. NLRC, supra, is not in point. In the said case, the hiring of construction workers
was not continuous for the reason that the shipyard merely accepts contractors for shipbuilding or for repair of vessels from
third parties and, it is only on occasions when it has work contracts of this nature that it hires workers for the job which lasts
only for less than a year or longer. With respect to Cartagenas vs. Romago Electric Co. also relied upon by the petitioner, the
complainants were considered project employees because they were issued appointments from project to project, which were
co-terminus with the phase or item of work assigned to them in said project, a situation which is not obtaining in the instant
case.

Petitioner further claims that respondent Commission erred in sustaining the awards for overtime pay, project allowances,
minimum wage increase adjustment and proportionate 13th month pay to private respondent in the absence of any substantial
evidence supporting the same; that private respondent failed to present any documentary evidence other than his self-serving
allegation that he actually rendered overtime work and that he failed to specify in his paper the actual number of overtime work
alleged to have been rendered; that in petitioner's letter-communication filed with the labor arbiter, it showed that claims for
allowances and salary differential and 13th month pay were already satisfied although petitioner admitted that there was a
delay payment which was not rebutted by private respondent.

We find no merit in petitioner's contention.

Private respondent clearly specified in his affidavit the specific dates in which not paid overtime pay, that is, from the period
March 16, 1989 to April 3, 1989 amounting to P765.63, project allowances from April 16, 1989 to July 31, 1989 in the total
amount of P255.00, wage adjustment for the period from August 1, 1989 to August 14, 1989 in the amount of P256.50 and the
proportionate 13th month pay for the period covering January to May 1988, November-December 1988, and from January to
August 1989. This same affidavit was confirmed by private respondent in one of the scheduled hearings where he moved that he
be allowed to present his evidence ex-parte for failure of petitioner or any of his representative to appear thereat. On the other
hand, petitioner submitted its unverified Comment to private respondent's complaint stating that he had already satisfied the
unpaid wages and 13th month pay claimed by private respondent, but this was not considered by the Labor Arbiter for being
unverified. As a rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment,
the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-
payment. 15 The debtor has the burden of showing with legal certainty that the obligation has been discharged by
payment. 16 Petitioner failed to rebut the claims of private respondent. It failed to show proof by means of payroll or other
evidence to disprove the claim of private respondent. Petitioner was given the opportunity to cross-examine private respondent
yet petitioner forfeited such change when it did not attend the hearing, and failed to rebut the claims of private respondent.

Petitioner's contention that it was denied due process when it was not given the chance to cross-examine the adverse party and
his witnesses, is devoid of merit. The essence of due process is simply an opportunity to be heard 17 or as applied to
administrative proceedings, an opportunity to explain one's side or an opportunity to seek a reconsideration of the action or
ruling complained
of . 18 What the law prohibits is absolute absence of the opportunity to be heard; hence, a party cannot feign denial of due
process where he had been afforded the opportunity to present his side. 19 Petitioner was not denied due process. As the
respondent commission observed:

The case was initially set for hearing on September 12, 1989 wherein complainant himself appeared. Respondents'
representative appeared late. For this reason, the case was reset to September 26, 1989 at 9:30 a.m. wherein both parties
appeared. Complainant filed his position paper and respondents through its project manager filed a one-page unverified
communication stating therein its defense. The case was then reset to October 9 and 10, 1990 both at 3:00 p.m. warning the
parties that no further postponement will be allowed. On October 9, 1989 complainant and his counsel appeared but
respondents and representative failed to appear despite due notice and warning. A reply to respondent's position paper was
filed by complainant through counsel during the hearing. To give a chance to respondents to appear, hearing was reset the next
day, October 10, 1989. However, respondents or representative again failed to appear which constrained counsel for
complainant to move that he be allowed to present evidence ex-parte which motion was granted. Complainant was presented
as witness, confirmed his affidavit, testified on additional direct examination and identified the annexes attached to his position
paper.

To allow the respondent to cross examine to complainant, hearing was again reset to October 31, 1989 at 9:30 a.m., with the
warning that if respondents again fail to appear, presentation of evidence will he deemed waived and the case will be
considered submitted for decision. On October 31, 1989, despite due notice and warning, counsel for respondents failed to
appear although a representative appeared requesting for a resetting alleging that counsel for respondent is busy with the Office
of the Commission of Immigration. Said motion was denied and the motion of counsel for complainant to submit the case for
decision was granted. 20

Clearly, petitioner had ample opportunity to present its side of the controversy not only before the Labor Arbiter but also with
the NLRC on appeal, where petitioner submitted a memorandum as well as a motion for reconsideration, which were all
considered by the NLRC in the course of resolving the case. 21 It cannot thereafter interpose lack of due process since it was
given the chance to be heard and present his case. 22 Consequently, the alleged defect in the proceedings before the Labor
Arbiter, if there be any, should be deemed cured.

Petitioner's contention that the respondent Commission did not touch upon each one of the errors enumerated in petitioner's
appeal in its resolution of March 24, 1992 is untenable. In affirming the decision of the Labor Arbiter, the respondent NLRC
found the evidence supporting the labor arbiter's factual findings to be substantial, and for this reason found it unnecessary to
make a separate discussion.

However, the award of moral and exemplary damages must be deleted for being devoid of legal basis. Moral and exemplary
damages are recoverable only where the dismissal of an employee was attended by bad faith or fraud, or constituted an act
oppressive to labor, or was done in a manner contrary to morals, good customs or public policy. 23 The person claiming moral
damages must prove the existence of bad faith by clear and convincing evidence for the law always presumes good faith. 24 It is
not enough that one merely suffered sleepless nights, mental anguish, serious anxiety as the result of the actuations of the other
party. Invariably, such action must be shown to have been willfully done in bad faith or with ill motive, and bad faith or ill motive
under the law cannot be presumed but must be established with clear and convincing
evidence. 25 Private respondent predicated his claim for such damages on his own allegations of sleepless nights and mental
anguish, without establishing bad faith, fraud or ill motive as legal basis therefor.
Private respondent not being entitled to award of moral damages, an award of exemplary damages is likewise
baseless. 26 Where the award of moral and exemplary damages is eliminated, so must the award for attorney's fees be
deleted. 27 Private respondent has not shown that he is entitled thereto pursuant to Art. 2208 of the Civil Code.

WHEREFORE, the challenged resolutions of the respondent NLRC are hereby AFFIRMED with the MODIFICATION that the awards
of moral and exemplary damages and attorney's fees are DELETED.1âwphi1.nêt

SO ORDERED.

CASE #20:

G.R. No. 190755               November 24, 2010

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
ALFREDO ONG, Respondent.

DECISION

VELASCO, JR., J.:

This is an appeal from the October 20, 2009 Decision of the Court of Appeals (CA) in CA-G.R. CR-CV No. 84445
entitled Alfredo Ong v. Land Bank of the Philippines, which affirmed the Decision of the Regional Trial Court (RTC),
Branch 17 in Tabaco City.

The Facts

On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount
of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under
the loan agreement, PhP 6 million of the loan would be short-term and would mature on February 28, 1997, while the
balance of PhP 10 million would be payable in seven (7) years. The Notice of Loan Approval dated February 22, 1996
contained an acceleration clause wherein any default in payment of amortizations or other charges would accelerate
the maturity of the loan.1

Subsequently, however, the Spouses Sy found they could no longer pay their loan. On December 9, 1996, they sold
three (3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother, under a
Deed of Sale with Assumption of Mortgage. The relevant portion of the document2 is quoted as follows:

WHEREAS, we are no longer in a position to settle our obligation with the bank;

NOW THEREFORE, for and in consideration of the sum of ONE HUNDRED FIFTY THOUSAND PESOS
(P150,000.00) Philippine Currency, we hereby these presents SELL, CEDE, TRANSFER and CONVEY, by way of
sale unto ANGELINA GLORIA ONG, also of legal age, Filipino citizen, married to Alfredo Ong, and also a resident of
Tabaco, Albay, Philippines, their heirs and assigns, the above-mentioned debt with the said LAND BANK OF THE
PHILIPPINES, and by reason hereof they can make the necessary representation with the bank for the proper
restructuring of the loan with the said bank in their favor;

That as soon as our obligation has been duly settled, the bank is authorized to release the mortgage in favor of the
vendees and for this purpose VENDEES can register this instrument with the Register of Deeds for the issuance of
the titles already in their names.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this 9th day of December 1996 at Tabaco, Albay,
Philippines.

(signed) (signed)
EVANGELINE O. SY JOHNSON B. SY
Vendor Vendor

Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and assumption of
mortgage.3 Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de
Lumen that there was nothing wrong with the agreement with the Spouses Sy but provided them with requirements for
the assumption of mortgage. They were also told that Alfredo should pay part of the principal which was computed at
PhP 750,000 and to update due or accrued interests on the promissory notes so that Atty. Hingco could easily
approve the assumption of mortgage. Two weeks later, Alfredo issued a check for PhP 750,000 and personally gave it
to Atty. Hingco. A receipt was issued for his payment. He also submitted the other documents required by Land Bank,
such as financial statements for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the
Spouses Sy would be transferred in his name but this never materialized. No notice of transfer was sent to him.4

Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank. The bank
learned from its credit investigation report that the Ongs had a real estate mortgage in the amount of PhP 18,300,000
with another bank that was past due. Alfredo claimed that this was fully paid later on. Nonetheless, Land Bank
foreclosed the mortgage of the Spouses Sy after several months. Alfredo only learned of the foreclosure when he saw
the subject mortgage properties included in a Notice of Foreclosure of Mortgage and Auction Sale at the RTC in
Tabaco, Albay. Alfredo’s other counsel, Atty. Madrilejos, subsequently talked to Land Bank’s lawyer and was told that
the PhP 750,000 he paid would be returned to him.5

On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages against Land Bank in
Civil Case No. T-1941, as Alfredo’s payment was not returned by Land Bank. Alfredo maintained that Land Bank’s
foreclosure without informing him of the denial of his assumption of the mortgage was done in bad faith. He argued
that he was lured into believing that his payment of PhP 750,000 would cause Land Bank to approve his assumption
of the loan of the Spouses Sy and the transfer of the mortgaged properties in his and his wife’s name.6 He also
claimed incurring expenses for attorney’s fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in moral
damages.7

Testifying for Land Bank, Atty. Hingco claimed during trial that as branch manager she had no authority to approve
loans and could not assure anybody that their assumption of mortgage would be approved. She testified that the
breakdown of Alfredo’s payment was as follows:

PhP 101,409.59 applied to principal

216,246.56 accrued interests receivable
396,571.77 interests
18,766.10 penalties
16,805.98 accounts receivable
----------------
Total: 750,000.00

According to Atty. Hingco, the bank processes an assumption of mortgage as a new loan, since the new borrower is
considered a new client. They used character, capacity, capital, collateral, and conditions in determining who can
qualify to assume a loan. Alfredo’s proposal to assume the loan, she explained, was referred to a separate office, the
Lending Center. 8

During cross-examination, Atty. Hingco testified that several months after Alfredo made the tender of payment, she
received word that the Lending Center rejected Alfredo’s loan application. She stated that it was the Lending Center
and not her that should have informed Alfredo about the denial of his and his wife’s assumption of mortgage. She
added that although she told Alfredo that the agreement between the spouses Sy and Alfredo was valid between them
and that the bank would accept payments from him, Alfredo did not pay any further amount so the foreclosure of the
loan collaterals ensued. She admitted that Alfredo demanded the return of the PhP 750,000 but said that there was no
written demand before the case against the bank was filed in court. She said that Alfredo had made the payment of
PhP 750,000 even before he applied for the assumption of mortgage and that the bank received the said amount
because the subject account was past due and demandable; and the Deed of Assumption of Mortgage was not used
as the basis for the payment. 9

The Ruling of the Trial Court

The RTC held that the contract approving the assumption of mortgage was not perfected as a result of the credit
investigation conducted on Alfredo. It noted that Alfredo was not even informed of the disapproval of the assumption
of mortgage but was just told that the accounts of the spouses Sy had matured and gone unpaid. It ruled that under
the principle of equity and justice, the bank should return the amount Alfredo had paid with interest at 12% per annum
computed from the filing of the complaint. The RTC further held that Alfredo was entitled to attorney’s fees and
litigation expenses for being compelled to litigate.10

The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, a decision is rendered, ordering defendant bank to pay plaintiff, Alfredo Ong the
amount of P750,000.00 with interest at 12% per annum computed from Dec. 12, 1997 and attorney’s fees and
litigation expenses of P50,000.00.

Costs against defendant bank.

SO ORDERED.11

The Ruling of the Appellate Court

On appeal, Land Bank faulted the trial court for (1) holding that the payment of PhP 750,000 made by Ong was one of
the requirements for the approval of his proposal to assume the mortgage of the Sy spouses; (2) erroneously ordering
Land Bank to return the amount of PhP 750,000 to Ong on the ground of its failure to effect novation; and (3)
erroneously affirming the award of PhP 50,000 to Ong as attorney’s fees and litigation expenses.

The CA affirmed the RTC Decision.12 It held that Alfredo’s recourse is not against the Sy spouses. According to the
appellate court, the payment of PhP 750,000 was for the approval of his assumption of mortgage and not for payment
of arrears incurred by the Sy spouses. As such, it ruled that it would be incorrect to consider Alfredo a third person
with no interest in the fulfillment of the obligation under Article 1236 of the Civil Code. Although Land Bank was not
bound by the Deed between Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land Bank’s
active preparations for Alfredo’s assumption of mortgage essentially novated the agreement.

On January 5, 2010, the CA denied Land Bank’s motion for reconsideration for lack of merit. Hence, Land Bank
appealed to us.

The Issues

Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply and in finding
that there is no novation.

II

Whether the Court of Appeals misconstrued the evidence and the law when it affirmed the trial court
decision’s ordering Land Bank to pay Ong the amount of Php750,000.00 with interest at 12% annum.

III

Whether the Court of Appeals committed reversible error when it affirmed the award of Php50,000.00 to Ong
as attorney’s fees and expenses of litigation.

The Ruling of this Court

We affirm with modification the appealed decision.

Recourse is against Land Bank

Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse
against the Spouses Sy instead of Land Bank. Art. 1236 provides:

The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of
the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the
debtor.1avvphi1

We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236. Land Bank was not bound to
accept Alfredo’s payment, since as far as the former was concerned, he did not have an interest in the payment of the
loan of the Spouses Sy. However, in the context of the second part of said paragraph, Alfredo was not making
payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional payment so that the properties subject
of the Deed of Sale with Assumption of Mortgage would be titled in his name. It is clear from the records that Land
Bank required Alfredo to make payment before his assumption of mortgage would be approved. He was informed that
the certificate of title would be transferred accordingly. He, thus, made payment not as a debtor but as a prospective
mortgagor. But the trial court stated:

[T]he contract was not perfected or consummated because of the adverse finding in the credit investigation which led
to the disapproval of the proposed assumption. There was no evidence presented that plaintiff was informed of the
disapproval. What he received was a letter dated May 22, 1997 informing him that the account of spouses Sy had
matured but there [were] no payments. This was sent even before the conduct of the credit investigation on June 20,
1997 which led to the disapproval of the proposed assumption of the loans of spouses Sy.13

Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the obligation of the Spouses Sy,
since his interest hinged on Land Bank’s approval of his application, which was denied. The circumstances of the
instant case show that the second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own
interest and not on behalf of the Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for
another, he cannot demand from the debtors, the Spouses Sy, what he has paid.

Novation of the loan agreement

Land Bank also faults the CA for finding that novation applies to the instant case. It reasons that a substitution of
debtors was made without its consent; thus, it was not bound to recognize the substitution under the rules on
novation.

On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance Corporation14 provides the following
discussion:

Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old
obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results
either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have
dual functions ─ one to extinguish an existing obligation, the other to substitute a new one in its place ─ requiring a
conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new
contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. x x x

In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.
The test of incompatibility is whether or not the two obligations can stand together, each one having its independent
existence. x x x (Emphasis supplied.)

Furthermore, Art. 1293 of the Civil Code states:

Novation which consists in substituting a new debtor in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives
him rights mentioned in articles 1236 and 1237.

We do not agree, then, with the CA in holding that there was a novation in the contract between the parties. Not all the
elements of novation were present. Novation must be expressly consented to. Moreover, the conflicting intention and
acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear
and unequivocal intent by the parties to novate the old agreement.15 Land Bank is thus correct when it argues that
there was no novation in the following:

[W]hether or not Alfredo Ong has an interest in the obligation and payment was made with the knowledge or consent
of Spouses Sy, he may still pay the obligation for the reason that even before he paid the amount of P750,000.00 on
January 31, 1997, the substitution of debtors was already perfected by and between Spouses Sy and Spouses Ong
as evidenced by a Deed of Sale with Assumption of Mortgage executed by them on December 9, 1996. And since the
substitution of debtors was made without the consent of Land Bank – a requirement which is indispensable in order to
effect a novation of the obligation, it is therefore not bound to recognize the substitution of debtors. Land Bank did not
intervene in the contract between Spouses Sy and Spouses Ong and did not expressly give its consent to this
substitution.16

Unjust enrichment
Land Bank maintains that the trial court erroneously applied the principle of equity and justice in ordering it to return
the PhP 750,000 paid by Alfredo. Alfredo was allegedly in bad faith and in estoppel. Land Bank contends that it
enjoyed the presumption of regularity and was in good faith when it accepted Alfredo’s tender of PhP 750,000. It
reasons that it did not unduly enrich itself at Alfredo’s expense during the foreclosure of the mortgaged properties,
since it tendered its bid by subtracting PhP 750,000 from the Spouses Sy’s outstanding loan obligation. Alfredo’s
recourse then, according to Land Bank, is to have his payment reimbursed by the Spouses Sy.

We rule that Land Bank is still liable for the return of the PhP 750,000 based on the principle of unjust enrichment.
Land Bank is correct in arguing that it has no obligation as creditor to recognize Alfredo as a person with interest in the
fulfillment of the obligation. But while Land Bank is not bound to accept the substitution of debtors in the subject real
estate mortgage, it is estopped by its action of accepting Alfredo’s payment from arguing that it does not have to
recognize Alfredo as the new debtor. The elements of estoppel are:

First, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to
another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably
or justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to
assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other
would act upon the information given or that a reasonable person in the actor’s position would expect or foresee such
action.17

By accepting Alfredo’s payment and keeping silent on the status of Alfredo’s application, Land Bank misled Alfredo to
believe that he had for all intents and purposes stepped into the shoes of the Spouses Sy.

The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it was the bank’s Lending Center that
should have notified Alfredo of his assumption of mortgage disapproval is unavailing. The Lending Center’s lack of
notice of disapproval, the Tabaco Branch’s silence on the disapproval, and the bank’s subsequent actions show a
failure of the bank as a whole, first, to notify Alfredo that he is not a recognized debtor in the eyes of the bank; and
second, to apprise him of how and when he could collect on the payment that the bank no longer had a right to keep.

We turn then on the principle upon which Land Bank must return Alfredo’s payment. Unjust enrichment exists "when a
person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against
the fundamental principles of justice, equity and good conscience."18 There is unjust enrichment under Art. 22 of the
Civil Code when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages
to another.19

Additionally, unjust enrichment has been applied to actions called accion in rem verso. In order that the accion in rem
verso may prosper, the following conditions must concur: (1) that the defendant has been enriched; (2) that the
plaintiff has suffered a loss; (3) that the enrichment of the defendant is without just or legal ground; and (4) that the
plaintiff has no other action based on contract, quasi-contract, crime, or quasi-delict.20 The principle of unjust
enrichment essentially contemplates payment when there is no duty to pay, and the person who receives the payment
has no right to receive it.21

The principle applies to the parties in the instant case, as, Alfredo, having been deemed disqualified from assuming
the loan, had no duty to pay petitioner bank and the latter had no right to receive it.

Moreover, the Civil Code likewise requires under Art. 19 that "[e]very 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." Land
Bank, however, did not even bother to inform Alfredo that it was no longer approving his assumption of the Spouses
Sy’s mortgage. Yet it acknowledged his interest in the loan when the branch head of the bank wrote to tell him that his
daughter’s loan had not been paid.22 Land Bank made Alfredo believe that with the payment of PhP 750,000, he would
be able to assume the mortgage of the Spouses Sy. The act of receiving payment without returning it when demanded
is contrary to the adage of giving someone what is due to him. The outcome of the application would have been
different had Land Bank first conducted the credit investigation before accepting Alfredo’s payment. He would have
been notified that his assumption of mortgage had been disapproved; and he would not have taken the futile action of
paying PhP 750,000. The procedure Land Bank took in acting on Alfredo’s application cannot be said to have been
fair and proper.

As to the claim that the trial court erred in applying equity to Alfredo’s case, we hold that Alfredo had no other remedy
to recover from Land Bank and the lower court properly exercised its equity jurisdiction in resolving the collection suit.
As we have held in one case:

Equity, as the complement of legal jurisdiction, seeks to reach and complete justice where courts of law, through the
inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are
incompetent to do so. Equity regards the spirit and not the letter, the intent and not the form, the substance rather than
the circumstance, as it is variously expressed by different courts.23

Another claim made by Land Bank is the presumption of regularity it enjoys and that it was in good faith when it
accepted Alfredo’s tender of PhP 750,000.

The defense of good faith fails to convince given Land Bank’s actions. Alfredo was not treated as a mere prospective
borrower. After he had paid PhP 750,000, he was made to sign bank documents including a promissory note and real
estate mortgage. He was assured by Atty. Hingco that the titles to the properties covered by the Spouses Sy’s real
estate mortgage would be transferred in his name, and upon payment of the PhP 750,000, the account would be
considered current and renewed in his name.24

Land Bank posits as a defense that it did not unduly enrich itself at Alfredo’s expense during the foreclosure of the
mortgaged properties, since it tendered its bid by subtracting PhP 750,000 from the Spouses Sy’s outstanding loan
obligation. It is observed that this is the first time Land Bank is revealing this defense. However, issues, arguments,
theories, and causes not raised below may no longer be posed on appeal.25 Land Bank’s contention, thus, cannot be
entertained at this point.
1avvphi1

Land Bank further questions the lower court’s decision on the basis of the inconsistencies made by Alfredo on the
witness stand. It argues that Alfredo was not a credible witness and his testimony failed to overcome the presumption
of regularity in the performance of regular duties on the part of Land Bank.

This claim, however, touches on factual findings by the trial court, and we defer to these findings of the trial court as
sustained by the appellate court. These are generally binding on us. While there are exceptions to this rule, Land
Bank has not satisfactorily shown that any of them is applicable to this issue.26 Hence, the rule that the trial court is in a
unique position to observe the demeanor of witnesses should be applied and respected27 in the instant case.

In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo as it had already foreclosed on the
mortgaged lands.

Interest and attorney’s fees

As to the applicable interest rate, we reiterate the guidelines found in Eastern Shipping Lines, Inc. v. Court of
Appeals:28

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.

No evidence was presented by Alfredo that he had sent a written demand to Land Bank before he filed the collection
suit. Only the verbal agreement between the lawyers of the parties on the return of the payment was
mentioned.29 Consequently, the obligation of Land Bank to return the payment made by Alfredo upon the former’s
denial of the latter’s application for assumption of mortgage must be reckoned from the date of judicial demand on
December 12, 1997, as correctly determined by the trial court and affirmed by the appellate court.
The next question is the propriety of the imposition of interest and the proper imposable rate of applicable interest.
The RTC granted the rate of 12% per annum which was affirmed by the CA. From the above-quoted guidelines,
however, the proper imposable interest rate is 6% per annum pursuant to Art. 2209 of the Civil Code. Sunga-Chan v.
Court of Appeals is illuminating in this regard:

In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Central Bank (CB) Circular
No. 416 shall be adjudged only in cases involving the loan or forbearance of money. And for transactions involving
payment of indemnities in the concept of damages arising from default in the performance of obligations in
general and/or for money judgment not involving a loan or forbearance of money, goods, or credit, the governing
provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:

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.

The term "forbearance," within the context of usury law, has been described as a contractual obligation of a lender or
creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then
due and payable.

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods,
or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per
annum under Art. 2209 of the Civil Code applies "when the transaction involves the payment of indemnities in
the concept of damage arising from the breach or a delay in the performance of obligations in general," with
the application of both rates reckoned "from the time the complaint was filed until the [adjudged] amount is fully paid."
In either instance, the reckoning period for the commencement of the running of the legal interest shall be subject to
the condition "that the courts are vested with discretion, depending on the equities of each case, on the award of
interest."30 (Emphasis supplied.)

Based on our ruling above, forbearance of money refers to the contractual obligation of the lender or creditor to desist
for a fixed period from requiring the borrower or debtor to repay the loan or debt then due and for which 12% per
annum is imposed as interest in the absence of a stipulated rate. In the instant case, Alfredo’s conditional payment to
Land Bank does not constitute forbearance of money, since there was no agreement or obligation for Alfredo to pay
Land Bank the amount of PhP 750,000, and the obligation of Land Bank to return what Alfredo has conditionally paid
is still in dispute and has not yet been determined. Thus, it cannot be said that Land Bank’s alleged obligation has
become a forbearance of money.

On the award of attorney’s fees, attorney’s fees and expenses of litigation were awarded because Alfredo was
compelled to litigate due to the unjust refusal of Land Bank to refund the amount he paid. There are instances when it
is just and equitable to award attorney’s fees and expenses of litigation.31 Art. 2208 of the Civil Code pertinently states:

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

xxxx

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

Given that Alfredo was indeed compelled to litigate against Land Bank and incur expenses to protect his interest, we
find that the award falls under the exception above and is, thus, proper given the circumstances.

On a final note. The instant case would not have been litigated had Land Bank been more circumspect in dealing with
Alfredo. The bank chose to accept payment from Alfredo even before a credit investigation was underway, a
procedure worsened by the failure to even inform him of his credit standing’s impact on his assumption of mortgage. It
was, therefore, negligent to a certain degree in handling the transaction with Alfredo. It should be remembered that the
business of a bank is affected with public interest and it should observe a higher standard of diligence when dealing
with the public.32

WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No. 84445 is AFFIRMED with
MODIFICATION in that the amount of PhP 750,000 will earn interest at 6% per annum reckoned from December 12,
1997, and the total aggregate monetary awards will in turn earn 12% per annum from the finality of this Decision until
fully paid.
SO ORDERED.

CASE #21:

G.R. No. 100594. March 10, 1993.]

BINALBAGAN TECH. INC., and HERMILO J. NAVA, petitioners, vs. THE COURT OF APPEALS, MAGDALENA L.
PUENTEVELLA, ANGELINA P. ECHAUS, ROMULO L. PUENTEVELLA, RENATO L. PUENTEVELLA, NOLI L.
PUENTEVELLA and NELIA LOURDES P. JACINTO, respondents.

Mateo Valenzuela for petitioners.

Hilado, Hagad & Hilado for private respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTY CANNOT DEMAND PERFORMANCE OF AN

OBLIGATION UNLESS HE IS IN A POSITION TO COMPLY WITH HIS OWN OBLIGATIONS. — A party to a contract
cannot demand performance of the other party's obligations unless he is in a position to comply with his own
obligations. Similarly, the right to rescind a contract can be demanded only if a party thereto is ready, willing and able
to comply with his own obligations thereunder (Art. 1191, Civil Code; Seva vs. Berwin, 48 Phil. 581 [1926]; Paras, Civil
Code of the Philippines, 12th ed. Vol. IV, p. 200). In a contract of sale, the vendor is bound to transfer the ownership
of and deliver, as well as warrant, the thing which is the object of the sale (Art. 1495, Civil Code); he warrants that the
buyer shall, from the time ownership is passed, have and enjoy the legal and peaceful possession of the thing.

2. ID.; PRESCRIPTIVE PERIOD WITHIN WHICH TO INSTITUTE ACTION UPON A WRITTEN CONTRACT; CASE
AT BAR. — The prescriptive period within which to institute an action upon a written contract is ten years (Art. 1144,
Civil Code). The cause of action of private respondent Echaus is based on the deed of sale executed on May 11,
1967, whereby ownership of the subdivision lots was transferred to petitioner. She filed Civil Case No. 1354 for
recovery of title and damages only on October 8, 1982. From May 11, 1967 to October 8, 1982, more than fifteen (15)
years elapsed. Seemingly, the 10-year prescriptive period had expired before she brought her action to recover title.
However, the period 1974 to 1982 should be deducted in computing the prescriptive period for the reason that from
1974 to 1982, private respondent Echaus was not in a legal position to initiate action against petitioner since as
aforestated, through no fault of hers, her warranty against eviction was breached. Deducting eight years (1974 to
1982) from the period 1967 to 1982, only seven years elapsed. Consequently, Civil Case No. 1354 was filed within the
10-year prescriptive period.

DECISION

MELO, J p:

The petition for review on certiorari now before us seeks to reverse the decision of the Court of Appeals promulgated
on March 27, 1991 in CA-G.R. CV No. 24635 (de Pano, Cacdac (P), and Vailoces, JJ .).

The facts of the case, as borne out by the record, are as follows:

On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as Judicial Administrator of the
intestate estate of Luis B. Puentevella, executed a Contract to Sell and a Deed of Sale of forty-two subdivision lots
within the Phib-Khik Subdivision of the Puentebella family, conveying and transferring said lots to petitioner
Binalbagan Tech., Inc. (hereinafter referred to as Binalbagan). In turn Binalbagan, through its president, petitioner
Hermilio J. Nava (hereinafter referred to as Nava), executed an Acknowledgment of Debt with Mortgage Agreement,
mortgaging said lots in favor of the estate of Puentebella.

Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took possession of the lots and the
building and improvements thereon. Binalbagan started operating a school on the property from 1967 when the titles
and possession of the lots were transferred to it.

It appears that there was a pending case, Civil Case No. 7435 of Regional Trial Court stationed at Himamaylan,
Negros Occidental. Relative to said case we shall quote the findings of fact of the Court of Appeals in its decision
dated October 30, 1978 in CA-G.R. No. 4211-R:

To have a better perspective of the background facts leading to the filing of this instant case on appeal, there is a
need to make reference to the circumstances surrounding the filing of Civil Case No. 7435, to wit:
The intestate estate of the late Luis B. Puentebella as registered owner of several subdivision lots, specifically
mentioned in paragraph 2 of plaintiffs' complaint, thru Judicial Administratrix, Angelina L. Puentevella sold said
aforementioned lots to Raul Javellana with the condition that the vendee-promisee would not transfer his rights to said
lots without the express consent of Puentevella and that in case of the cancellation of the contract by reason of the
violation of any of the terms thereof, all payments therefor made and all improvements introduced on the property
shall pertain to the promissor and shall be considered as rentals for the use and occupation thereof.

Javellana having failed to pay the installments for a period of five years, Civil Case No. 7435 was filed by defendant
Puentevella against Raul Javellana and the Southern Negros Colleges which was impleaded as a party defendant it
being in actual possession thereof, for the rescission of their contract to sell and the recovery of possession of the lots
and buildings with damages.

Accordingly, after trial, judgment was rendered in favor of Puentevella and thereafter, defendants Deputy Sheriffs
served a copy of the writ of execution on the Acting Director of the Southern Negros College and delivered possession
of the lots and buildings to defendant Puentevella's representative, Mrs. Manuel Gentapanan, and further levied
execution on the books and school equipment, supplies, library, apparatus, etc. to satisfy the monetary portion of the
judgment under execution on October 27, 1967. Said books, equipment, etc. as reflected in the Depositary Receipt,
(Exh. "B") dated October 28, 1965, were delivered by the Sheriffs to the Acting Director of the Southern Negros
College as depositary of the same.

Came December 29, 1965 when the plaintiffs in the instant case on appeal filed their Third-Party Claim based on an
alleged Deed of Sale executed in their favor by spouses Jose and Lolita Lopez, thus Puentevella was constrained to
assert physical possession of the premises to counteract the fictitious and unenforceable claim of herein plaintiffs.

Upon the filing of the instant case for injunction and damages on January 3, 1966, an ex-parte writ of preliminary
injunction was issued by the Honorable Presiding Judge Carlos Abiera, which order, however, was elevated to the
Honorable Court of Appeals which issued a writ of preliminary injunction ordering Judge Carlos Abiera or any other
persons or persons in his behalf to refrain from further enforcing the injunction issued by him in this case and from
further issuing any other writs or prohibitions which would in any manner affect the enforcement of the judgment
rendered in Civil Case 7435, pending the finality of the decision of the Honorable Court of Appeals in the latter case.
Thus, defendant Puentevella was restored to the possession of the lots and buildings subject of this case. However,
plaintiffs filed a petition for review with the Supreme Court which issued a restraining order against the sale of the
properties claimed by the spouses-plaintiffs [in Abierra vs. Court of Appeals, 45 SCRA 314].

When the Supreme Court dissolved the aforesaid injunction issued by the Court of Appeals, possession of the building
and other property was taken from petitioner Binalbagan and given to the third-party claimants, the de la Cruz
spouses. Petitioner Binalbagan transferred its school to another location. In the meantime, an appeal was interposed
by the defendants in Civil Case No. 293 with the Court of Appeals where the appeal was docketed as CA-G.R. No.
42211-R. On October 30, 1978, the Court of Appeals rendered judgment, reversing the appealed decision in Civil
Case No. 293. On April 29, 1981, judgment was entered in CA-G.R. No. 42211, and the record of the case was
remanded to the court of origin on December 22, 1981. Consequently, in 1982 the judgment in Civil Case No. 7435
was finally executed and enforced, and petitioner was restored to the possession of the subdivision lots on May 31,
1982. It will be noted that petitioner was not in possession of the lots from 1974 to May 31, 1982.

After petitioner Binalbagan was again placed in possession of the subdivision lots, private respondent Angelina
Echaus demanded payment from petitioner Binalbagan for the subdivision lots, enclosing in the letter of demand a
statement of account as of September 1982 showing a total amount due of P367,509.93, representing the price of the
land and accrued interest as of that date.

As petitioner Binalbagan failed to effect payment, private respondent Angelina P. Echaus filed on October 8, 1982
Civil Case No. 1354 of the Regional Trial Court of the Sixth Judicial Region stationed in Himamaylan, Negros
Occidental against petitioners for recovery of title and damages. An amended complaint was filed by private
respondent Angelina P. Echaus by including her mother, brothers, and sisters as co-plaintiffs, which was admitted by
the trial court on March 18, 1983.

After trial, the trial court rendered a decision on August 30, 1989, the dispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING, and inasmuch as there is no fraud and since the action on the written contract, Exh.
"C", has long prescribed, judgment is hereby rendered in favor of the defendants and against the plaintiffs dismissing
the amended complaint.

The counterclaim is likewise dismissed for lack of sufficient proof. Each shall bear their respective expenses of
litigation (pp. 71-72, Rollo).
Private respondents appealed to the Court of Appeals which rendered a decision on March 27, 1991, disposing:

WHEREFORE, premises considered, the appealed decision is REVERSED and SET ASIDE and a new one is
rendered ordering the appellee Binalbagan Tech. Inc., through any of its officers, to execute a deed of conveyance or
any other instrument, transferring and returning unto the appellants the ownership and titles of the subject 42
subdivision lots. Costs against appellees. (pp. 51-52, Rollo)

Thus, this petition for review on certiorari wherein petitioners assign the following alleged errors of the Court of
Appeals:

First Error

The Court of Appeals erred in holding that the cause of action of the respondents has not prescribed.

Second Error

The Court of Appeals erred in holding that Civil Case No. 293 interrupts the running of the period of the prescription.

Third Error

The Court of Appeals erred in citing the cases of David-Garlitos and Rivero vs. Rivero to support its contention that
the period of prescription was interrupted in the case at bar.

Fourth Error

The finding of facts of the Honorable Court of Appeals in reversing the lower court decision has no basis and is
contradicted by the evidence on record of the case at bar as well as the admission of parties." (p. 16, Rollo)

The main issue of this case is: Whether private respondents' cause of action in Civil Case No. 1354 is barred by
prescription.

On this point the Court of Appeals held:

As it is evident that there was an interruption during the period from 1974 up to 1982, the period of prescription, as
correctly maintained by the appellants, was tolled during such period, due to the injunctive writ in Civil Case No. 293
as discussed earlier when the vendors could not maintain the vendee in possession, and consequently was in no
position to legally demand payment of the price. Accordingly, while it may be conceded that appellants' cause of
action to demand performance had accrued on June 10, 1967 due to the appellee institution's default in the payment
of the first installment which became due on that date, the running of prescription was interrupted in 1974 when, from
the words of the lower court itself, "the Supreme Court reversed the Court of Appeal's decision and dissolved the
injunction which the latter court had earlier issued in Civil Case No. 293, possession of the building and other
properties was taken from defendant Binalbagan Tech. Inc. and given to the de la Cruz spouses, through Southern
Negros College". And the period of prescription commenced to run anew only on May 31, 1982 when the appellants
were finally able to fully implement the already executory judgment in Case No. 7435, and thus restore appellees in
possession of the 42 subdivision lots.

In other words, the period of prescription was interrupted, because from 1974 up to 1982, the appellants themselves
could not have restored unto the appellees the possession of the 42 subdivision lots precisely because of the
preliminary injunction mentioned elsewhere. Consequently, the appellants could not have prospered in any suit to
compel performance or payment from the appellees-buyers, because the appellants themselves were in no position to
perform their own corresponding obligation to deliver to and maintain said buyers in possession of the lots subject
matter of the sale. (Article 1458, 1495, 1537, Civil Code). (pp 49-50, Rollo)

We agree with the Court of Appeals.

A party to a contract cannot demand performance of the other party's obligations unless he is in a position to comply
with his own obligations. Similarly, the right to rescind a contract can be demanded only if a party thereto is ready,
willing and able to comply with his own obligations thereunder (Art. 1191, Civil Code; Seva vs. Berwin, 48 Phil. 581
[1926]; Paras, Civil Code of the Philippines, 12th ed. Vol. IV, p. 200). In a contract of sale, the vendor is bound to
transfer the ownership of and deliver, as well as warrant, the thing which is the object of the sale (Art. 1495, Civil
Code); he warrants that the buyer shall, from the time ownership is passed, have and enjoy the legal and peaceful
possession of the thing —
ARTICLE 1547. In a contract of sale, unless a contrary intention appears, there is:

(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to
pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing.

xxx xxx xxx

As afore-stated, petitioner was evicted from the subject subdivision lots in 1974 by virtue of a court order in Civil Case
No. 293 and reinstated to the possession thereof only in 1982. During the period, therefore, from 1974 to 1982, seller
private respondent Angelina Echaus' warranty against eviction given to buyer petitioner was breached though,
admittedly, through no fault of her own. It follows that during that period, 1974 to 1982, private respondent Echaus
was not in a legal position to demand compliance of the prestation of petitioner to pay the price of said subdivision
lots. In short, her right to demand payment was suspended during that period, 1974-1982.

The prescriptive period within which to institute an action upon a written contract is ten years (Art. 1144, Civil Code).
The cause of action of private respondent Echaus is based on the deed of sale aforementioned. The deed of sale
whereby private respondent Echaus transferred ownership of the subdivision lots was executed on May 11, 1967. She
filed Civil Case No. 1354 for recovery of title and damages only on October 8, 1982. From May 11, 1967 to October 8,
1982, more than fifteen (15) years elapsed. Seemingly, the 10-year prescriptive period had expired before she brought
her action to recover title. However, the period 1974 to 1982 should be deducted in computing the prescriptive period
for the reason that, as above discussed, from 1974 to 1982, private respondent Echaus was not in a legal position to
initiate action against petitioner since as aforestated, through no fault of hers, her warranty against eviction was
breached. In the case of Daniel vs. Garlitos, (95 Phil. 387 [1954]), it was held that a court order deferring action on the
execution of judgment suspended the running of the 5-year period for execution of a judgment. Here the execution of
the judgment in Civil Case No. 7435 was stopped by the writ of preliminary injunction issued in Civil Case No. 293. It
was only when Civil Case No. 293 was dismissed that the writ of execution in Civil Case Na. 7435 could be
implemented and petitioner Binalbagan restored to the possession of the subject lots.

Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years elapsed. Consequently, Civil
Case No. 1354 was filed within the 10-year prescriptive period. Working against petitioner's position too is the principle
against unjust enrichment which would certainly be the result if petitioner is allowed to own the 42 lots without full
payment thereof.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 24635 is
AFFIRMED.

SO ORDERED.

CASE #22:

G.R. No. 145483             November 19, 2004

LORENZO SHIPPING CORP., petitioner,

vs.
BJ MARTHEL INTERNATIONAL, INC., respondent.

DECISION

CHICO-NAZARIO, J.:

This is a petition for review seeking to set aside the Decision of the Court of Appeals in CA-G.R. CV No. 54334 and its
1 

Resolution denying petitioner's motion for reconsideration.

The factual antecedents of this case are as follows:

Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own the
cargo vessel M/V Dadiangas Express.

Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing, and
selling of various industrial commodities. It is also an importer and distributor of different brands of engines and spare
parts.

From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter's marine
engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Acceding to this
request, respondent furnished petitioner with a formal quotation, thus:
2 

May 31, 1989

MINQ-6093
LORENZO SHIPPING LINES
Pier 8, North Harbor
Manila

SUBJECT: PARTS FOR ENGINE MODEL

MITSUBISHI 6UET 52/60

Dear Mr. Go:

We are pleased to submit our offer for your above subject requirements.

Description Qty. Unit Price Total Price

Nozzle Tip 6 pcs. P 5,520.00 33,120.00

Plunger & Barrel 6 pcs. 27,630.00 165,780.00

Cylinder Head 2 pcs. 1,035,000.00 2,070,000.00

Cylinder Liner 1 set 477,000.00

TOTAL PRICE FOB P2,745,900.00

MANILA ___________

DELIVERY: Within 2 months after receipt of firm order.

TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal

Installment[s] not to exceed 90 days.

We trust you find our above offer acceptable and look forward to your most valued order.

Very truly yours,

(SGD) HENRY PAJARILLO

Sales Manager

Petitioner thereafter issued to respondent Purchase Order No. 13839, dated 02 November 1989, for the procurement
3 

of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. The purchase order was co-
signed by Jose Go, Jr., petitioner's vice-president, and Henry Pajarillo. Quoted hereunder is the pertinent portion of
the purchase order:
 Name of Description Qty. Amount

CYL. LINER M/E 1 SET P477,000.00

NOTHING FOLLOW

INV. #

TERM OF PAYMENT: 25% DOWN PAYMENT

5 BI-MONTHLY INSTALLMENT[S]

Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten
postdated checks to be drawn against the former's account with Allied Banking Corporation. The checks were
4 

supposed to represent the full payment of the aforementioned cylinder liner.

Subsequently, petitioner issued Purchase Order No. 14011, dated 15 January 1990, for yet another unit of cylinder
5 

liner. This purchase order stated the term of payment to be "25% upon delivery, balance payable in 5 bi-monthly equal
installment[s]." Like the purchase order of 02 November 1989, the second purchase order did not state the date of the
6 

cylinder liner's delivery.

On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the
same was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were
eventually returned by respondent to petitioner.

The parties presented disparate accounts of what happened to the check which was previously dishonored. Petitioner
claimed that it replaced said check with a good one, the proceeds of which were applied to its other obligation to
respondent. For its part, respondent insisted that it returned said postdated check to petitioner.

Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd., by
opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of Tokyo.

On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The
sales invoices evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under
7 

which the signature of Eric Go, petitioner's warehouseman, appeared.

Respondent thereafter sent a Statement of Account dated 15 November 1990 to petitioner. While the other items
8 

listed in said statement of account were fully paid by petitioner, the two cylinder liners delivered to petitioner on 20
April 1990 remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a demand
letter dated 02 January 1991 to petitioner requiring the latter to pay the value of the cylinder liners subjects of this
9 

case. Instead of heeding the demand of respondent for the full payment of the value of the cylinder liners, petitioner
sent the former a letter dated 12 March 1991 offering to pay only P150,000 for the cylinder liners. In said letter,
10 

petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas
Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the proceeds of
said sale.

Shortly thereafter, another demand letter dated 27 March 1991 was furnished petitioner by respondent's counsel
11 

requiring the former to settle its obligation to respondent together with accrued interest and attorney's fees.

Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and damages before
the Regional Trial Court (RTC) of Makati City. In its complaint, respondent (plaintiff below) alleged that despite its
12 

repeated oral and written demands, petitioner obstinately refused to settle its obligations. Respondent prayed that
petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of P111,300 as of May 1991 and
additional interest of 14% per annum to be reckoned from June 1991 until the full payment of the principal; attorney's
fees; costs of suits; exemplary damages; actual damages; and compensatory damages.

On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an amended complaint with
preliminary attachment pursuant to Sections 2 and 3, Rule 57 of the then Rules of Court. Aside from the prayer for the
13 

issuance of writ of preliminary attachment, the amendments also pertained to the issuance by petitioner of the
postdated checks and the amounts of damages claimed.

In an Order dated 25 July 1991, the court a quo granted respondent's prayer for the issuance of a preliminary
14 

attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of Attachment attaching
15 
thereto a counter-bond as required by the Rules of Court. On even date, the trial court issued an Order lifting the levy
16 

on petitioner's properties and the garnishment of its bank accounts.

Petitioner afterwards filed its Answer alleging therein that time was of the essence in the delivery of the cylinder liners
17 

and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said items "within two
(2) months after receipt of firm order" from petitioner. Petitioner likewise sought counterclaims for moral damages,
18 

exemplary damages, attorney's fees plus appearance fees, and expenses of litigation.

Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25 October
1991. The amendment introduced dealt solely with the number of postdated checks issued by petitioner as full
19 

payment for the first cylinder liner it ordered from respondent. Whereas in the first amended complaint, only nine
postdated checks were involved, in its second amended complaint, respondent claimed that petitioner actually issued
ten postdated checks. Despite the opposition by petitioner, the trial court admitted respondent's Second Amended
Complaint with Preliminary Attachment. 20

Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder Liners) alleging therein that
21 

"[w]ith the passage of time and with no definite end in sight to the present litigation, the cylinder liners run the risk of
obsolescence and deterioration" to the prejudice of the parties to this case. Thus, petitioner prayed that it be allowed
22 

to sell the cylinder liners at the best possible price and to place the proceeds of said sale in escrow. This motion,
unopposed by respondent, was granted by the trial court through the Order of 17 March 1991. 23

After trial, the court a quo dismissed the action, the decretal portion of the Decision stating:

WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is ordered to pay P50,000.00
to the defendant as and by way of attorney's fees. 24

The trial court held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of
payment and delivery of the cylinder liners. It also declared that respondent had agreed to the cancellation of the
contract of sale when it returned the postdated checks issued by petitioner. Respondent's counterclaims for moral,
exemplary, and compensatory damages were dismissed for insufficiency of evidence.

Respondent moved for the reconsideration of the trial court's Decision but the motion was denied for lack of merit. 25

Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of Appeals which reversed and
26 

set aside the Decision of the court a quo. The appellate court brushed aside petitioner's claim that time was of the
essence in the contract of sale between the parties herein considering the fact that a significant period of time had
lapsed between respondent's offer and the issuance by petitioner of its purchase orders. The dispositive portion of the
Decision of the appellate court states:

WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The appellee is hereby
ORDERED to pay the appellant the amount of P954,000.00, and accrued interest computed at 14% per
annum reckoned from May, 1991. 27

The Court of Appeals also held that respondent could not have incurred delay in the delivery of cylinder liners as no
demand, judicial or extrajudicial, was made by respondent upon petitioner in contravention of the express provision of
Article 1169 of the Civil Code which provides:

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

Likewise, the appellate court concluded that there was no evidence of the alleged cancellation of orders by petitioner
and that the delivery of the cylinder liners on 20 April 1990 was reasonable under the circumstances.

On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of Appeals but this was
denied through the resolution of 06 October 2000. Hence, this petition for review which basically raises the issues of
28 

whether or not respondent incurred delay in performing its obligation under the contract of sale and whether or not
said contract was validly rescinded by petitioner.

That a contract of sale was entered into by the parties is not disputed. Petitioner, however, maintains that its obligation
to pay fully the purchase price was extinguished because the adverted contract was validly terminated due to
respondent's failure to deliver the cylinder liners within the two-month period stated in the formal quotation dated 31
May 1989.
The threshold question, then, is: Was there late delivery of the subjects of the contract of sale to justify petitioner to
disregard the terms of the contract considering that time was of the essence thereof?

In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent intention of
the parties and before time may be so regarded by a court, there must be a sufficient manifestation, either in the
contract itself or the surrounding circumstances of that intention. Petitioner insists that although its purchase orders
29 

did not specify the dates when the cylinder liners were supposed to be delivered, nevertheless, respondent should
abide by the term of delivery appearing on the quotation it submitted to petitioner. Petitioner theorizes that the
30 

quotation embodied the offer from respondent while the purchase order represented its (petitioner's) acceptance of the
proposed terms of the contract of sale. Thus, petitioner is of the view that these two documents "cannot be taken
31 

separately as if there were two distinct contracts." We do not agree.

32 

It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning shall control. However, in order to ascertain the intention of the
33 

parties, their contemporaneous and subsequent acts should be considered. While this Court recognizes the principle
34 

that contracts are respected as the law between the contracting parties, this principle is tempered by the rule that the
intention of the parties is primordial and "once the intention of the parties has been ascertained, that element is
35 

deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms." 36

In the present case, we cannot subscribe to the position of petitioner that the documents, by themselves, embody the
terms of the sale of the cylinder liners. One can easily glean the significant differences in the terms as stated in the
formal quotation and Purchase Order No. 13839 with regard to the due date of the down payment for the first cylinder
liner and the date of its delivery as well as Purchase Order No. 14011 with respect to the date of delivery of the
second cylinder liner. While the quotation provided by respondent evidently stated that the cylinder liners were
supposed to be delivered within two months from receipt of the firm order of petitioner and that the 25% down
payment was due upon the cylinder liners' delivery, the purchase orders prepared by petitioner clearly omitted these
significant items. The petitioner's Purchase Order No. 13839 made no mention at all of the due dates of delivery of the
first cylinder liner and of the payment of 25% down payment. Its Purchase Order No. 14011 likewise did not indicate
the due date of delivery of the second cylinder liner.

In the case of Bugatti v. Court of Appeals, we reiterated the principle that "[a] contract undergoes three distinct stages
37 

– preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the
parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the
contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed
upon in the contract, culminating in the extinguishment thereof."

In the instant case, the formal quotation provided by respondent represented the negotiation phase of the subject
contract of sale between the parties. As of that time, the parties had not yet reached an agreement as regards the
terms and conditions of the contract of sale of the cylinder liners. Petitioner could very well have ignored the offer or
tendered a counter-offer to respondent while the latter could have, under the pertinent provision of the Civil
Code, withdrawn or modified the same. The parties were at liberty to discuss the provisions of the contract of sale
38 

prior to its perfection. In this connection, we turn to the testimonies of Pajarillo and Kanaan, Jr., that the terms of the
offer were, indeed, renegotiated prior to the issuance of Purchase Order No. 13839.

During the hearing of the case on 28 January 1993, Pajarillo testified as follows:

Q: You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping Corporation
dated rather marked as Exhibit A stating the terms of payment and delivery of the cylinder liner, did you not?

A: Yes sir.

Q: I am showing to you the quotation which is marked as Exhibit A there appears in the quotation that the
delivery of the cylinder liner will be made in two months' time from the time you received the confirmation of
the order. Is that correct?

A: Yes sir.

Q: Now, after you made the formal quotation which is Exhibit A how long a time did the defendant make a
confirmation of the order?

A: After six months.

Q: And this is contained in the purchase order given to you by Lorenzo Shipping Corporation?
A: Yes sir.

Q: Now, in the purchase order dated November 2, 1989 there appears only the date the terms of payment
which you required of them of 25% down payment, now, it is stated in the purchase order the date of delivery,
will you explain to the court why the date of delivery of the cylinder liner was not mentioned in the purchase
order which is the contract between you and Lorenzo Shipping Corporation?

A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have inquired [with] our
supplier in Japan to give us the price and delivery of that item. When we received that quotation from our
supplier it is stated there that they can deliver within two months but we have to get our confirmed order within
June.

Q: But were you able to confirm the order from your Japanese supplier on June of that year?

A: No sir.

Q: Why? Will you tell the court why you were not able to confirm your order with your Japanese supplier?

A: Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder liner.

Q: And it was only on November 2, 1989 when they gave you the purchase order?

A: Yes sir.

Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm the order with
your Japanese supplier after receiving the purchase order dated November 2, 1989?

A: Only when Lorenzo Shipping Corporation will give us the down payment of 25%. 39

For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr., testified in the
following manner:

WITNESS: This term said 25% upon delivery. Subsequently, in the final contract, what was agreed upon by
both parties was 25% down payment.

Q: When?

A: Upon confirmation of the order.

...

Q: And when was the down payment supposed to be paid?

A: It was not stated when we were supposed to receive that. Normally, we expect to receive at the earliest
possible time. Again, that would depend on the customers. Even after receipt of the purchase order which was
what happened here, they re-negotiated the terms and sometimes we do accept that.

Q: Was there a re-negotiation of this term?

A: This offer, yes. We offered a final requirement of 25% down payment upon delivery.

Q: What was the re-negotiated term?

A: 25% down payment

Q: To be paid when?

A: Supposed to be paid upon order. 40

The above declarations remain unassailed. Other than its bare assertion that the subject contracts of sale did not
undergo further renegotiation, petitioner failed to proffer sufficient evidence to refute the above testimonies of Pajarillo
and Kanaan, Jr.

Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and No. 14011 yet it
utterly failed to adduce any justification as to why said documents contained terms which are at variance with those
stated in the quotation provided by respondent. The only plausible reason for such failure on the part of petitioner is
that the parties had, in fact, renegotiated the proposed terms of the contract of sale. Moreover, as the obscurity in the
terms of the contract between respondent and petitioner was caused by the latter when it omitted the date of delivery
of the cylinder liners in the purchase orders and varied the term with respect to the due date of the down
payment, said obscurity must be resolved against it.
41  42

Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v. Matti, instructive. There, we held that –
43 

When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the essence of
the contract. . . .

In such cases, the delivery must be made within a reasonable time.

The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in the absence of
anything to show that an immediate delivery intended. . . .

We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for dry dock repair
and maintenance of its M/V Dadiangas Express between the later part of December 1989 to early January 1990, the
record is bereft of any indication that respondent was aware of such fact. The failure of petitioner to notify respondent
of said date is fatal to its claim that time was of the essence in the subject contracts of sale.

In addition, we quote, with approval, the keen observation of the Court of Appeals:

. . . It must be noted that in the purchase orders issued by the appellee, dated November 2, 1989 and January
15, 1990, no specific date of delivery was indicated therein. If time was really of the essence as claimed by the
appellee, they should have stated the same in the said purchase orders, and not merely relied on the
quotation issued by the appellant considering the lapse of time between the quotation issued by the appellant
and the purchase orders of the appellee.

In the instant case, the appellee should have provided for an allowance of time and made the purchase order
earlier if indeed the said cylinder liner was necessary for the repair of the vessel scheduled on the first week
of January, 1990. In fact, the appellee should have cancelled the first purchase order when the cylinder liner
was not delivered on the date it now says was necessary. Instead it issued another purchase order for the
second set of cylinder liner. This fact negates appellee's claim that time was indeed of the essence in the
consummation of the contract of sale between the parties. 44

Finally, the ten postdated checks issued in November 1989 by petitioner and received by the respondent as full
payment of the purchase price of the first cylinder liner supposed to be delivered on 02 January 1990 fail to impress. It
is not an indication of failure to honor a commitment on the part of the respondent. The earliest maturity date of the
checks was 18 January 1990. As delivery of said checks could produce the effect of payment only when they have
been cashed, respondent's obligation to deliver the first cylinder liner could not have arisen as early as 02 January
45 

1990 as claimed by petitioner since by that time, petitioner had yet to fulfill its undertaking to fully pay for the value of
the first cylinder liner. As explained by respondent, it proceeded with the placement of the order for the cylinder liners
with its principal in Japan solely on the basis of its previously harmonious business relationship with petitioner.

As an aside, let it be underscored that "[e]ven where time is of the essence, a breach of the contract in that respect by
one of the parties may be waived by the other party's subsequently treating the contract as still in force." Petitioner's
46 

receipt of the cylinder liners when they were delivered to its warehouse on 20 April 1990 clearly indicates that it
considered the contract of sale to be still subsisting up to that time. Indeed, had the contract of sale been cancelled
already as claimed by petitioner, it no longer had any business receiving the cylinder liners even if said receipt was
"subject to verification." By accepting the cylinder liners when these were delivered to its warehouse, petitioner
indisputably waived the claimed delay in the delivery of said items.

We, therefore, hold that in the subject contracts, time was not of the essence. The delivery of the cylinder liners on 20
April 1990 was made within a reasonable period of time considering that respondent had to place the order for the
cylinder liners with its principal in Japan and that the latter was, at that time, beset by heavy volume of work. 47
There having been no failure on the part of the respondent to perform its obligation, the power to rescind the contract
is unavailing to the petitioner. Article 1191 of the New Civil Code runs as follows:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.

The law explicitly gives either party the right to rescind the contract only upon the failure of the other to perform the
obligation assumed thereunder. The right, however, is not an unbridled one. This Court in the case of University of the
48 

Philippines v. De los Angeles, speaking through the eminent civilist Justice J.B.L. Reyes, exhorts:
49 

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denied that rescission is justified, it is free to resort
to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that
the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary
case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. (Emphasis
supplied)

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court
that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely
does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before
taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively
sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered
when the law itself requires that he should exercise due diligence to minimize its own damages. 50

Here, there is no showing that petitioner notified respondent of its intention to rescind the contract of sale between
them. Quite the contrary, respondent's act of proceeding with the opening of an irrevocable letter of credit on 23
February 1990 belies petitioner's claim that it notified respondent of the cancellation of the contract of sale. Truly, no
prudent businessman would pursue such action knowing that the contract of sale, for which the letter of credit was
opened, was already rescinded by the other party.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The Decision of the
Court of Appeals, dated 28 April 2000, and its Resolution, dated 06 October 2000, are hereby AFFIRMED. No costs.

SO ORDERED.

CASE #23:

G.R. No. 168646               January 12, 2011

LUZON DEVELOPMENT BANK, Petitioner,

vs.
ANGELES CATHERINE ENRIQUEZ, Respondent.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 168666

DELTA DEVELOPMENT and MANAGEMENT SERVICES, INC., Petitioner,

vs.
ANGELES CATHERINE ENRIQUEZ and LUZON DEVELOPMENT BANK, Respondents.

DECISION

DEL CASTILLO, J.:

The protection afforded to a subdivision lot buyer under Presidential Decree (PD) No. 957 or The Subdivision and
Condominium Buyer’s Protective Decree will not be defeated by someone who is not an innocent purchaser for value.
The lofty aspirations of PD 957 should be read in every provision of the statute, in every contract that undermines its
objects, in every transaction which threatens its fruition. "For a statute derives its vitality from the purpose for which it
is enacted and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law."1
These cases involve the separate appeals of Luzon Development Bank2 (BANK) and Delta Development and
Management Services, Inc.3 (DELTA) from the November 30, 2004 Decision of the Court of Appeals (CA), as well as
its June 22, 2005 Resolution in CA-G.R. SP No. 81280. The dispositive portion of the assailed Decision reads:

WHEREFORE, premises considered, the Decision dated June 17, 2003 and Resolution dated November 24, 2003 are
AFFIRMED with [m]odification in so far as Delta Development and Management Services, Inc. is liable and directed to
pay petitioner Luzon Development Bank the value of the subject lot subject matter of the Contract to Sell between
Delta Development and Management Services, Inc. and the private respondent [Catherine Angeles Enriquez].

SO ORDERED.4

Factual Antecedents

The BANK is a domestic financial corporation that extends loans to subdivision developers/owners.5

Petitioner DELTA is a domestic corporation engaged in the business of developing and selling real estate properties,
particularly Delta Homes I in Cavite. DELTA is owned by Ricardo De Leon (De Leon),6 who is the registered owner of
a parcel of land covered by Transfer Certificate of Title (TCT) No. T-6371837 of the Registry of Deeds of the Province
of Cavite, which corresponds to Lot 4 of Delta Homes I. Said Lot 4 is the subject matter of these cases.

On July 3, 1995, De Leon and his spouse obtained a ₱4 million loan from the BANK for the express purpose of
developing Delta Homes I.8 To secure the loan, the spouses De Leon executed in favor of the BANK a real estate
mortgage (REM) on several of their properties,9 including Lot 4. Subsequently, this REM was amended10 by increasing
the amount of the secured loan from ₱4 million to ₱8 million. Both the REM and the amendment were annotated on
TCT No. T-637183.11

DELTA then obtained a Certificate of Registration12 and a License to Sell13 from the Housing and Land Use Regulatory
Board (HLURB).

Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez)14 over
the house and lot in Lot 4 for the purchase price of ₱614,950.00. Enriquez made a downpayment of ₱114,950.00. The
Contract to Sell contained the following provisions:

That the vendee/s offered to buy and the Owner agreed to sell the above-described property subject to the following
terms and conditions to wit:

xxxx

6. That the (sic) warning shall be served upon the Vendee/s for failure to pay x x x Provided, however, that for failure
to pay three (3) successive monthly installment payments, the Owner may consider this Contract to Sell null and void
ab initio without further proceedings or court action and all payments shall be forfeited in favor of the Owner as
liquidated damages and expenses for documentations. x x x

That upon full payment of the total consideration if payable in cash, the Owner shall execute a final deed of sale in
favor of the Vendee/s. However, if the term of the contract is for a certain period of time, only upon full payment of the
total consideration that a final deed of sale shall be executed by the Owner in favor of the Vendee/s.15

When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a dation in
payment or a dacion en pago. The Deed of Assignment in Payment of Debt was executed on September 30, 1998
and stated that DELTA "assigns, transfers, and conveys and sets over [to] the assignee that real estate with the
building and improvements existing thereon x x x in payment of the total obligation owing to [the Bank] x x
x."16 Unknown to Enriquez, among the properties assigned to the BANK was the house and lot of Lot 4,17 which is the
subject of her Contract to Sell with DELTA. The records do not bear out and the parties are silent on whether the
BANK was able to transfer title to its name. It appears, however, that the dacion en pago was not annotated on the
TCT of Lot 4.18

On November 18, 1999, Enriquez filed a complaint against DELTA and the BANK before the Region IV Office of the
HLURB19 alleging that DELTA violated the terms of its License to Sell by: (a) selling the house and lots for a price
exceeding that prescribed in Batas Pambansa (BP) Bilang 220;20 and (b) failing to get a clearance for the mortgage
from the HLURB. Enriquez sought a full refund of the ₱301,063.42 that she had already paid to DELTA, award of
damages, and the imposition of administrative fines on DELTA and the BANK.
In his June 1, 2000 Decision,21 HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the purchase price,
but ordered DELTA to accept payment of the balance of ₱108,013.36 from Enriquez, and (upon such payment) to
deliver to Enriquez the title to the house and lot free from liens and encumbrances. The dispositive portion reads:

WHEREFORE, premises considered, a decision is hereby rendered as follows:

1. Ordering [DELTA] to accept complainant[’]s payments in the amount of ₱108,013.36 representing her
balance based on the maximum selling price of ₱375,000.00;

2. Upon full payment, ordering Delta to deliver the title in favor of the complainant free from any liens and
encumbrances;

3. Ordering [DELTA] to pay complainant the amount of ₱50,000.00 as and by way of moral damages;

4. Ordering [DELTA] to pay complainant the amount of ₱50,000.00 as and by way of exemplary damages;

5. Ordering [DELTA] to pay complainant ₱10,000.00 as costs of suit; and

6. Respondent DELTA to pay administrative fine of ₱10,000.00[22] for violation of Section 18 of P.D. 957[23] and
another ₱10,000.00 for violation of Section 22 of P.D. 957.[24

SO ORDERED.25

DELTA appealed the arbiter’s Decision to the HLURB Board of Commissioners.26 DELTA questioned the imposition of
an administrative fine for its alleged violation of Section 18 of PD 957. It argued that clearance was not required for
mortgages that were constituted on a subdivision project prior to registration. According to DELTA, it did not violate
the terms of its license because it did not obtain a new mortgage over the subdivision project. It likewise assailed the
award of moral and exemplary damages to Enriquez on the ground that the latter has no cause of action.27

Ruling of the Board of Commissioners (Board)28

The Board held that all developers should obtain a clearance for mortgage from the HLURB, regardless of the date
when the mortgage was secured, because the law does not distinguish. Having violated this legal requirement,
DELTA was held liable to pay the administrative fine.

The Board upheld the validity of the contract to sell between DELTA and Enriquez despite the alleged violation of the
price ceilings in BP 220. The Board held that DELTA and Enriquez were presumed to have had a meeting of the
minds on the object of the sale and the purchase price. Absent any circumstance vitiating Enriquez’consent, she was
presumed to have willingly and voluntarily agreed to the higher purchase price; hence, she was bound by the terms of
the contract.

The Board, however, deleted the arbiter’s award of damages to Enriquez on the ground that the latter was not free
from liability herself, given that she was remiss in her monthly amortizations to DELTA.

The dispositive portion of the Board’s Decision reads:

Wherefore, in view of the foregoing, the Office below’s decision dated June 01, 2000 is hereby modified to read as
follows:

1. Ordering [Enriquez] to pay [DELTA] the amount due from the time she suspended payment up to filing of
the complaint with 12% interest thereon per annum; thereafter the provisions of the Contract to Sell shall apply
until full payment is made;

2. Ordering [DELTA] to pay an [a]dministrative [f]ine of ₱10,000.00 for violation of its license to sell and for
violation of Section 18 of P.D. 957.

SO ORDERED. Quezon City.29

Enriquez moved for a reconsideration of the Board’s Decision30 upholding the contractual purchase price. She
maintained that the price for Lot 4 should not exceed the price ceiling provided in BP 220.31lawph!l
Finding Enriquez’s arguments as having already been passed upon in the decision, the Board denied reconsideration.
The board, however, modified its decision, with respect to the period for the imposition of interest payments. The
Board’s resolution32 reads:

WHEREFORE, premises considered, to [sic] directive No. 1 of the dispositive portion of the decision of our decision
[sic] is MODIFIED as follows:

1. Ordering complainant to pay respondent DELTA the amount due from the time she suspended (sic) at 12%
interest per annum, reckoned from finality of this decision[,] thereafter the provisions of the Contract to Sell
shall apply until full payment is made.

In all other respects, the decision is AFFIRMED.

SO ORDERED.33

Both Enriquez and the BANK appealed to the Office of the President (OP).34 The BANK disagreed with the ruling
upholding Enriquez’s Contract to Sell; and insisted on its ownership over Lot 4. It argued that it has become
impossible for DELTA to comply with the terms of the contract to sell and to deliver Lot 4’s title to Enriquez given that
DELTA had already relinquished all its rights to Lot 4 in favor of the BANK35 via the dation in payment.

Meanwhile, Enriquez insisted that the Board erred in not applying the ceiling price as prescribed in BP 220.36

Ruling of the Office of the President37

The OP adopted by reference the findings of fact and conclusions of law of the HLURB Decisions, which it affirmed in
toto.

Enriquez filed a motion for reconsideration, insisting that she was entitled to a reduction of the purchase price, in order
to conform to the provisions of BP 220.38 The motion was denied for lack of merit.39

Only the BANK appealed the OP’s Decision to the CA.40 The BANK reiterated that DELTA can no longer deliver Lot 4
to Enriquez because DELTA had sold the same to the BANK by virtue of the dacion en pago.41 As an alternative
argument, in case the appellate court should find that DELTA retained ownership over Lot 4 and could convey the
same to Enriquez, the BANK prayed that its REM over Lot 4 be respected such that DELTA would have to redeem it
first before it could convey the same to Enriquez in accordance with Section 2542 of PD 957.43

The BANK likewise sought an award of exemplary damages and attorney’s fees in its favor because of the baseless
suit filed by Enriquez against it.44

Ruling of the Court of Appeals45

The CA ruled against the validity of the dacion en pago executed in favor of the BANK on the ground that DELTA had
earlier relinquished its ownership over Lot 4 in favor of Enriquez via the Contract to Sell.46

Since the dacion en pago is invalid with respect to Lot 4, the appellate court held that DELTA remained indebted to
the BANK to the extent of Lot 4’s value. Thus, the CA ordered DELTA to pay the corresponding value of Lot 4 to the
BANK.47

The CA also rejected the BANK’s argument that, before DELTA can deliver the title to Lot 4 to Enriquez, DELTA
should first redeem the mortgaged property from the BANK. The CA held that the BANK does not have a first lien on
Lot 4 because its real estate mortgage over the same had already been extinguished by the dacion en pago. Without
a mortgage, the BANK cannot require DELTA to redeem Lot 4 prior to delivery of title to Enriquez.48

The CA denied the BANK’s prayer for the award of exemplary damages and attorney’s fees for lack of factual and
legal basis.49

Both DELTA50 and the BANK51 moved for a reconsideration of the CA’s Decision, but both were denied.52

Hence, these separate petitions of the BANK and DELTA.

Petitioner Delta’s arguments53

DELTA assails the CA Decision for holding that DELTA conveyed its ownership over Lot 4 to Enriquez via the
Contract to Sell. DELTA points out that the Contract to Sell contained a condition that ownership shall only be
transferred to Enriquez upon the latter’s full payment of the purchase price to DELTA. Since Enriquez has yet to
comply with this suspensive condition, ownership is retained by DELTA.54 As the owner of Lot 4, DELTA had every
right to enter into a dation in payment to extinguish its loan obligation to the BANK. The BANK’s acceptance of the
assignment, without any reservation or exception, resulted in the extinguishment of the entire loan obligation; hence,
DELTA has no more obligation to pay the value of Enriquez’s house and lot to the BANK.55

DELTA prays for the reinstatement of the OP Decision.

The BANK’s arguments56

Echoing the argument of DELTA, the BANK argues that the Contract to Sell did not involve a conveyance of DELTA’s
ownership over Lot 4 to Enriquez. The Contract to Sell expressly provides that DELTA retained ownership over Lot 4
until Enriquez paid the full purchase price. Since Enriquez has not yet made such full payment, DELTA retained
ownership over Lot 4 and could validly convey the same to the BANK via dacion en pago.57

Should the dacion en pago over Lot 4 be invalidated and the property ordered to be delivered to Enriquez, the BANK
contends that DELTA should pay the corresponding value of Lot 4 to the BANK. It maintains that the loan obligation
extinguished by the dacion en pago only extends to the value of the properties delivered; if Lot 4 cannot be delivered
to the BANK, then the loan obligation of DELTA remains to the extent of Lot 4’s value.58

The BANK prays to be declared the rightful owner of the subject house and lot and asks for an award of exemplary
damages and attorney’s fees.

Enriquez’s waiver

Enriquez did not file comments59 or memoranda in both cases; instead, she manifested that she will just await the
outcome of the case.60

Issues

The following are the issues raised by the two petitions:

1. Whether the Contract to Sell conveys ownership;

2. Whether the dacion en pago extinguished the loan obligation, such that DELTA has no more obligations to
the BANK;

3. Whether the BANK is entitled to damages and attorney’s fees for being compelled to litigate; and

4. What is the effect of Enriquez’s failure to appeal the OP’s Decision regarding her obligation to pay the
balance on the purchase price.

Our Ruling

Mortgage contract void

As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of PD 957 in mortgaging
the properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from the HLURB. This point need
not be belabored since the parties have chosen not to appeal the administrative fine imposed on DELTA for violation
of Section 18.

This violation of Section 18 renders the mortgage executed by DELTA void. We have held before that "a mortgage
contract executed in breach of Section 18 of [PD 957] is null and void."61 Considering that "PD 957 aims to protect
innocent subdivision lot and condominium unit buyers against fraudulent real estate practices," we have construed
Section 18 thereof as "prohibitory and acts committed contrary to it are void."62

Because of the nullity of the mortgage, neither DELTA nor the BANK could assert any right arising therefrom. The
BANK’s loan of ₱8 million to DELTA has effectively become unsecured due to the nullity of the mortgage. The said
loan, however, was eventually settled by the two contracting parties via a dation in payment. In the appealed Decision,
the CA invalidated this dation in payment on the ground that DELTA, by previously entering into a Contract to Sell,
had already conveyed its ownership over Lot 4 to Enriquez and could no longer convey the same to the BANK. This is
error, prescinding from a wrong understanding of the nature of a contract to sell.

Contract to sell does not transfer ownership

Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of Enriquez did not transfer
ownership over Lot 4 to Enriquez. A contract to sell is one where the prospective seller reserves the transfer of title to
the prospective buyer until the happening of an event, such as full payment of the purchase price. What the seller
obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already
been delivered to him. "In other words, the full payment of the purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective
seller without further remedies by the prospective buyer."63 It does not, by itself, transfer ownership to the buyer.64

In the instant case, there is nothing in the provisions of the contract entered into by DELTA and Enriquez that would
exempt it from the general definition of a contract to sell. The terms thereof provide for the reservation of DELTA’s
ownership until full payment of the purchase price; such that DELTA even reserved the right to unilaterally void the
contract should Enriquez fail to pay three successive monthly amortizations.

Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership remained with DELTA.
DELTA could then validly transfer such ownership (as it did) to another person (the BANK). However, the transferee
BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder. This is because the Contract
to Sell, involving a subdivision lot, is covered and protected by PD 957. One of the protections afforded by PD 957 to
buyers such as Enriquez is the right to have her contract to sell registered with the Register of Deeds in order to make
it binding on third parties. Thus, Section 17 of PD 957 provides:

Section 17. Registration. All contracts to sell, deeds of sale, and other similar instruments relative to the sale or
conveyance of the subdivision lots and condominium units, whether or not the purchase price is paid in full, shall be
registered by the seller in the Office of the Register of Deeds of the province or city where the property is situated.

x x x x (Emphasis supplied.)

The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of
the sale or contract to sell, whether the purchase price therefor has been fully paid or not. Registration of the sale or
contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to
the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to
deal with the said property will be held bound by such prior right.

While DELTA, in the instant case, failed to register Enriquez’s Contract to Sell with the Register of Deeds, this failure
will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquez’s Contract to Sell. Despite the
non-registration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of Lot 4
when it accepted the latter (together with other assigned properties) as payment for DELTA’s obligation. The BANK
was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the purview of
PD 957. It knew that the loaned amounts were to be used for the development of DELTA’s subdivision project, for this
was indicated in the corresponding promissory notes. The technical description of Lot 4 indicates its location, which
can easily be determined as included within the subdivision development. Under these circumstances, the BANK
knew or should have known of the possibility and risk that the assigned properties were already covered by existing
contracts to sell in favor of subdivision lot buyers. As observed by the Court in another case involving a bank
regarding a subdivision lot that was already subject of a contract to sell with a third party:

[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A
reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project, funds
other than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence, there was
a need to verify whether any part of the property was already intended to be the subject of any other contract involving
buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely with a clean title,
considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers
x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent mortgagee. x x x65

Further, as an entity engaged in the banking business, the BANK is required to observe more care and prudence
when dealing with registered properties. The Court cannot accept that the BANK was unaware of the Contract to Sell
existing in favor of Enriquez. In Keppel Bank Philippines, Inc. v. Adao,66 we held that a bank dealing with a property
that is already subject of a contract to sell and is protected by the provisions of PD 957, is bound by the contract to sell
(even if the contract to sell in that case was not registered). In the Court’s words:
It is true that persons dealing with registered property can rely solely on the certificate of title and need not go beyond
it. However, x x x, this rule does not apply to banks. Banks are required to exercise more care and prudence than
private individuals in dealing even with registered properties for their business is affected with public interest. As
master of its business, petitioner should have sent its representatives to check the assigned properties before signing
the compromise agreement and it would have discovered that respondent was already occupying one of the
condominium units and that a contract to sell existed between [the vendee] and [the developer]. In our view, petitioner
was not a purchaser in good faith and we are constrained to rule that petitioner is bound by the contract to sell.67

Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor the payments already
made by Enriquez for the purchase price of Lot 4. Thus, the BANK can only collect the balance of the purchase price
from Enriquez and has the obligation, upon full payment, to deliver to Enriquez a clean title over the subject property.68

Dacion en pago extinguished the loan obligation

The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the obligation to pay the BANK
the corresponding value of Lot 4. According to the BANK, the dation in payment extinguished the loan only to the
extent of the value of the thing delivered. Since Lot 4 would have no value to the BANK if it will be delivered to
Enriquez, DELTA would remain indebted to that extent.

We are not persuaded. Like in all contracts, the intention of the parties to the dation in payment is paramount and
controlling. The contractual intention determines whether the property subject of the dation will be considered as the
full equivalent of the debt and will therefore serve as full satisfaction for the debt. "The dation in payment extinguishes
the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be
proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished."69

In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the parties
that the assigned properties would serve as full payment for DELTA’s entire obligation:

KNOW ALL MEN BY THESE PRESENTS:

This instrument, made and executed by and between:

xxxx

THAT, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE in the sum of ELEVEN MILLION EIGHT
HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED PESOS (₱11,878,800.00), Philippine Currency as of
August 25, 1998. Therefore, by virtue of this instrument, ASSIGNOR hereby ASSIGNS, TRANSFERS, and CONVEYS
AND SETS OVER [TO] the ASSIGNEE that real estate with the building and improvements existing thereon, more
particularly described as follows:

xxxx

of which the ASSIGNOR is the registered owner being evidenced by TCT No. x x x issued by the Registry of Deeds of
Trece Martires City.

THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT OF THE TOTAL OBLIGATION owing to
him by the ASSIGNOR as above-stated;70

Without any reservation or condition, the Dacion stated that the assigned properties served as full payment of
DELTA’s "total obligation" to the BANK. The BANK accepted said properties as equivalent of the loaned amount and
as full satisfaction of DELTA’s debt. The BANK cannot complain if, as it turned out, some of those assigned properties
(such as Lot 4) are covered by existing contracts to sell. As noted earlier, the BANK knew that the assigned properties
were subdivision lots and covered by PD 957. It was aware of the nature of DELTA’s business, of the location of the
assigned properties within DELTA’s subdivision development, and the possibility that some of the properties may be
subjects of existing contracts to sell which enjoy protection under PD 957. Banks dealing with subdivision properties
are expected to conduct a thorough due diligence review to discover the status of the properties they deal with. It may
thus be said that the BANK, in accepting the assigned properties as full payment of DELTA’s "total obligation," has
assumed the risk that some of the assigned properties (such as Lot 4) are covered by contracts to sell which it is
bound to honor under PD 957.

A dacion en pago is governed by the law of sales.71 Contracts of sale come with warranties, either express (if explicitly
stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code). In this case, however, the BANK
does not even point to any breach of warranty by DELTA in connection with the Dation in Payment. To be sure, the
Dation in Payment has no express warranties relating to existing contracts to sell over the assigned properties. As to
the implied warranty in case of eviction, it is waivable72 and cannot be invoked if the buyer knew of the risks or danger
of eviction and assumed its consequences.73 As we have noted earlier, the BANK, in accepting the assigned
properties as full payment of DELTA’s "total obligation," has assumed the risk that some of the assigned properties
are covered by contracts to sell which must be honored under PD 957.

Award of damages

There is nothing on record that warrants the award of exemplary damages74 as well as attorney’s fees75 in favor of the
BANK.

Balance to be paid by Enriquez

As already mentioned, the Contract to Sell in favor of Enriquez must be respected by the BANK.  Upon Enriquez’s full
1avvphi1

payment of the balance of the purchase price, the BANK is bound to deliver the title over Lot 4 to her. As to the
amount of the balance which Enriquez must pay, we adopt the OP’s ruling thereon which sustained the amount
stipulated in the Contract to Sell. We will not review Enriquez’s initial claims about the supposed violation of the price
ceiling in BP 220, since this issue was no longer pursued by the parties, not even by Enriquez, who chose not to file
the required pleadings76 before the Court. The parties were informed in the Court’s September 5, 2007 Resolution that
issues that are not included in their memoranda shall be deemed waived or abandoned. Since Enriquez did not file a
memorandum in either petition, she is deemed to have waived the said issue.

WHEREFORE, premises considered, the appealed November 30, 2004 Decision of the Court of Appeals, as well as
its June 22, 2005 Resolution in CA-G.R. SP No. 81280 are hereby AFFIRMED with the MODIFICATIONS that Delta
Development and Management Services, Inc. is NOT LIABLE TO PAY Luzon Development Bank the value of the
subject lot; and respondent Angeles Catherine Enriquez is ordered to PAY the balance of the purchase price and the
interests accruing thereon, as decreed by the Court of Appeals, to the Luzon Development Bank, instead of Delta
Development and Management Services, Inc., within thirty (30) days from finality of this Decision. The Luzon
Development Bank is ordered to DELIVER a CLEAN TITLE to Angeles Catherine Enriquez upon the latter’s full
payment of the balance of the purchase price and the accrued interests.

SO ORDERED.

CASE #24:

G.R. No. L-32226             December 29, 1930

ESTANISLAO REYES, plaintiff-appellant,
vs.
SEBASTIANA MARTINEZ, ET AL., defendants-appellants.

Ramon Diokno, and Sumulong, Lavides and Mabanag for plaintiff-appellant. Sebastian C. Pamatmat and Araneta and
Zaragosa for defendant-appellants.

STREET, J.:

This action was instituted on March 18, 1927, in the Court of First Instance of the Province of Laguna by Estanislao
Reyes against the Martinez heirs upon four several causes of action in which the plaintiff seeks, first, to recover five
parcels of land, containing approximately one thousand coconut trees, said parcels being fully describe in paragraph
IX of the complaint, and to obtain a declaration of ownership in his own favor as against the defendants with respect to
said parcels; secondly, to recover from the defendants the sum of P9,377.50, being the alleged proceeds of some
1,860 coconut trees which, prior to July 31, 1926, had been applied to the benefit of said defendants; thirdly, to
recover from the defendants the sum of P43,000, as the alleged value of the proceeds of the lands involved in the
receivership in the case of Martinez vs. Graño, G. R. No. 27685, to which the plaintiff supposes himself to be entitled,
but which have gone, so he claims, to the benefit of the defendants in said receivership; and fourthly, to recover the
sum of P10,000 from the defendants as damages resulting from their improper meddling in the administration of the
receivership property. In connection with this complaint the plaintiff obtained, several months after the litigation was
begun, an attachment against the defendants upon a judgment credit for P8,000 awarded to them in the case of
Martinez vs. Graño (51 Phil., 287), with the result that the execution of said money judgment against the plaintiff has
been suspended since the record in said case was returned to the trial court. In reply to the complaint the defendants
filed an answer and cross-complaint in which the defendants sought to recover damages and interest upon their claim
against the plaintiff. Upon hearing the cause, the trial court absolved the defendants from the complaint and also
absolved the plaintiff from the cross-complaint of the defendants, without express pronouncement as to costs. From
this judgment both parties appealed.

A necessary preliminary to an intelligent understanding of the present litigation is found in the statement of facts and
discussion contained in Martinez vs. Graño (51 Phi., 287), a case which, it was hoped, would be the conclusion of a
long drawn-out litigation prosecuted by the Martinez heirs, in the first place, against Clemencia Graño, and in the
second place, against Estanislao Reyes, the latter of whom had for several years, been acting as receiver of the
properties involved in said litigation. It will be noted that the case referred to was decided on December 24, 1927,
while the present action was instituted more than nine months prior thereto.

From the general history of the litigation it will be collected that the plaintiff in the present case has been laboring
along for several years in an unsuccessful legal battle with the defendants, springing from his claim to be the owner of
the property involved in the receivership. Upon examination of the pleadings in the present case it is very evident that
the trial court was correct in holding that the second, third, and fourth causes of action relate to matters which were
either expressly adjudicated against Reyes in the litigation mentioned, or which were so involved in the controversy
that he is concluded as to said matters by the decision that was made in that case.

The matter stated in the first cause of action requires more careful consideration.

This cause of action is founded upon the contract, the substance of which is sketched at pages 288-289 of the opinion
of this court in Martinez vs. Graño  (51 Phil., 287), and the claim put forth by the plaintiff in respect thereto is to have
the five parcels mentioned in paragraph IX of the complaint adjudged to him in lieu of another parcel formerly
supposed to contain one thousand trees and described in paragraph 8 of the contract of March 5, 1921, between him
and certain of the Martinez heirs. By this contract Reyes was to be given the parcel described in clause 8, but in a
proviso to said clause, the parties contracting with Reyes agreed to assure to him certain other land containing an
equivalent number of trees in case he should so elect. The prior history of the litigation shows that the herein plaintiff
elected to take and hold the parcel described in clause 8, and his right thereto has all along been recognized in the
dispositions made by the court with respect to said land. In our decision in Martinez vs. Graño  (51 Phil., 287, 301), it
was a basal assumption that Reyes would obtain the thousand trees referred to; and we are of the opinion that, from
various steps taken in the prior litigation, Reyes must be taken to have elected to take that particular parcel and he is
now estopped from asserting a contrary election to take the five parcels of land described in paragraph IX of his
complaint.

But the fact is now brought out more clearly that the title to this parcel is in the heirs of Inocente Martinez and it does
not appear that they have transferred said title to Reyes. It results therefore that Reyes now has a claim for damages
against the parties signatory to the contract of March 5, 1921, for the value of the aforesaid property. lawphi1 >net

Furthermore, we are able to state from the facts revealed in the course of the litigation that the value of said thousand
trees should be about P8,000. We therefore reach the conclusion that Reyes should either have the land originally set
apart for him under clauses 4 and 8 of the contract, or, in case his right thereto should fail, he should not be required
to pay the judgment for P8,000 which was awarded to the Martinez heirs in Martinez vs. Graño (51 Phil., 287, 302).
This end will accordingly be effected in the manner set forth in the following paragraph, containing the dispositive part
of this decision.

The Martinez heirs, defendants in this action, will be allowed a period of three months, extendible, if necessary, for a
reasonable term in the discretion of the trial court, within which to procure the execution of a sufficient deed conveying
to the plaintiff, Estanislao Reyes, the particular parcel of land described in paragraph 8 of the contract of March 5,
1921; and until such deed shall be executed and delivered, or tendered, to Reyes, the judgment against Reyes in
favor of the Martinez heirs for the sum of P8,000, shall stand temporarily enjoined. And in the event that the said
Martinez heirs should fail to procure said conveyance to be made within the term conceded to them, the judgment in
their favor for said P8,000 shall be permanently enjoined.

In view of the conclusion reached in Martinez vs. Graño  (51 Phil., 287), as well as in view of the solution reached in
the case now before us, the claim of the defendants, as appellants, to the interest on the sum of P8,000 from July 31,
1926, cannot be conceded, as the judgment itself bears interest at the lawful rate from the date the same was
rendered.

So ordered, without express pronouncement as to costs.

CASE #25:

G.R. No. 166704             December 20, 2006

AGRIFINA AQUINTEY, petitioner,
vs.
SPOUSES FELICIDAD AND RICO TIBONG, respondents.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the Decision1 of the Court
of Appeals in CA-G.R. CV No. 78075, which affirmed with modification the Decision2 of the Regional Trial Court (RTC),
Branch 61, Baguio City, and the Resolution3 of the appellate court denying reconsideration thereof.

The Antecedents

On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and
damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured
loans from her on several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong
failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. The complaint contained the
following prayer:

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court, after due notice
and hearing, to render judgment ordering defendants to pay plaintiff the following:

a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) representing the

principal obligation of the defendants with the stipulated interests of six (6%) percent per month from
May 11, 1999 to date and or those that are stipulated on the contracts as mentioned from paragraph
two (2) of the complaint.

b). FIFTEEN PERCENT (15%) of the total accumulated obligations as attorney's fees.

c). Actual expenses representing the filing fee and other charges and expenses to be incurred during
the prosecution of this case.

Further prays for such other relief and remedies just and equitable under the premises.4

Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93-334, as well as copies of the
promissory notes and acknowledgment receipts executed by Felicidad covering the loaned amounts.5

In their Answer with Counterclaim,6 spouses Tibong admitted that they had secured loans from Agrifina. The proceeds
of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they had executed
deeds of assignment in favor of Agrifina, and that their debtors had executed promissory notes in Agrifina's favor.
According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that by
virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to pay the balance of
their loans had been extinguished.

The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the complaint. While they
did not state the total amount of their loans, they declared that they did not receive anything from Agrifina without any
written receipt.7 They prayed for that the complaint be dismissed.

In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan from Agrifina without
the benefit of a written document.8

On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the case were defined:

Whether or not plaintiff is entitled to her claim of P773,000.00;

Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and
 Whether or not the parties are entitled to their claim for damages.9

The Case for Petitioner

Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband, Rico, also happened to
be a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad. According to
Felicidad, Agrifina would be earning interests higher than those given by the bank for her money. Felicidad told
Agrifina that since she (Felicidad) was engaged in the sale of dry goods at the GP Shopping Arcade, she would use
the money to buy bonnels and thread.10 Thus, Agrifina lent a total sum of P773,000.00 to Felicidad, and each loan
transaction was covered by either a promissory note or an acknowledgment receipt.11 Agrifina stated that she had lost
the receipts signed by Felicidad for the following amounts: P100,000.00, P34,000.00 and P2,000.00.12 The particulars
of the transactions are as follows:

Amount Date Obtained Interest Per Due Date

Mo.
P 100,000.00 May 11, 1989 6% August 11, 1989
4,000.00 June 8, 1989 - -
50,000.00 June 13, 1989 6% On demand
60,000.00 Aug. 16, 1989 7% January 1990
205,000.00 Oct. 13, 1989 7% January 1990
128,000.00 Oct. 19, 1989 7% January 1990
2,000.00 Nov. 12, 1989 6% April 28, 1990
10,000.00 June 13, 1990 - -
80,000.00 Jan. 4, 1990 - -
34,000.00 - 6% October 19, 1989
100,000.00 July 14, 1989 5% October 198913

According to Agrifina, Felicidad was able to pay only her loans amounting to P122,600.00.14

In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804 dated August 25, 1990 in the amount
of P50,000.00 as partial payment.15 However, the check was dishonored for having been drawn against insufficient
funds.16 Agrifina then filed a criminal case against Felicidad in the Office of the City Prosecutor. An Information for
violation of Batas Pambansa Bilang 22 was filed against Felicidad, docketed as Criminal Case No. 11181-R. After
trial, the court ordered Felicidad to pay P50,000.00. Felicidad complied and paid the face value of the check.17

In the meantime, Agrifina learned that Felicidad had re-loaned the amounts to other borrowers.18 Agrifina sought the
assistance of Atty. Torres G. A-ayo who advised her to require Felicidad to execute deeds of assignment over
Felicidad's debtors. The lawyer also suggested that Felicidad's debtors execute promissory notes in Agrifina's favor, to
"turn over" their loans from Felicidad. This arrangement would facilitate collection of Felicidad's account. Agrifina
agreed to the proposal.19 Agrifina, Felicidad, and the latter's debtors had a conference20 where Atty. A-ayo explained
that Agrifina could apply her collections as payments of Felicidad's account.21

From August 7, 1990 to October, 1990, Felicidad executed deeds of assignment of credits (obligations)22 duly
notarized by Atty. A-ayo, in which Felicidad transferred and assigned to Agrifina the total amount of P546,459.00 due
from her debtors.23 In the said deeds, Felicidad confirmed that her debtors were no longer indebted to her for their
respective loans. For her part, Agrifina conformed to the deeds of assignment relative to the loans of Virginia Morada
and Corazon Dalisay.24 She was furnished copies of the deeds as well as the promissory notes.25

The following debtors of Felicidad executed promissory notes where they obliged themselves to pay directly to
Agrifina:

Debtors Account Date of Instrument Date Payable

Juliet & Tommy Tibong P50,000.00 August 7, 1990 November 4, 1990 and February 4,
1991
Corazon Dalisay 8,000.00 August 7, 1990 No date
Rita Chomacog 4,480.00 August 8, 1990 September 23, 1990
Antoinette Manuel 12,000.00 October 19, 1990 March 30, 1991
Rosemarie Bandas 8,000.00 August 8, 1990 February 3, 1991
Fely Cirilo 63,600.00 September 13, 1990 No date
Virginia Morada 62,379.00 August 9, 1990 February 9, 1991
 Carmelita Casuga 59,000.00 August 28, 1990 February 28, 1991
Merlinda Gelacio 17,200.00 August 29, 1990 November 29, 199026
Total P284,659.00

Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to collect from them. One
of the debtors, Helen Cabang, did not execute any promissory note but conformed to the Deed of Assignment of
Credit which Felicidad executed in favor of Agrifina.27 Eliza Abance conformed to the deed of assignment for and in
behalf of her sister, Fely Cirilo.28 Edna Papat-iw was not able to affix her signature on the deed of assignment nor sign
the promissory note because she was in Taipei, Taiwan.29

Following the execution of the deeds of assignment and promissory notes, Agrifina was able to collect the total
amount of P301,000.00 from Felicidad's debtors.30 In April 1990, she tried to collect the balance of Felicidad's account,
but the latter told her to wait until her debtors had money.31 When Felicidad reneged on her promise, Agrifina filed a
complaint in the Office of the Barangay Captain for the collection of P773,000.00. However, no settlement was arrived
at.32

The Case for Respondents

Felicidad testified that she and her friend Agrifina had been engaged in the money-lending business.33 Agrifina would
lend her money with monthly interest,34 and she, in turn, would re-lend the money to borrowers at a higher interest
rate. Their business relationship turned sour when Agrifina started complaining that she (Felicidad) was actually
earning more than Agrifina.35 Before the respective maturity dates of her debtors' loans, Agrifina asked her to pay her
account since Agrifina needed money to buy a house and lot in Manila. However, she told Agrifina that she could not
pay yet, as her debtors' loan payments were not yet due.36 Agrifina then came to her store every afternoon to collect
from her, and persuaded her to go to Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested that she indorse
the accounts of her debtors to Agrifina so that the latter would be the one to collect from her debtors and she would no
longer have any obligation to Agrifina.38 She then executed deeds of assignment in favor of Agrifina covering the sums
of money due from her debtors. She signed the deeds prepared by Atty. A-ayo in the presence of Agrifina.39 Some of
the debtors signed the promissory notes which were likewise prepared by the lawyer. Thereafter, Agrifina personally
collected from Felicidad's debtors.40 Felicidad further narrated that she received P250,000.00 from one of her debtors,
Rey Rivera, and remitted the payment to Agrifina.41

Agrifina testified, on rebuttal, that she did not enter into a re-lending business with Felicidad. When she asked
Felicidad to consolidate her loans in one document, the latter told her to seek the assistance of Atty. A-ayo.42 The
lawyer suggested that Felicidad assign her credits in order to help her collect her loans.43 She agreed to the deeds of
assignment to help Felicidad collect from the debtors.44

On January 20, 2003, the trial court rendered its Decision45 in favor of Agrifina. The fallo of the decision reads:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the latter to
pay the plaintiffs (sic) the following amounts:

1. P472,000 as actual obligation with the stipulated interest of 6% per month from May 11, 1999 until the said
obligation is fully paid. However, the amount of P50,000 shall be deducted from the total accumulated interest
for the same was already paid by the defendant as admitted by the plaintiff in her complaint,

2. P25,000 as attorney's fees,

3. [T]o pay the costs.

SO ORDERED.46

The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment and the promissory
notes executed by Felicidad's borrowers. It explained that the documents did not contain any express agreement to
novate and extinguish Felicidad's obligation. It declared that the deeds and notes were separate contracts which could
stand alone from the original indebtedness of Felicidad. Considering, however, Agrifina's admission that she was able
to collect from Felicidad's debtors the total amount of P301,000.00, this should be deducted from the latter's
accountability.47 Hence, the balance, exclusive of interests, amounted to P472,000.00.

On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on the promissory notes
and acknowledgment receipts signed by Felicidad, the appellants secured loans from the appellee in the total principal
amount of only P637,000.00, not P773,000.00 as declared by the trial court. The CA found that, other than Agrifina's
bare testimony that she had lost the promissory notes and acknowledgment receipts, she failed to present competent
documentary evidence to substantiate her claim that Felicidad had, likewise, borrowed the amounts
of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total account, P585,659.00 was covered by the
deeds of assignment and promissory notes; hence, the balance of Felicidad's account amounted to only P51,341.00.
The fallo of the decision reads:

WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the RTC, Baguio City, Branch
61 in Civil Case No. 4370-R is hereby MODIFIED. Defendants-appellants are hereby ordered to pay the
balance of the total indebtedness in the amount of P51,341.00 plus the stipulated interest of 6% per month
from May 11, 1999 until the finality of this decision.

SO ORDERED.48

The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had not been novated by the
deeds of assignment and promissory notes executed in the latter's favor. Although Agrifina was subrogated as a new
creditor in lieu of Felicidad, Felicidad's obligation to Agrifina under the loan transaction remained; there was no
intention on their part to novate the original obligation. Nonetheless, the appellate court held that the legal effects of
the deeds of assignment could not be totally disregarded. The assignments of credits were onerous, hence, had the
effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina never repudiated or rescinded such
assignments only shows that she had accepted and conformed to it. Consequently, she cannot collect both from
Felicidad and her individual debtors without running afoul to the principle of unjust enrichment. Agrifina's primary
recourse then is against Felicidad's individual debtors on the basis of the deeds of assignment and promissory notes.

The CA further declared that the deeds of assignment executed by Felicidad had the effect of payment of her
outstanding obligation to Agrifina in the amount of P585,659.00. It ruled that, since an assignment of credit is in the
nature of a sale, the assignors remained liable for the warranties as they are responsible for the existence and legality
of the credit at the time of the assignment.

Both parties moved to have the decision reconsidered,49 but the appellate court denied both motions on December 21,
2004.50

Agrifina, now petitioner, filed the instant petition, contending that

1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor of petitioner has the
effect of payment of the original obligation even as it ruled out that the original obligation and the assigned
credit are distinct and separate and can stand independently from each other;

2. The Honorable Court of Appeals erred in passing upon issues raised for the first time on appeal; and

3. The Honorable Court of Appeals erred in resolving fact not in issue.51

Petitioner avers that the appellate court erred in ruling that respondents' original obligation amounted to
only P637,000.00 (instead of P773,000.00) simply because she lost the promissory notes/receipts which evidenced
the loans executed by respondent Felicidad Tibong. She insists that the issue of whether Felicidad owed her less
than P773,000.00 was not raised by respondents during pre-trial and in their appellate brief; the appellate court was
thus proscribed from taking cognizance of the issue.

Petitioner avers that respondents failed to deny, in their verified answer, that they had secured the P773,000.00 loan;
hence, respondents are deemed to have admitted the allegation in the complaint that the loans secured by respondent
from her amounted to P773,000.00. As gleaned from the trial court's pre-trial order, the main issue is whether or not
she should be made to pay this amount.

Petitioner further maintains that the CA erred in deducting the total amount of P585,659.00 covered by the deeds of
assignment executed by Felicidad and the promissory notes executed by the latter's debtors, and that the balance of
respondents' account was only P51,341.00. Moreover, the appellate court's ruling that there was no novation runs
counter to its holding that the primary recourse was against Felicidad's debtors. Petitioner avers that of the 11 deeds
of assignment and promissory notes, only two bore her signature.52 She insists that she is not bound by the deeds
which she did not sign. By assigning the obligation to pay petitioner their loan accounts, Felicidad's debtors merely
assumed the latter's obligation and became co-debtors to petitioner. Respondents were not released from their
obligation under their loan transactions, and she had the option to demand payment from them or their debtors. Citing
the ruling of this Court in Magdalena Estates, Inc. v. Rodriguez,53 petitioner insists that the first debtor is not released
from responsibility upon reaching an agreement with the creditor. The payment by a third person of the first debtor's
obligation does not constitute novation, and the creditor can still enforce the obligation against the original debtor.
Petitioner also cites the ruling of this Court in Guerrero v. Court of Appeals.54
In their Comment on the petition, respondents aver that by virtue of respondent Felicidad's execution of the deeds of
assignment, and the original debtors' execution of the promissory notes (along with their conformity to the deeds of
assignment with petitioner's consent), their loan accounts with petitioner amounting to P585,659.00 had been
effectively extinguished. Respondents point out that this is in accordance with Article 1291, paragraph 2, of the Civil
Code. Thus, the original debtors of respondents had been substituted as petitioner's new debtors.

Respondents counter that petitioner had been subrogated to their right to collect the loan accounts of their debtors. In
fact, petitioner, as the new creditor of respondents' former debtors had been able to collect the latter's loan accounts
which amounted to P301,000.00. The sums received by respondents' debtors were the same loans which they obliged
to pay to petitioner under the promissory notes executed in petitioner's favor.

Respondents aver that their obligation to petitioner cannot stand or exist separately from the original debtors'
obligation to petitioner as the new creditor. If allowed to collect from them as well as from their original debtors,
petitioner would be enriching herself at the expense of respondents. Thus, despite the fact that petitioner had
collected P172,600.00 from respondents and P301,000.00 from the original debtors, petitioner still sought to
collect P773,000.00 from them in the RTC. Under the deeds of assignment executed by Felicidad and the original
debtors' promissory notes, the original debtors' accounts were assigned to petitioner who would be the new creditor.
In fine, respondents are no longer liable to petitioner for the balance of their loan account inclusive of interests.
Respondents also insist that petitioner failed to prove that she (petitioner) was merely authorized to collect the
accounts of the original debtors so as to to facilitate the payment of respondents' loan obligation.

The Issues

The threshold issues are: (1) whether respondent Felicidad Tibong borrowed P773,000.00 from petitioner; and (2)
whether the obligation of respondents to pay the balance of their loans, including interest, was partially extinguished
by the execution of the deeds of assignment in favor of petitioner, relative to the loans of Edna Papat-iw, Helen
Cabang, Antoinette Manuel, and Fely Cirilo in the total amount of P371,000.00.

The Ruling of the Court

We have carefully reviewed the brief of respondents as appellants in the CA, and find that, indeed, they had raised the
issue of whether they received P773,000.00 by way of loans from petitioner. They averred that, as gleaned from the
documentary evidence of petitioner in the RTC, the total amount they borrowed was only P673,000.00. They asserted
that petitioner failed to adduce concrete evidence that they received P773,000.00 from her.55

We agree, however, with petitioner that the appellate court erred in reversing the finding of the RTC simply because
petitioner failed to present any document or receipt signed by Felicidad.

Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material allegation of fact the
truth of which he does not admit and, whenever practicable, x x x set forth the substance of the matters upon which he
relies to support his denial.56

Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically denied are deemed
admitted.57

The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the
complaint which he succinctly intends to disprove at the trial, together with the matter which he relied upon to support
the denial. The parties are compelled to lay their cards on the table.58

A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become
specific by the use of the word "specifically." When matters of whether the defendant alleges having no knowledge or
information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged
"ignorance or lack of information" will not be considered as a specific denial. Section 11, Rule 8 of the Rules also
provides that material averments in the complaint other than those as to the amount of unliquidated damages shall be
deemed admitted when not specifically denied.59 Thus, the answer should be so definite and certain in its allegations
that the pleader's adversary should not be left in doubt as to what is admitted, what is denied, and what is covered by
denials of knowledge as sufficient to form a belief.60

In the present case, petitioner alleged the following in her complaint:

2. That defendants are indebted to the plaintiff in the principal amount of SEVEN HUNDRED SEVENTY-
THREE THOUSAND PESOS (P773,000.00) Philippine Currency with a stipulated interest which are broken
down as follows. The said principal amounts was admitted by the defendants in their counter-affidavit
submitted before the court. Such affidavit is hereby attached as Annex "A;"61
 xxxx

H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six (6%) per cent per month
and payable on October 19, 1989, however[,] the receipt for the meantime cannot be recovered as it was
misplaced by the plaintiff but the letter of defendant FELICIDAD TIBONG is hereby attached as Annex "H" for
the appreciation of the Honorable court;

I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five (5%) percent per
month, obtained on July 14, 1989 and payable on October 14, 1989. Such receipt was lost but admitted by the
defendants in their counter-affidavit as attached [to] this complaint and marked as Annex "A" mentioned in
paragraph one (1); x x x62

In their Answer, respondents admitted that they had secured loans from petitioner. While the allegations in paragraph
2 of the complaint were specifically denied, respondents merely averred that petitioner and respondent Felicidad
entered into an agreement for the lending of money to interested borrowers at a higher interest rate. Respondents
failed to declare the exact amount of the loans they had secured from petitioner. They also failed to deny the
allegation in paragraph 2 of the complaint that respondent Felicidad signed and submitted a counter-affidavit in I.S.
No. 93-334 where she admitted having secured loans from petitioner in the amount of P773,000.00. Respondents,
likewise, failed to deny the allegation in paragraph 2(h) of the complaint that respondents had secured a P34,000.00
loan payable on October 19, 1989, evidenced by a receipt which petitioner had misplaced. Although respondents
specifically denied in paragraph 2.11 of their Answer the allegations in paragraph 2(I) of the complaint, they merely
alleged that "they have not received sums of money from the plaintiff without any receipt therefor."

Respondents, likewise, failed to specifically deny another allegation in the complaint that they had secured
a P100,000.00 loan from petitioner on July 14, 1989; that the loan was payable on October 14, 1989; and evidenced
by a receipt which petitioner claimed to have lost. Neither did respondents deny the allegation that respondents
admitted their loan of P100,000.00 in the counter-affidavit of respondent Felicidad, which was appended to the
complaint as Annex "A." In fine, respondents had admitted the existence of their P773,000.00 loan from petitioner.

We agree with the finding of the CA that petitioner had no right to collect from respondents the total amount
of P301,000.00, which includes more than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay,
Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel. Petitioner cannot again collect the same amount from
respondents; otherwise, she would be enriching herself at their expense. Neither can petitioner collect from
respondents more than P103,500.00 which she had already collected from Nimo, Cantas, Rivera, Donguis, Fernandez
and Ramirez.

There is no longer a need for the Court to still resolve the issue of whether respondents' obligation to pay the balance
of their loan account to petitioner was partially extinguished by the promissory notes executed by Juliet Tibong,
Corazon Dalisay, Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted
by petitioner, she was able to collect the amounts under the notes from said debtors and applied them to respondents'
accounts.

Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which obligations are
extinguished. Obligations may be modified by changing their object or principal creditor or by substituting the person
of the debtor.63 The burden to prove the defense that an obligation has been extinguished by novation falls on the
debtor.64 The nature of novation was extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar
Soriano, Jr.,65 as follows:

Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the
intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate;
in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old
obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that
the incompatibility between the old and new obligation be total on every point such that the old obligation is
completely superseded by the new one. The test of incompatibility is whether they can stand together, each
one having an independent existence; if they cannot and are irreconciliable, the subsequent obligation would
also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and,
second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential
requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid new obligation. Novation is merely modificatory
where the change brought about by any subsequent agreement is merely incidental to the main obligation
(e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not
 have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its
provisions.66 (Citations Omitted)

Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be
made even without the knowledge or against the will of the latter but not without the consent of the creditor.
Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor
(delegatario), accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent
of those three persons is necessary.67 In this kind of novation, it is not enough to extend the juridical relation to a third
person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his
place in the relation.68 Without such release, there is no novation; the third person who has assumed the obligation of
the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new
debtor are considered obligated jointly.69

In Di Franco v. Steinbaum,70 the appellate court ruled that as to the consideration necessary to support a contract of
novation, the rule is the same as in other contracts. The consideration need not be pecuniary or even beneficial to the
person promising. It is sufficient if it be a loss of an inconvenience, such as the relinquishment of a right or the
discharge of a debt, the postponement of a remedy, the discontinuance of a suit, or forbearance to sue.

In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of Appeals ruled that the theory of novation is that
the new debtor contracts with the old debtor that he will pay the debt, and also to the same effect with the
creditor, while the latter agrees to accept the new debtor for the old. A novation is not made by showing that the
substituted debtor agreed to pay the debt; it must appear that he agreed with the creditor to do so. Moreover, the
agreement must be based on the consideration of the creditor's agreement to look to the new debtor instead
of the old. It is not essential that acceptance of the terms of the novation and release of the debtor be shown by
express agreement. Facts and circumstances surrounding the transaction and the subsequent conduct of the parties
may show acceptance as clearly as an express agreement, albeit implied.72

We find in this case that the CA correctly found that respondents' obligation to pay the balance of their account with
petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor
of petitioner.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal
cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his
credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same
extent as the assignor could enforce it against the debtor.73 It may be in the form of sale, but at times it may constitute
a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit
he has against a third person.74

In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en pago is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a
special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment
of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the debtor's obligation. As such,
the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be
present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation
where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of
the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential
prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.76

The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of payment (animo
solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2)
there must be some difference between the prestation due and that which is given in substitution (aliud pro alio); and
(3) there must be an agreement between the creditor and debtor that the obligation is immediately extinguished by
reason of the performance of a prestation different from that due.77

All the requisites for a valid dation in payment are present in this case. As gleaned from the deeds, respondent
Felicidad assigned to petitioner her credits "to make good" the balance of her obligation. Felicidad testified that she
executed the deeds to enable her to make partial payments of her account, since she could not comply with
petitioner's frenetic demands to pay the account in cash. Petitioner and respondent Felicidad agreed to relieve the
latter of her obligation to pay the balance of her account, and for petitioner to collect the same from respondent's
debtors.

Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their conformity to the deeds. In
an assignment of credit, however, the consent of the debtor is not essential for its perfection; the knowledge thereof or
lack of it affecting only the efficaciousness or inefficaciousness of any payment that might have been made. The
assignment binds the debtor upon acquiring knowledge of the assignment but he is entitled, even then, to raise
against the assignee the same defenses he could set up against the assignor78 necessary in order that assignment
may fully produce legal effects. Thus, the duty to pay does not depend on the consent of the debtor. The purpose of
the notice is only to inform that debtor from the date of the assignment. Payment should be made to the assignee and
not to the original creditor.

The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant
accessory rights, is acquired by the assignee79 who steps into the shoes of the original creditor as subrogee of the
latter80 from that amount, the ownership of the right is acquired by the assignee. The law does not require any formal
notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor
had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it. If the
document of assignment is public, it is evidence even against a third person of the facts which gave rise to its
execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective from the
moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the
authenticity of the document, which precludes all suspicion of fraud with respect to the date of the transfer or
assignment of the credit.81

As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner
was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged
themselves to pay petitioner. Respondent Felicidad, likewise, unequivocably declared that Cabang and Cirilo no
longer had any obligation to her.

Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds, petitioner no longer
attempted to collect from respondents the balance of their accounts. It was only in 1999, or after nine (9) years had
elapsed that petitioner attempted to collect from respondents. In the meantime, petitioner had collected from
respondents' debtors the amount of P301,000.00.

While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the debtors' accounts,
and for the latter to pay the same directly, it cannot thereby be considered that respondent merely authorized
petitioner to collect the accounts of respondents' debtors and for her to apply her collections in partial payments of
their accounts. It bears stressing that petitioner, as assignee, acquired all the rights and remedies passed by
Felicidad, as assignee, at the time of the assignment.82 Such rights and remedies include the right to collect her
debtors' obligations to her.

Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court ruled that the mere fact
that novation does not follow as a matter of course when the creditor receives a guaranty or accepts payments from a
third person who has agreed to assume the obligation when there is no agreement that the first debtor would be
released from responsibility. Thus, the creditor can still enforce the obligation against the original debtor.

In the present case, petitioner and respondent Felicidad agreed that the amounts due from respondents' debtors were
intended to "make good in part" the account of respondents. Case law is that, an assignment will, ordinarily, be
interpreted or construed in accordance with the rules of construction governing contracts generally, the primary object
being always to ascertain and carry out the intention of the parties. This intention is to be derived from a consideration
of the whole instrument, all parts of which should be given effect, and is to be sought in the words and language
employed.83

Indeed, the Court must not go beyond the rational scope of the words used in construing an assignment, words should
be construed according to their ordinary meaning, unless something in the assignment indicates that they are being
used in a special sense. So, if the words are free from ambiguity and expressed plainly the purpose of the instrument,
there is no occasion for interpretation; but where necessary, words must be interpreted in the light of the particular
subject matter.84 And surrounding circumstances may be considered in order to understand more perfectly the
intention of the parties. Thus, the object to be accomplished through the assignment, and the relations and conduct of
the parties may be considered in construing the document.

Although it has been said that an ambiguous or uncertain assignment should be construed most strictly against the
assignor, the general rule is that any ambiguity or uncertainty in the meaning of an assignment will be resolved
against the party who prepared it; hence, if the assignment was prepared by the assignee, it will be construed most
strictly against him or her.85 One who chooses the words by which a right is given ought to be held to the strict
interpretation of them, rather than the other who only accepts them.86

Considering all the foregoing, we find that respondents still have a balance on their account to petitioner in the
principal amount of P33,841.00, the difference between their loan of P773,000.00 less P585,659.00, the payment of
respondents' other debtors amounting to P103,500.00, and the P50,000.00 payment made by respondents.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and Resolution of the Court of Appeals
are AFFIRMED with MODIFICATION in that the balance of the principal account of the respondents to the petitioner
is P33,841.00. No costs.

SO ORDERED.

Austria-Martinez, and Chico-Nazario, JJ., concur.

Panganiban, C.J., retired as of December 7, 2006.
Ynares-Santiago, J., working Chairperson.